Last Updated: 27th June, 2016 (RSS)
Analyst Coverage: Simon Holloway

Supply chain management (SCM) is the management of the flow of goods or services and is a major component of ERP. It covers the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. A supply chain or network is the interrelationship between different organisations involved in this process. To manage this process, a user has to be able to design, plan, execute, control, and monitor all the activities in the chain. This has to be done with the view of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally. Just like ERP, an SCM solution strives for an integrated approach across operations management, logistics, procurement and finance.

Supply chain management flows can be divided into three main flows:

  • The product flow - this includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs;
  • The information flow - this involves transmitting orders and updating the status of delivery
  • The finances flow - this consists of credit terms, payment schedules, and consignment and title ownership arrangements.

The main functions of supply chain management are as follows:

  • Customer relationship management with its extension into customer service management
  • Supplier relationship management
    • Procurement
    • Demand management
    • Order fulfilment
    • Inventory and Work Flow Management
      • Warehouse management
      • Product development and marketing
      • Returns management
      • Outsourcing/partnerships
      • Performance measurement

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes.

Organisations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. Over the last few decades, globalisation, outsourcing, and information technology have enabled many organisations to successfully operate collaborative supply networks in which each specialised business partner focuses on only a few key strategic activities - outsourcing.

The application of just-in-time, lean and agile manufacturing practices along with sensory device development (barcoding, RFID) and accompanied by the dramatic fall in communication costs, have led to changes in coordination among the members of the supply chain network

The following people should care about SCM:

  • Executive managers responsible for Finance, Customer Service, Production, Logistics and Supplier Management.
  • IT Management and business analysts responsible for the supply of IT systems to areas of the business.

Building on globalisation and specialisation, the term "SCM 2.0" has been coined to describe both changes within supply chains themselves as well as the evolution of processes, methods, and tools to manage them in this new 'era'. This has led to the development of collaborative platforms, which connects multiple buyers and suppliers with financial institutions, enabling them to conduct automated supply-chain finance transactions.

SCM 2.0 leverages solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value, and success. This is delivered through competency networks composed of best-of-breed supply chain expertise to understand which elements, both operationally and organisationally, deliver results, as well as through intimate understanding of how to manage these elements to achieve the desired results. The solutions are delivered in a variety of options, such as no-touch via business process outsourcing, mid-touch via managed services and software as a service (SaaS), or high-touch in the traditional software deployment model.

Supply chain sustainability is a business issue affecting an organisation's supply chain and is frequently quantified by comparison with SECH ratings, which uses a triple bottom line incorporating economic, social, and environmental aspects. Consumers have become more aware of the environmental impact of their purchases and companies' SECH ratings and, along with non-governmental organisations (NGOs), are setting the agenda for transitions to organically grown foods, anti-sweatshop labour codes, and locally produced goods that support independent and small businesses. Because supply chains may account for over 75% of a company's carbon footprint, many organisations are exploring ways to reduce this and thus improve their SECH rating.

Over the last 20 years, we have also seen the growth in the acceptance of RFID solutions that enable the identification of inventory in the supply chain to almost pinpoint accuracy. Organisations such as the US Army have used RFID to help manage their inventory with incredible accuracy and effectiveness. The use of RFID tags not only to say "I'm here" but also to record other information such as temperature as well as being used in conjunction with satellite geographics, is starting to become a major solution to some of the issues in today's supply chain management.

There are two main types of SCM software:

  • Planning applications - these use advanced algorithms to determine the best way to fill an order
  • Execution applications - these track the physical status of goods, the management of materials, and financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies.

Increasing numbers of companies are turning to websites and web-based applications as part of the SCM solution. A number of major websites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers.

Supply chain management software is possibly the most fractured group of software applications. Each of the five major supply chain steps (plan, source, make, deliver, return) is comprised of dozens of specific tasks, many of which have their own specific software. Some vendors have assembled many of these different chunks of software together under a single roof. However it would be difficult to assume that any one vendor provides the whole gamut of support for SCM.

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