Supply Chain Management Definition and Solutions

Supply Chain Management (SCM) topics covering definition, objectives, solutions and the impact of globalization.

By Thomas Wailgum

CIO — Compiled by Thomas Wailgum and Ben Worthen

Editor's Note: This article was updated on Nov. 20, 2008, to reflect changes in supply chain management technology.

What is supply chain management?

Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM.

1. Plan—This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

2. Source—Next, companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.

3. Make—This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain—one where companies are able to measure quality levels, production output and worker productivity.

4. Deliver—This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

5. Return—This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products..

For a more detailed outline of these steps, check out the nonprofit Supply-Chain Council's website.

What does supply chain management software do?

Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the five major supply chain steps previously outlined 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, but no one has a complete package that is right for every company. For example, most companies need to track demand, supply, manufacturing status, logistics (i.e. where things are in the supply chain), and distribution. They also need to share data with supply chain partners at an ever increasing rate. While products from large ERP vendors like SAP's Advanced Planner and Optimizer (APO) can perform many or all of these tasks, because each industry's supply chain has a unique set of challenges, many companies decide to go with targeted best of breed products instead, even if some integration is an inevitable consequence.

It's worth mentioning that the old adage about systems only being as good as the information that they contain applies doubly to SCM. If the information entered into a demand forecasting application is not accurate, then you will get an inaccurate forecast. Similarly, if employees bypass the supply chain systems and try to manage things manually (using the fax machine or spreadsheets), then even the most expensive systems will provide an incomplete picture of what is happening in a company's supply chain.

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