What is Supply Chain Management? Supply chain refers to the sequence of processes that create and deliver products or services to customers. For instance, the main links in the chain for a typical product may include purchasing, production, transportation, and retail. Various companies are typically involved, although some companies are self-contained.
Supply chain management is the management of all of the processes in the supply chain. Without management of the entire process of creating and delivering products to customers, inefficiency would abound.
Even greater interoperability between, and control of, the chain links is possible through end-to-end supply chain (E2E) management. Planning and then monitoring and tweaking various parts of the chain in real-time is part of the end-to-end supply chain process. All is done to deliver what the customer wants when he wants it and at a competitive price while keeping operating costs to a minimum.
Benefits of Supply Chain Optimization
Supply chain networks often evolve from individual decisions that are made to meet immediate business needs. Over time, inefficiencies that adversely affect both the customer experience and the company’s bottom line appear and compound. It becomes obvious that the original end-to-end supply chain process has outgrown the original setup.
Infrastructure changes often need to be made to ensure that the facilities are sized right and located in areas that keep costs down and meet customer demands. Efficiency all up and down the supply chain also needs to be improved for overall supply chain optimization.
An end-to-end supply chain network involves many processes, people, and other factors at the manufacturing plants, supplier plants, warehouses, and so on. In addition to coordinating all of these processes, meeting shorter and shorter lead and production times is necessary to compete. That means that each link in the chain must get increasingly faster.
Supply chain optimization is needed to streamline and coordinate the individual processes so that the supply chain can become an efficient, world-class operation that meets customer needs while making good profits.
Demand optimization is similar to supply chain optimization, but demand optimization is used just by retailers to determine the best combination of promotion and price to achieve optimal revenue, profits, and market share.
Supply Chain Optimization Techniques
A supply chain organization must know how to improve supply chain efficiency in order to optimize its supply chain. Not only are great planning and efficient manufacturing needed, but logistics optimization and changes to other areas are needed to achieve overall efficiency. Effective supply chain strategies and supply chain optimization techniques need to be implemented.
New ideas come along all the time, but here are some of the more well-known techniques that are used to optimize the supply chain:
1.) Machine Learning and Predictive Analytics
One can collect a lot of data on computers, but big data does no good unless one can analyze it and then use the information to solve problems. Machine learning and predictive analytics computer technologies are essential to supply chain management tools because they process large amounts of data, predict various outcomes of actions one can take, give recommendations, and mitigate risk.
2.) Corporate Cards for Making Supply Chain Payments
Virtual B2B shopping cards speed up payments. They are secure, automated, and error-free. They eliminate invoicing and are becoming widely accepted among suppliers.
3.) New Collaborations that Increase Productivity
This technique often gets overlooked, but great strides toward efficiency can be made if productivity is increased all up and down the supply chain by adjusting collaborations.
4.) Improved Operating Techniques
The Japanese developed a business improvement concept they call Kaizen, which is a process philosophy that emphasizes lean manufacturing and teamwork. In a Kaizen environment, teamwork is valued so much that employees are allowed to give feedback concerning their ideas as to how to improve processes. The result has been phenomenal throughput rates. It works so well Lockheed Martin, Toyota, and other major companies have adopted the practice.
5.) Low-Cost Country Sourcing and Outsourcing
Globalization of supply chains has brought about changes in operations and logistics activities management. Low-cost country sourcing and outsourcing allow organizations to enjoy significant savings.
Supply Chain Optimization Tools
When computer simulation modeling came along that enabled managers to better manage their supply chains, they were game-changers. Today, these supply chain optimization tools are indispensable when it comes to the optimization of one’s supply chain.
Computer models are supply chain optimization tools that show decision-makers the areas of the supply chain that are not operating as efficiently as they could be. Managers can use the tool to evaluate labor, their facilities, and transportation and compare all of the what-ifs of going through with various trade-off decisions. With that knowledge, managers can make the best decisions. The most effective supply chain strategies can be decided on so that supply chain optimization can be achieved.
Data regarding lead times, inventory levels, and so on are entered into the program for each hypothetical scenario. Once the various likely outcomes are presented, the trade-offs to consider become obvious. For instance, perhaps a low overall cost could be had at the expense of good customer service. Or one could get cheap raw materials if they are willing to decrease the quality and increase transportation costs.
Computer models can also be used to see the effects of changing existing infrastructure or obtaining new infrastructure. Get a better handle on the costs and constraints. Understand network capacity so that you can decide on a long-term strategy for facility location and decide on facility sizes needed, given different levels of demand. With this capability, these models make costly high-stakes capital expense mistakes a thing of the past.
Read more about how to choose supply chain software – and some of the best options.
Best Practices in Supply Chain Management
Ideally, executives all up and down the supply chain plan and implement measures that ensure success. In world-class supply chain networks:
- An internal council of leaders is created so that a clear plan could be set and followed.
- Efficient staffing and structuring are put into place.
- Bottlenecks in the various process are identified and opened up through appropriate technology.
- Relationships with suppliers are maintained.
- The total cost of ownership or consumption of a product or service is considered.
- Suppliers are strategically selected using the criteria of internal and external collaboration, talent, technology, and change management.
- Contract management is done by the supply chain leader so that cost savings can be realized.
- Inventory costs are kept to a minimum.
- Procedures and policies are reviewed by the leadership team members and the supply chain council.
- The organization has procedures and policies that make it sustainable and socially responsible.
Supply Chain Network Optimization Models
The supply chain computer models tell decision-makers all they could ever want to know about supply chain management, which greatly eases the end-to-end supply chain process. There is no definitive network optimization model. The basic design consists of capability-capacity nodes that are connected byways to transport products between facilities.
Details concerning the number of plants, warehouses, and suppliers there are, along with their locations, are added to the network optimization models. Taxation regulations, new competitors, and the availability of needed resources are also included in models. The model chosen reflects the chosen trade-off between risk tolerance, efficiency, and responsiveness.
Reverse network optimization models have arisen lately to solve the logistical problem of collecting, processing, and recycling products when the customer is done with them.
View some of the trends in supply chain technology.
Key Supply Chain Definitions
Capacity planning – determining how much production capacity is needed to meet the ever-changing demand for products
Cost to serve – how costs are incurred throughout the supply chain processes
Zero inventories – holding little or no inventory.
Demand modeling – generating accurate demand forecasts using statistics and other information.
Global trade considerations – changes in regulations, taxes, tariffs, and duties that are significant enough to make companies rethink their sourcing and production strategies so that they can decrease risk and maximize profits
Omni-channel marketing – seamless shopping experience, whether the customer is shopping online or in the store
Product flow-path – the most cost-effective and customer service-oriented path that products flow from supplier to customer
Risk mitigation – risk reduction
S & OP – sales and operations planning, which strives for synchronization and alignment among all functions within an organization through the use of updated forecasts. It differs from supply chain management in that operations management only deals with the company’s affairs rather than how the various companies along the chain work together.
Transit time – the planned time it would take to go from one place to another.
Time to serve – the identification of lead time at various places in the supply chain for the purpose of determining what the total cost and the level of customer service will be
Supply chain sustainability – the management of economic, social, and environmental impacts throughout the entire life span of products and services sold
Logistics – the detailed coordination and positioning of supplies, facilities, or people to meet the user’s requirements
Supply chain traceability – the ability to track products from raw material to the product by the use of detailed operational data regarding batch-lots, purchase orders, and the like. Products can be traced whether they go through discrete manufacturing or process manufacturing. Supply chain management
Supply chain visibility – the ability to track products, components, or parts at any point from the manufacturer to the final destination through visibility of high-level information such as the supplier names, the locations of the facilities, facility certification information, in addition to compliance with safety, sustainability, and social responsibility requirements. End to end supply chain
Supply chain planning – planning the coordination of assets for the eventual delivery of goods, services, and information to the customer. Considers constraints and real-time demand commitments. Uses what-if scenario analysis in many different models, such as demand planning, inventory planning, strategic network design, and many others.
Inventory management – the supervision of the flow of inventory items from manufacturers to the warehouses and then to the point of sale using serial numbers, lot numbers, the cost and quantity of goods, as well as the dates when the items moved through the process.
Freight optimization – determining the most efficient way to move products to customers while still giving customers great customer service