Supply chains are the bedrock of practically any business with a physical product, and even more so those that scale internationally. In today’s increasingly complex, increasingly unpredictable market terrain, both at home and overseas, managing those supply chains with care, precision and contingency planning in mind is tantamount to survival.
But what exactly is supply chain management (SCM) in practice?
As we’ll illustrate, supply chain management is concerned with the strategic decisions that mould the supply network and the path products take, from their very design to aspects like procurement and distribution. As you might expect, the aim is to control these processes so that efficiency, profitability and customer satisfaction are guaranteed, despite the risks at play.
To guide you through the nuances and demystify the jargon, our distribution specialists have put together this digestible guide. Here’s everything it covers:
What is Supply Chain Management? SCM Defined
If you turn to a dictionary or do a quick Google search, supply chain management will be described something like this:
“The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.” (Source: ASCM Supply Chain Dictionary, 18th edition)
But what is supply chain management in simple terms? Well, you could also say that SCM is the coordinated oversight of all the activities needed to get a product from raw materials to the ultimate consumer in its final form. As such, it’s tied up with the flow of goods, information and finances, and involves a number of different stakeholders. Crucially, its aim is to streamline the end-to-end flow of goods and services, enabling supply chain resilience in the face of disruption, creating opportunities for cost reduction and scaling, all whilst ensuring products arrive on time and in top condition.
Unlike procurement, which relates to merely one function in the chain, supply chain management is deeply involved with the entire supply network. Thus, it encompasses a broad range of activities that require a continuous effort to produce tangible results. Overall, you can break down these activities into 6 core components. Let’s do so together.
1. Planning & Strategy
Since supply chains tend to comprise tens or possibly even hundreds of companies, extending over multiple tiers, there’s significant room for risk and, hence, vulnerability. To counter the risks presented by so many moving parts, supply chain professionals develop robust strategies for meeting customer and manufacturing demands within budget constraints, including forecasting, risk monitoring and inventory control.
Often, this work hinges on balancing the three supply chain interdependencies – service levels, locked up cash (capital) and costs – according to business priorities. Fortunately, while this is complex, the growing sophistication of supply chain technology is empowering businesses to make more responsive, data-informed decisions than ever.
2. Sourcing & Supplier Relationship Management
Interacting with suppliers and building strong relationships with them is another central part of supply chain management, given that it is these partnerships that allow businesses to insulate themselves against risk, increase their agility and provide the best possible quality in terms of their products. Beyond simply sourcing materials, supply chain managers will also conduct supply chain mapping exercises to ensure regulatory compliance and transparency – both growing tenants of environmental, social and governance issues.
3. Production & Processing
This phase is fairly simple; the raw materials obtained by suppliers are transformed by manufacturers into the final product, be they consumable items, e.g., frozen foods or non-edible consumer goods like interior paint. This involves developing and manufacturing the product, but don’t forget the role of packaging, record keeping and quality control – in the context of food transportation, they’re a lifeline for compliance.
4. Order Fulfilment, Logistics & Distribution
The transportation leg of the SCM process is a vast topic alone, worthy of a book-length explanation, but to save time, let’s say that it’s concerned with managing inventory and ensuring the finished products arrive where they need to be, at the right time and with their integrity retained. Here, supply chain managers must maintain a fine balance between speed, cost and service quality.
This includes coordinating warehouse operations for efficiency, optimising picking and packing processes, managing distributor networks, and leveraging specialised transport solutions such as cold chain logistics for temperature-sensitive goods. It also encompasses route planning, carrier selection, customs clearance for international shipments and last-mile delivery to customers.
5. Information & Financial Flow
Finally, it would be remiss of us not to mention the perhaps more abstract roles of informational and financial flow. Here, supply chain professionals are charged with tracking and managing the data related to a product’s journey – think cold chain monitoring devices for temperature fluctuations or predictive forecasting to anticipate changing demand – using a variety of tools, powered by historic data and artificial intelligence.
Today’s best practices call for a comprehensive, ‘joined up’ approach, often relying on centralised systems to optimise communication between stakeholders.
Understanding the Various Models of Supply Chain Management
As the supply chain triangle attests, it can sometimes be more effective to focus on specific priorities rather than attempting to perfectly balance the competing objectives of different departments like sales, manufacturing and finance.
This is exactly why there are numerous supply chain management models, which each follow an explicit strategy suited to varied circumstances. You can divide these frameworks into two broad-stroke groups: those that focus on efficiency and those that prioritise responsiveness.
Efficiency-Oriented Models
- Continuous Flow: One of the more traditional supply chain models that relies on a predictable, stable level of demand from the market. Production and distribution are maintained at a steady, uninterrupted pace while inventory and product variation are kept to a minimum.
- Efficient: Often favoured by hyper-competitive industries and those who wish to prioritise efficiency. Based on lean principles that emphasise the reduction of waste at all costs.
- Fast: Designed for products with short lifecycles, allowing businesses to capitalise on trends by quickly producing goods and ensuring they sell before the trend ends.
Responsiveness-Oriented Models
- Agile: Allows flexibility through real-time data and adaptive processes that quickly adjust routes, schedules and production plans to meet evolving customer needs and mitigate risks. Thus, ideal for speciality items.
- Flexible: Suited to goods with high fluctuations in demand, since it allows for the easier increase or decrease of production to meet changing consumer needs.
- Custom-Configured: A blend between efficiency and responsiveness, wherein the product may require a certain degree of customisation but also demands operation on an end-to-end basis. A common choice for small batches or prototype designs.
Why Is Supply Chain Management Important?
Now that we’ve examined what supply chain management is, you likely have an inkling (or several) about why the practice is so important.
To put it bluntly, supply chain management is the fuel in a business’s tank, keeping all operations well-oiled and ticking along. If the chain isn’t optimised for efficiency or ready to weather the possible risks, you’re putting yourself in a vulnerable position, not to mention a non-competitive one. In today’s world, supply chains are differentiators for businesses; those that are faster, higher quality, more sustainable even, stand out from the rest and disrupt the market. As McKinsey notes in its report on the future of supply chains, companies that invest in resilience and digitalisation can reduce supply chain costs by up to 30% while improving service levels.
So, with a strategic approach to shaping, maintaining and improving the supply network, businesses can achieve higher performance, better product quality, streamlined coordination and, ultimately, add value in both monetary and reputational terms.
A Working Example of Supply Chain Management
Admittedly, understanding what supply chain management is can be tricky without grounding all the theory in reality. Here’s a real-life example of SCM that puts into practice much of what we’ve discussed thus far.
Take Meadow, a producer of sustainable dairy, confectionery and plant-based ingredients. Since 2008, Dennis Distribution has supported their end-to-end logistics with the bulk tanker transport of their temperature-sensitive products, scaling the operations along with Meadow’s continual growth.
- Sourcing: Raw dairy products like condensed milk and butter oil (AMF) are ordered from trusted suppliers, packaged and handled with specialist procedures.
- Production: Ingredients are processed and prepared for food manufacturers across the UK.
- Logistics: Dennis Distribution completes the bulk transport, with specialised food-grade tankers, providing knowledge and assurance thanks to the DTAS accreditation.
- Inventory Management: Flexible planning helps Meadow respond to fluctuating production outputs, while the contract logistics model brings stability and reliability.
- Order Fulfilment: With a collaborative, long-term model in place, Meadow achieves over 99.5% on-time deliveries – and a happy customer base to boot.
Supply Chain Management Explained: The Bottom Line
That was supply chain management explained, and so, it’s the end of the road for our guide – but not for you. Whether you’re brushing up on your knowledge to improve existing processes or intend to implement new systems entirely, the key takeaways remain the same: businesses that employ proper, comprehensive supply chain management strategies can more easily achieve their goals, cutting their losses in the process.
Supply chain management is all about shaping the flow of goods at each step of the journey, from production to the products reaching the hands of the end consumer. To become a leader on this stage, it’s essential to optimise your planning, decision-making, communication and risk responsiveness to avoid wastage and inefficiencies. Do this and you’ll reap the rewards of higher returns, greater resilience and a stronger brand perception, which can’t be understated.
Still Confused?
As the old adage goes, “you don’t know what you don’t know”. Small businesses are likely hyper-aware of this fact. Thus, if you’re still unsure how to get the ball rolling, it’s best to seek a mentor who can advise you – which is where the transport managers at Dennis Distribution come in. Our friendly team is more than happy to answer any further questions and support your logistics needs. Get in touch with us today.