The ultimate guide to supply chain management: Processes, challenges and technologies

04 May 2021

From the cars we drive and smartphones we talk on, right down to the food we eat, the products the population use and consume come as the result of a supply chain. And for these items to go from raw materials into a marketable end product, the complexity of a supply chain needs to be properly managed.

That's where supply chain management comes in. To ensure every element within a supply chain runs as smoothly as possible, the right processes and approaches to things like planning, sourcing and production need to be in place.

Here, we'll cover the processes, technologies and best practices that help all supply chains run like a well-oiled machine. 

 

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colleagues walking through warehouse

 

What is supply chain management?

Before we define the management side of things, it's worth detailing what a supply chain is. Essentially, it's a connected network of individuals, organisations, resources, activities and technologies that are involved in the making of and sale of a product or service.

Supply chain management (SCM), therefore, oversees every touchpoint of the above journey from beginning to end, making sure everything is seamless and smooth. 

That means there's a lot of functions, processes and activities at play in a SCM, and all of these falls into one of three levels, which we've detailed for you below.

 

The different levels of supply chain management

Strategic

Here, senior management makes decisions that will affect the entire organisation as opposed to individual departments. As a result, they involve a lot of long-term planning.

Examples of strategic planning:

  • Prospective sales markets
  • New suppliers or partners
  • The location for major manufacturing plants or warehouses

Tactical

Financial decisions, consumer demand, and an emphasis on value are all part and parcel of the tactical planning stage. That means the processes discussed at the strategic level are defined, with the decisions made serving to minimise risks and ensure costs don't spiral out of control.

Examples of tactical planning:

  • Obtaining procurement contracts for materials and services
  • Developing production schedules
  • Warehousing and logistical decisions

Operational

As the name suggests, operational decisions impact the day-to-day operations of a business, department or individual, and so are designed to ensure the maximum cost-benefit and overall efficiency of the supply chain. Essentially, they're what keeps the whole thing moving.

Examples of operational planning:

  • Arranging production schedules
  • Managing inventory
  • Transporting raw materials to the production site
  • Daily/weekly forecasting to inform decision-making

 

warehouse managers talking about stock

 

The process flows of supply chain management

Decisions made at all levels of the business are linked to one or more of the five primary process flows that exist in SCM. What's more, these individual process flows can be comprised of hundreds of additional macro and micro processes that are in place to keep the supply chain fully functional.

These process flows are as follows:

  • Product flow: The efficient flow of products through the life cycle, from production to delivery right through to the customer. This also applies in reverse, specifically in the event of customers returning products to you, or restocking or disposing of returned products.

  • Information flow: In SCM, there has to be a seamless flow of information between departments, vendors, suppliers, third-party logistics organisations and customers. This type of data includes product/supply inventory, orders placed, order status, refund progress and delivery information, and that's just to name a few.

  • Finances flow: Pricing, credit terms, contracts, payment terms; anything relating to money falls under the finances flow. Without financial controls and healthy cashflow, expect blockages in your supply chain.
  • Flow of value: Created as a means of adding value that benefits the end consumer, flow-of-value processes continue after production and delivery. Such processes create a value chain, where the product gains value as it moves through each point of the supply chain. This gives you a chance to gain a competitive advantage by assigning costs, revenues and values at each stage.
  • Flow of risk: Put simply, you should expect risks in your supply chain. Whether it's price volatility, reputational damage, delayed cash payments or unpredictable customer demands; such threats can affect decision-making at every level.

 

warehouse worker scanning products

 

What tools and technology can help with supply chain management?

Technology can help to reduce shipping errors, organise inventory data, monitor shipping information, and manage orders with vendors and suppliers. Put simply, it's essential to effective supply chain management.

We've listed some of the most effective tools used by modern supply chain organisations below.

Asset tracking

If you use inventory management technology and manage thousands of parts, suppliers or product SKUs, asset tracking is a must. Rather than the manual approach, which lacks efficiency and can be vulnerable to errors, automated asset tracking makes your inventory easier to track and monitor.

Combined with the correct signage, asset tracking allows for a complete, customisable process that creates greater efficiency and accuracy in your locations.

SCM software

Whether it's data analytics and forecasting tools or customer relationship or inventory management software, there's a whole host of software you can use to make your SCM easier. What's more, many of these functions can be combined into a single, fully integrated solution, particularly through the use of enterprise resource planning (ERP) software.

Cloud computing

With the ability to accurately track a product through its entire lifecycle, it makes sense that cloud computing is becoming increasingly popular. And that's not the only benefit either; cloud computing's other advantages include:

  • Advanced analytics capabilities
  • Multi-platform integration
  • Enhanced data security
  • Reduced need for in-house IT departments
  • Greater adaptability to market stresses through scalability
  • Lower upfront investments and better long-term cost management

Mobility

Facilitating real-time logistics management, there's been a greater adoption of mobility in SCM of late. Because it embraces mobile technology, the process has seen the emergence of greater communications provision within transportation networks, leading to more accurate productivity and efficiency metrics, and the elimination of manual tasks.

 

server room

 

What are the challenges of supply chain management?

Globalisation

As SCM seeks to reduce costs throughout the supply chain, globalisation can lead companies to move their manufacturing operations to regions or countries where labour, taxes, raw materials and transportation are more affordable.

This means the procurement network expands, complicating supply chains and leaving companies to navigate manufacturing, storage and logistics across borders. And all of this  must take place while the supply chain maintains its usual level of performance.

Sustainability

While sustainability within the supply chain itself isn't a challenge - large and corporate businesses have policies that are geared towards sustainability - it's the interconnected world of globalisation affecting sustainability which poses a problem.

The greater awareness of sustainability has led to further recognition of the cost that poor supply chain management can place on brands and their reputation. And when such liabilities make the news, it can lead to consumer boycotts and damage to the brand, which, when social media is added to the mix, can spread with real speed. 

Companies of this size, therefore, must recognise the need to set clear standards for their suppliers to follow. These Codes of Conduct need to be met before there's any commitment to procurement, and then audited on an annual basis.

Security

In relying on tech like cloud computing, security vulnerabilities are more of a problem than ever. And such threats aren't confined to cyberspace either; physical security risks like cargo theft continue to affect supply chain performance.

Because modern supply chains are so large and complex, it makes managing their security a growing challenge. Therefore, a multi-layered approach to security is necessary to ensure a secure end-to-end physical chain of custody.

This also requires clearly defined and enforced protocols, greater adherence to regulatory guidelines and standards, and more advanced physical and cybersecurity tools.

Regulatory compliance

Another large issue in SCM, regulatory compliance makes the problems caused by globalisation even more pronounced.

Environmental regulations, global trade rules, product integrity requirements, and other regulatory concerns all affect the supply chain. Effective regulatory compliance is therefore needed to adhere to the necessary guidelines and standards, including the below:

  • Mandatory national, state, and local/municipal regulatory requirements
  • Industry standards
  • Trade agreements, including bi-lateral and multi-lateral trade agreements
  • Contractual obligations
  • Customer expectations
  • Non-governmental organisation (NGO) expectations

 

colleagues doing stock take

 

Supply chain management best practices

So, how can we make sure supply chains function as they should? Try these best-practice tips to maintain performance amid a rapidly changing SCM landscape:

  • Invest in the right technology: Implementing the foundational tech we mentioned above is a good start. Following this, conduct a cost-benefit analysis to determine which investments could prove to better enhance performance in terms of productivity, efficiency and bottom line.
  • Leverage data: Analysing the data created by technology provides insights that can be used for more effective decision making. Such information can also help make selecting suppliers, negotiating contracts and reducing product cycles simpler processes.
  • Foster relationships: Nurturing relationships with vendors, suppliers and third-parties can foster better collaboration, which is essential for optimising the smooth running of your supply chain.
  • Put robust inventory management practices in place: Effective inventory management gives you greater visibility of your inventory, allowing you to automate ordering, accurately plan production and eliminate wasteful spend as a result of excess stock.
  • Mitigate risks through contingency plans: Your SRM department should constantly review procedures to ensure compliance, efficiency and contingency. In doing so, this will prevent process bottlenecks, streamline operations, and reduce the risk of things like theft and fraud in the process.

 

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The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.

 


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