What is a supply chain management system? In short, it’s the software your company uses to manage the flow of goods, data and resources related to any product or service you sell, moving it from raw material procurement to final delivery.
Today, we’re taking a closer look at how these systems work and why they’re essential business components.
What is a Supply Chain Management System?
A supply chain consists of a network of organizations and facilities that work in tandem to transform raw materials into finished, customer-ready products. A supply chain management (SCM) system is an inter-organizational solution that manages these activities from beginning to end.
While there are many different types of supply chain management software that each focus on certain functions, there are also comprehensive supply chain management systems. These SCM systems help companies manage a variety of supply chain processes, such as:
- Product or service creation
- Order fulfillment
- Order tracking
- Order management
These functions shouldn’t be isolated to in-house teams. Rather, the SCM platform must be accessible across the supply chain, encompassing every stakeholder, including:
- Transportation providers
- Logistics managers
This ensures that everyone has visibility into the product or service as it moves along the production chain. By gaining better oversight into these processes, companies can expedite delivery, improve the customer experience and achieve supply chain cost reduction.
SCM functionality can also be found within many ERP systems. ERP vs SCM is an important concept to understand before software selection.
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History of Supply Chain Management
SCM systems have existed in some rudimentary form since the very first products or services were created and sold in ancient eras. With industrialization came necessary advancements, as evidenced in the standardization and mass production of automobile parts first perfected by Henry Ford.
In the years that followed, supply chain management progressed beyond the assembly line. The advent of computers, for instance, allowed some facets of SCM to be managed from afar, though the effort rested primarily on the shoulders of a select group of supply chain specialists.
It wasn’t until the Digital Era came into full swing that the task of supply chain management became less linear and more enterprise wide. Now, SCM systems consist of widespread networks that can be accessed by different departments throughout an organization.
What drove this change? In addition to technological advancement and a growing global economy, increases and shifts in customer demand were also key. Now, nearly 80% of consumers expect companies to offer free, two-day shipping, requiring companies to keep pace to stay competitive.
As such, today’s SCM systems center on demand-driven operating models capable of delivering the speed and precision that modern business requires.
The Rise of Industry 4.0
As digital tools continue to become more innovative, their application in the manufacturing realm has been recognized as “Industry 4.0,” or the Fourth Industrial Revolution.
Largely built to enable supply chain optimization, these technologies are designed to radically transform the ways that companies develop, manage and distribute new offerings. Industry 4.0 technologies include solutions such as:
- Artificial Intelligence (AI)
- The Internet of Things (IoT)
- Machine learning
With this movement, it’s now evident that the way companies have traditionally approached supply chain management is giving way to a more advanced and automated approach.
Take quality control, for instance. Rather than waiting until a part malfunctions or a customer calls with a complaint, companies can now leverage smart tools to identify and correct issues with a product or service before they even occur. The ability to proactively recognize these glitches ensures that the supply chain can continue uninterrupted, without timely and costly roadblocks.
Then, there’s the concept of lean manufacturing. Companies that operate on this model must have accurate insight into customer demand to ensure they’re producing just enough products to meet it. Intelligent SCM tools allow companies to optimize the planning and forecasting stages, save money and prevent waste and overstocks.
Moving forward, modern SCM technology won’t just make the supply chain more efficient. It’s poised to make the entire enterprise smarter and more innovative than ever before.
A Look at Today’s Supply Chain Management Systems
As Industry 4.0 continues to progress, what does this mean for modern SCM systems? The greatest shift in recent years has been an increased focus on the customer.
At their core, SCM systems have always been built to maximize efficiency and reduce operating costs. While that goal remains, the customer experience is now taking center stage. To maintain a competitive advantage, companies must be able to identify and leverage the SCM tools that will enable them to deliver goods and services to their buyers in the timeframe they expect.
Here are three hallmarks of a modern supply chain management strategy:
1. An Emphasis on Agility
In addition to being quicker, the modern supply chain must also be agile. In the past, customer-brand relationships were relatively straightforward and one-directional. They moved from beginning to end with very little opportunity for change along the way.
Now, customers can engage with and purchase from companies in multiple ways, including in-store and online. They also expect personalization at every turn. In fact, more than 60% of today’s buyers want personalization included as a standard of service, and expect to be recognized as an individual when they receive an offer from a company.
These expectations are moving beyond the marketing realm and into the production space. In addition to expecting targeted advertising, customers also want the ability to control their checkout options, delivery timelines and pickup locations. In turn, they will reward brands that can accommodate these demands with repeat purchases and ongoing loyalty.
An SCM system that’s rigid and unable to conform to these expectations will be unable to keep up. Prioritizing fluidity can also help companies work around common issues that could threaten to slow production, including issues with sourcing and regulatory compliance. The ability to adjust parameters as required is essential, and newer SCM technologies provide it.
2. Cloud-based SCM
Where can companies look for the agility and flexibility they need? The cloud.
The daily fluctuations associated with today’s enterprise environment can make it difficult for on-premise legacy systems to adjust. For instance, if a sourcing issue occurs unexpectedly, a custom-coded application may not have the bandwidth to modify parameters and adapt accordingly.
A cloud-based system, however, could make use of Industry 4.0 technologies to facilitate quick changes. This is because the cloud is naturally more capable of adapting to change and isn’t bound by the restrictions imposed by traditional in-house solutions. The cloud is also a better deployment option for the new and innovative technologies changing the SCM landscape.
However, transitioning and retrofitting your current systems to the cloud can prove laborious and expensive. In lieu of a full-scale migration, many companies are embracing SCM solutions that enable them to leverage their current assets while adopting certain elements of cloud-based SCM to meet their current and future needs.
3. Meeting Demands for Trust and Traceability
It’s always been important for companies to have real-time access to their supply chain. Yet, increasing customer demands and regulatory requirements have transformed traceability from a nice-to-have feature into an imperative one.
Intelligent SCM tools can enable this function, and the most effective ones build those tools directly into your SCM process. They do so using blockchain technology, resulting in a solution that promises visibility and insight at every turn. While all enterprises can benefit from such seamless integration, it’s especially important in highly regulated niches, such as the food and beverage (F&B) sector.
Cutting-edge SCM systems operate as end-to-end, cloud-based product suites that uncover every aspect of the supply chain, resulting in 100% visibility that leaves nothing hidden or up to chance. After implementing these technologies, companies are better positioned to meet customer demands, shorten product lifecycles and stay agile amid market fluctuations.
Looking Ahead to the Future of SCM
What is a supply chain management system? It’s the very backbone of an enterprise, and optimizing it is a requirement to maintain a competitive advantage.
As we prepare to enter a new year, companies are looking ahead at what’s on the horizon for their supply chain. How can they improve responsiveness and take the customer experience to a new level? The answer lies in modern SCM systems that operate on a network-based model rather than the linear systems of ages past.