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What is supply chain management (SCM)?

Learn how a more resilient, sustainable supply chain benefits companies and customers alike.

Supply chain management—an evolving approach to the flow of goods and services

Supply chain management, often abbreviated as SCM, is a broad term used to describe the handling of the entire production flow of a good or service—from sourcing the raw materials to making the product to delivering to the customer to returning or recycling the used product. It’s an approach that moves beyond traditional logistics management to build an adaptable supply chain that proactively and predictively responds to challenges with real-time visibility, agile planning, and business continuity.

Current-day customers expect the availability, tracking, and rapid delivery of products—with a swipe of a finger on their phones. When we talk about the supply chain—the process of transforming raw materials into goods and services and delivering them to end users—we’re talking about a process that most modern consumers take for granted.

However, the disruptive global events in 2020 brought these supply chain management concerns into sharp focus. Chyrons and images flooded news feeds: empty grocery shelves, shortages of crucial supplies, such as baby formula, hand sanitizer, and toilet paper. Real-time maps tracked hundreds of shipping containers waiting to unload outside clogged ports. These images highlighted the importance of innovation and resilience in the supply chain—for both businesses and customers alike.

Businesses that have stayed competitive have prioritized the quick adoption of innovations with a supply chain management approach, beyond mere logistics. They recognize that the more robust they can make their supply chain operations, the more they reinforce customer trust, brand reliability, and sustainability for the long run. The supply chain is a fundamental point of connection with their customers. 

Leaders in industries such as manufacturing have long known that a well-managed supply chain can lower operational expenses, allowing their organizations to increase profits. More recently, supply chain resiliency has been shown to positively impact a company’s bottom line. According to an October 2022 Harvard Business Review survey, 94 percent of executives surveyed said that supply chain operations are an even higher priority for their organizations today than they were three years ago.1

Even more importantly, prioritizing their supply chain management can boost corporate brand recognition and help keep their customers satisfied and loyal. Enterprises across industries are increasing their investments in tech innovations to manage their supply chain. They‘re even investing in entire supply chain management services or platforms from cloud providers to improve the flexibility, security, and collaboration of their operations. These services not only facilitate inventory and logistics management, they also help the company conduct ongoing and predictive evaluations of the entire supply chain cycle to discover and strengthen any weak “links” in the chain.

In fact, Forrester Consulting found that, after an investment in Microsoft’s Dynamics 365 Supply Chain Management offering, “customers gained better visibility into their supply chain organization, which allowed them to identify issues faster and gather analytics for further improvements. Key results from the investment include better operational efficiency from improved time-to-market and asset utilization, as well as gained insights that translates to increased customer satisfaction and revenue.” 2

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Five stages in the supply chain management cycle

As the name implies, the supply chain is often conceived as linear—moving materials and goods along a line from point A to point B. However, shifting to view it as a cyclical process helps highlight the collaborative, predictive, and adaptive features of the supply chain management approach.

There are five commonly recognized stages in supply chain management: planning, sourcing, producing, delivery/logistics, and returns/reverse logistics.

Planning

Supply chain management is differentiated from traditional logistics management with its emphasis on operational strategies to anticipate demand and design products with speed and accuracy. This stage has come to rely on powerful technologies to predict demand using artificial intelligence (AI) and embedded advanced analytics. These technologies help organizations achieve faster time to market with centralized product information management. They also help ensure accuracy with engineering change management as well as manage inventory decisions with real-time supply planning—eliminating stockouts or overstocking. During the planning stage, key performance indicators (KPIs) are established to measure whether the supply chain is cost-efficient and effective, identifies problem areas, and meets customer expectations as well as company goals. Some examples of KPIs in SCM planning include cash to cycle time, perfect order rate, and gross margin return on investment (GMROI)—a metric commonly used in retail and manufacturing to measure the gross profit per amount of inventory used.

Sourcing

An SCM approach to sourcing goes beyond merely procuring the raw materials required to manufacture the product. Strategy and cost efficiency are top of mind in the sourcing stage to streamline procurement processes and improve cost management. Technologies such as vendor collaboration portals and interlinked vendor catalogs give supply chain managers more efficient oversight and control of interactions with suppliers.

Producing

Supply chain management at the production or manufacturing stage emphasizes innovation and sustainability—from product design and source materials to quality assurance during production, packaging, and shipping. Good supply chain management during the production stage takes advantage of innovations such as automation, collaborative robots (or “cobots”), the Internet of Things (IoT), and mixed reality. These technologies are used to perform predictive equipment maintenance to reduce downtime and to enhance inventory accuracy with automated cycle counts from the production floor.

Delivering

This stage of supply chain management—from online orders to storage warehouses to shipping out (either to customers distribution centers, or physical stores for offline sales) —focuses on delivering with consistency and expediency. Delivery is expedited by optimizing inventory accuracy and automating warehousing operations. This stage can rely on collaboration with third-party logistics vendors such as FedEx or UPS to coordinate and track orders, schedule deliveries, dispatch loads, invoice customers, and receive payments.

Returning

Sometimes called “reverse logistics,” the returns stage completes the links in the chain and allows for the reversal of flow of product back to the producer. This enables organizations to save on costs by minimizing waste and planning for reuse, and even may help create new revenue opportunities, such as subscription or buyback programs. 

Four benefits of effective supply chain management

While it may seem that pandemic-era disruptions are fading into memory, there remains an opportunity to reimagine the supply chain—to make it more resilient, sustainable, and flexible to meet new challenges, such as geopolitical events and changing climate issues and weather emergencies.

Effective supply chain management helps to:

  1. Maximize asset performance by managing the full asset lifecycle, measuring and improving overall equipment effectiveness (OEE), and optimizing asset maintenance—from anywhere.
  2. Foster innovation by taking advantage of predictive technologies, IoT, mixed reality, and edge computing to eliminate data siloes and get better insights.
  3. Boost competitive advantage by optimizing and automating order fulfillment using AI and real-time inventory tools with the latest methods such as BOPIS.
  4. Enhance visibility of demand, supply, capacity and inventory across the entire supply chain network and proactively mitigate risk by predicting disruptions.

 

Industry spotlight: Agile factories and supply chain management

Whether it’s healthcare, retail, or energy—all industries can gain benefits from a well-managed supply chain. One industry that is uniquely positioned to benefit from improved resiliency, sustainability, and flexibility is manufacturing. A manufacturer’s s view of the supply chain is differentiated from other industries, such as retail. Manufacturers have to worry about the actual factories that are making their products—as well as sourcing all the raw materials and parts to keep the manufacturing equipment and physical structures running.  They also need data insights into demand for their products, so they can plan to make the right products in the right factories to minimize costs and serve their customers.

A VP or manufacturing executive will use data from metrics like OEE to minimize changeovers and keep factories running at full capacity. At the same time, the supply chain management focus in manufacturing tries to minimize inventory and adapt to highly volatile demand. Both roles strive to decrease costs and changeovers as well as improve OEE.

The ultimate goal of investing in digital manufacturing technologies and workers with digital skills is to create agile factories and production plans, aligned to supply chain objectives. Agile factories respond more nimbly and cost effectively to demand, and supply, volatility to create more resilient supply chains.

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Supply chain management vs logistics management—is there a difference?

While the terms supply chain management and logistics management may often be used interchangeably, understanding the nuances in the terms and clarifying the differences can help in effective supply chain operation strategy and resource planning.

 

Supply chain management vs. logistics management

Supply chain management

Starts in the planning stage as strategic decisions, sets up an operational framework within which logistics management happens, and extends to coordination of operations, financing, sourcing, manufacturing, storage, distribution, delivery of products, and strategic planning for the returns phase.

  • Involves all stages of the supply chain.
  • Operations: Strategy-oriented for market competitiveness.
  • Develops and plans the collaboration of the network—its partners, suppliers, manufacturers, business partners, and end users.
  • Plans financing and resource allocation.
  • Plans for and selects appropriate technologies to support the mission.
  • Selects third-party logistics vendors or coordinates in-house logistics management.

Logistics management

Focuses on the specific supply chain stages of delivery and returns—coordinating the flow of inventory from supplier to ultimate delivery to the customer, as well as the reverse flow or “reverse logistics” of returns.

  • Involves specific supply chain stages. of delivery and returns.
  • Operations: Task-oriented and process-oriented for operational excellence.
  • Plans and manages effective flow of goods for inventory and delivery to customers.
  • Coordinates and controls the delivery stage, from source to end users.
  • Coordinates and controls the return stage, with reverse inventory flow from customer returns, as well as implementing the logistics of reuse and recycling.

The evolution of technology in supply chain management

A new wave of technology capabilities has changed the supply chain management landscape—and is helping managers, companies, and customers alike reap the benefits of a more agile, resilient supply chain.

Four areas of rapidly evolving digital supply chain technologies have emerged—making it easier for companies to monitor, sense, predict, respond, and adapt to disruptions along all stages of the supply chain.

The four areas of new technology are:

  1. Artificial intelligence (AI) and machine learning. AI, machine learning, and embedded advanced analytics provide algorithms and predictive methods that allow supply chain managers to make proactive adjustments and ensure business continuity. Many of these cloud-based platforms and services, such as digital twin technology, allow supply change management to run simulations to improve decisions, before a disruption occurs.
  2. Low-code/no-code applications. Low-code/no-code app development solutions provide a way for engineers in supply chain management to build line-of-business applications and automate business processes quickly and simply—without having to generate a lot of code. Low-code app development helps meet business demand faster, reduces development costs, and helps to coordinate, manage, extend, and connect cloud apps across the supply chain.
  3. API-driven, composable applications and microservices. In the past, traditional supply chain management often relied on legacy enterprise resource planning (ERP) software to manage core business processes. Historically, ERP systems were costly, unwieldly, worked in siloes that didn’t talk with other systems, and required customized code to meet business requirements. This slowed—or even prevented—the adoption of new technology or processes. Emerging microservices and API-driven apps have given supply chain managers much more flexibility to adopt cutting-edge technologies as they are offered as composable or modular “building-blocks” software. These API-driven apps easily connect the data and allow it to flow between systems to build a more adaptable supply chain that automatically reacts to challenges using real-time visibility, agile planning, and business continuity.
  4. Internet of Things (IoT) solutions. An IoT device is a physical device built with sensors and the ability to connect to the cloud via Wi-Fi. Examples of IoT devices used in supply chain management are: pressure sensors on a remote oil pump, temperature and humidity sensors in an air-conditioning unit, and motion detectors in a room. A common use of IoT technology in supply change management involves predictive maintenance. These sensors help to monitor equipment status and performance, to predict potential malfunctions and maintenance needs, and can use digital twins technology to enhance service in real time.                            

Technology spotlight: Digital twins

Digital twin technology is used in supply chain management to create a digital representation of real-world things, places, business processes, and people. A digital twin uses the cloud and Internet of Things (IoT) spatial intelligence to create working models of a physical counterpart or “twin” in the supply chain network—this can be a model of any physical asset, process, or environment such as buildings, factories, farms, energy networks, railways, stadiums, and even entire cities.

By creating a digital model that behaves exactly as its physical “twin,” engineers are able to virtually visualize, simulate, and predict supply chain operations—gaining insights that drive better products, optimized operations, reduced costs, and breakthrough customer experiences.

Learn more about digital twins in supply chain management >

Supply chain management and the cloud

With cloud-based technologies inevitably changing the face of the supply chain landscape, supply chain managers are coming to embrace data as one of their most strategic resources. The ability to gather and track large amounts of near real-time operational data from across the network has become as important to their businesses as the raw materials or the logistics vendors that they use to serve their customers. Supply chain managers look for the capability to collect data and gain end-to-end supply chain visibility. These cloud capabilities then help them break down siloes and enable greater supply chain connection, collaboration, and optimization. Ultimately, any company that wants to stay competitive will need to embrace cloud-based solutions with the ability to capture and use real-time data to connect various supply chain functions.3

Technology spotlight: Supply chain control towers

A supply chain control tower is a not a single technology, but rather a concept in supply chain management that uses multiple cloud-based and edge technologies such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT).

The concept of supply chain control towers is built on a foundation of data. These cloud-based solutions gather and track large amounts of near real-time operational data from across the network to provide actionable insights. This end-to-end supply chain visibility is then used to break down siloes and enable greater supply chain connection, collaboration, and optimization.

Supply chain control towers are used to:

  • Improve decision making by running “what-if” analyses and scenario comparisons.
  • Manage supply chains proactively by running simulations of demand and supply changes.
  • Identify customer issues and address them quickly with real-time alerts.
  • Improve customer satisfaction by collaborating with partners across the supply chain.

Learn six technology trends in supply chain management >

Frequently asked questions

  • A supply chain control tower is a not a single technology, but rather a concept in supply chain management that uses multiple cloud-based and edge technologies such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT).

  • Enterprise resource planning (ERP) is a type of software that helps automate and coordinate the flow of data between a company’s business processes. ERP has traditionally been used in supply chain management to link financial, logistics, operations, reporting, manufacturing and human resourcing/staffing on one platform.

  • Enhanced visibility is one of the foundational aspects of effective supply chain management. End-to-end visibility across the supply chain is to manage risk through the inevitable disruptions and to be able to anticipate and balance supply with demand. It allows businesses to work more seamlessly with external systems and suppliers—eliminating data siloes, improving quality, and optimizing production. Visibility also helps boost planning agility with real-time data to eliminate stockouts and help keep high-demand items available for customers.

  • In supply chain management, the term collaboration most often refers to the cooperative operational strategy to connect suppliers, customers, and other partners as a means of boosting efficiency and producing value for the end consumer. Independent firms or parties work together to plan and execute their activities at the different stages of the supply chain. Supply chain collaboration often uses cloud-enabled technologies such as dashboards that can pull data from multiple third-party systems—allowing all collaborators to have a single, global view to improve operational efficiencies.

  • Digital twin technology is used in supply chain management to create a digital representation of real-world things, places, business processes, and people. A digital twin uses the cloud and Internet of Things (IoT) spatial intelligence to create working models of a physical counterpart or “twin” in the supply chain network—this can be a model of any physical asset, process, or environment.

  • Supply chain management is a general term used to describe the handling of the end-to-end process of providing products to services to the end user—from sourcing the raw materials to making the product to delivering to the customer to returning or recycling the used product—all in the most reliable, efficient, and economical way possible.

    Supply chain management is an approach that moves beyond traditional logistics management to build an adaptable supply chain that proactively and predictively responds to challenges with real-time visibility, agile planning, and business continuity.

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