What you need to know about SCM

January 5, 2022
Posted in Blogs
January 5, 2022 Chin Lu

Few terms can boast of combining an almost endlessly complex system with many even more complex processes – “supply chain management” (SCM), for example. Formerly known more as the value chain, the supply chain is now the heart of every company. This article answers essential questions about the supply chain.

What is supply chain management?
Supply chain management involves controlling, monitoring, checking, and optimizing the flow of materials, information and money throughout a company’s value creation process. This extends from parts procurement, through production and refinement, to the end customer – and back again.

The metaphor of the chain, with a fixed beginning and end, applies to the supply chain only to a limited extent. Instead, it is a “supply and information circle.” The product is created from the supplier to the end customer. The end customer, in turn, provides information in the form of increasing or decreasing demand, which in turn affects the suppliers. Thus, it is a closed-loop that must be constantly scrutinized and adapted.

It is important to know that SCM is more than just logistics. Controlling and optimizing logistical processes is an important aspect of the value chain and contributes significantly to successful SCM. However, other, overarching facets need to be considered in supply chain management, such as:

  • Were planned production figures achieved? If not, why not?
  • What needs to happen for them to be achieved?
  • Are information and cash flows running smoothly?
  • Are there already bottlenecks, or are any looming, both in terms of materials and production as well as human resources?
  • How does our supply relate to demand and vice versa?
  • How is the supply chain structured?

Roughly speaking, the supply chain can be divided into the following three areas:

  1. Procurement
  2. Production and intralogistics
  3. Distribution

These, in turn, combine other aspects and interact with almost every other department in the company. All areas require a corresponding analysis, i.e., the determination of requirements and production and distribution planning.

The next step is to select the appropriate suppliers, transport, and logistics service providers. The parts supply and delivery processes must be monitored, controlled, and, if necessary, adjusted. Last but not least, invoicing plays an important role in all areas. Altogether, one should be able to provide answers to the following questions:

  • Are we operating profitably and efficiently as a company?
  • Can we respond flexibly to fluctuating customer demand?
  • Are we competitive?
  • What and where do we need to optimize?

The supply chain is divided into procurement, production and intralogistics, and distribution and combines many players.

Where does SCM take place?

Almost every company has to deal with its supply chain, regardless of economic sector or industry. The biggest differentiator, however, is complexity. Manufacturing companies in particular, such as automotive manufacturers or mechanical engineering firms, manage many suppliers and transport service providers. They have to plan material, production, and employee capacities precisely, usually across different country borders and continents. Even in the service industry, the supply chain forms the company’s backbone. Thus, catering businesses must also organize their procurement, logistics, and production as efficiently as possible so that their prices remain attractive to guests.

Who is part of the supply chain?

The supply chain of some companies includes several hundred players. A car, for example, consists of around 10,000 parts from different suppliers. The supplier itself also commissions other suppliers, for example, for specific raw materials, modules, or components. To ensure that these parts can be used on time, automotive manufacturers rely on a range of transport service providers. These include freight forwarders and CEPs (courier, express, and parcel service providers) and service providers from the air and sea freight sectors. Their task is to deliver the parts at the agreed time to the plants, warehouses, dealers, or authorized workshops, and of course, worldwide.

This poses a variety of challenges, for example, regarding the reliability of pickup times. For example, not all external drivers provide an up-to-date status report on the transport and the actual time of arrival. All these players must be managed and their deployment planned so that the end customer, who plays the leading role in the supply chain, is always satisfied. One way of making these processes as efficient as possible and keeping an eye on all deliveries can also be digital solutions for SCM and logistics processes.

Who has which tasks in the supply chain?

Monitoring, controlling, and continuously optimizing the entire supply chain is the everyday work of the supply chain manager. They are responsible for the company’s whole value chain, both in intralogistics and for cross-company areas. He is also responsible for strategy and feedback to the management.

Depending on the agreement, the supplier or the company itself is responsible for selecting and managing the transport service providers. In retail, for example, it is common to proceed according to the push principle. This means that the supplier receives a deadline for delivery from the retailer. The supplier commissions the transport service provider and must ensure that the latter delivers to the retailer on time.
In contrast, the pull principle is used in the manufacturing industry. In this case, the company informs the supplier that a transport service provider commissioned will pick up the delivery. No rule without exceptions: There are many different mixed forms and individual contractual agreements, especially for the coordination of transports.

What jobs are there in supply chain management?

The jobs in this field are as complex and multi-layered as the supply chain itself. Buyers and supply chain managers hold the most complex SCM jobs in a manufacturing company.

The former is responsible for purchasing services and goods for production and sales. This requires permanent comprehensive market analysis and intensive cooperation with suppliers and forwarders. On the other hand, their area of responsibility covers the entire logistics chain. You have the exciting but responsible task of planning and controlling the flow of goods from procurement to the end customer. Time and costs play a significant role in this process. For example, they weigh up the optimal locations, storage capacities, and use of the various modes of transport so that their company’s customers can be served economically and quickly. They must link the flows of goods and information from all supply chain partners to do this.

Due to the immense volume of data and digitalization, IT solutions in supply chain management are becoming increasingly important. IT jobs in SCM offer exciting and varied tasks given technological progress. This includes, for example, the development of logistics software for transport management systems or telematics apps.

Supply chain management is complex and multifaceted. For SCM not only to be successful but also to make the daily work routine and the nervous effort for SCM managers more bearable, the following rules should be observed in SCM:

1. open exchange
True to the saying “butter on the fish,” it is also essential in supply chain management not to beat around the bush but to communicate clearly and honestly. An open exchange of information between all parties involved is elementary for smooth processes and actual process implementation. This also includes a clear definition of rules and responsibilities within the entire supply chain and cases of conflict or escalation.

2. thinking outside the box
Supply chain management goes far beyond a company’s boundaries. For SCM to be successful, it is elementary to consider all facets and interrelationships in the value chain. This also includes, for example, the value chains of the suppliers used, which in turn are themselves dependent on other suppliers. Companies should therefore ensure and consider that additional partners can be effortlessly integrated into the existing structure of the supply chain or, if necessary, replaced.

3 Automation creates free capacities
For those responsible for maintaining an overview of the supply chain at all times, it is elementary to set up the communication and information flows so that all process actors can exchange data with each other in real-time. This can be done, for example, by open and interoperable multi-carrier platforms that operate via the cloud. They connect all participants and ensure that the processes and relationships become transparent. Automated processes, communication, and data in real-time create a transparent supply chain. Rule-based algorithms minimize manual effort and enable “management by exception.” This means those responsible then deal primarily only with the exceptions and deviations; the rest is automated.

4 Activate the inner detective
Supply chain management is detective work: The precise and constant analysis of all SCM processes requires the inner drive to track down optimization potential at all times. However, this also requires that those responsible have a thorough knowledge and understanding of all business processes and interrelationships in their own company. When this is the case, technologies such as artificial intelligence can be integrated to create rule-based configurations and thus automation.

5. jump over one’s own shadow
Due to the complexity of the supply chain, it can also make sense to work with external specialists. Be it in the area of analysis and consulting or on an operational level for the digital control of SCM processes.

6 Yesterday’s success is rarely tomorrow’s success
For successful supply chain management, it is essential to keep an eye on the market at all times. Economic changes, new laws, and consumer behavior are decisive for one’s value creation processes. Even business processes that have been established for years or decades do not guarantee infinite corporate success. Markets and information technology are dynamic, as is the supply chain.

The complexity and diversity of supply chain management continue to present companies with significant challenges. In the meantime, digitalization can support the networking of all supply chain actors and make automated workflows and processes transparent.

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