Supply chain management (SCM) is the coordination of a business’ entire production flow, from sourcing raw materials to delivering a finished item.
The global supply chain is a complex network of suppliers, manufacturers, distributors, retailers, wholesalers and customers. Effective SCM is about optimizing this network to ensure that everything gets where it needs to be, when it needs to be there—and as smoothly as possible. It includes obtaining the necessary components, manufacturing the product, storing it, transporting it and getting it to customers.
SCM also involves the coordination of external partners and both internal resources and operations management. According to the Council of Supply Chain Management Professionals (CSCMP), “in essence, supply chain management integrates supply and demand management within and across companies.”1
This guide explores ways to help businesses increase visibility, intelligence and agility in their supply chain.
Effective supply chain management minimizes costs, waste and time in the production cycle. It directly impacts profitability and allows businesses to gain a competitive advantage in today's global marketplace. One study found that organizations with advanced SCM capabilities were 23% more profitable than their peers.2
Supply chain management also helps companies anticipate and mitigate risks (such as supply chain disruptions) and track compliance with regulations and standards. By helping products arrive on time and in good condition, supply chain management can improve customer satisfaction and loyalty.
The importance of supply chain management is also evident amid growing awareness about climate change. Sustainable supply chain management can help companies reduce their carbon footprint and impact on the environment by optimizing logistics and energy management, and reducing waste.
Supply chain management consists of several main components, including:
Planning involves forecasting demand, arranging production and managing inventory levels to ensure that the right products are ready to meet customer demand. It also involves setting an overall SCM strategy by determining metrics to measure whether the supply chain is efficient, effective and meets company goals. And it includes adapting to new product needs.
Sourcing involves identifying which providers to work with, negotiating contracts and managing supplier relationships to ensure a reliable supply of raw materials and components. The work includes ordering, receiving, managing inventory and authorizing supplier payments.
Manufacturing involves organizing the supply chain operations required to accept raw materials, design and produce the product, and handle quality control.
Delivery involves the transportation and distribution of finished products to meet customer needs. It includes managing distribution centers, warehousing, order fulfillment and logistics.
Handling returns involves creating a network or process to take back defective, excess or end-of-lifecycle products. It includes managing reverse logistics and customer satisfaction, in addition to final product disposal.
There are several strategic approaches to SCM. Companies can pursue different strategies based on their needs, budgets, capabilities and long-term goals and priorities.
This approach focuses on eliminating waste in all forms, including excess inventory, unnecessary transportation and inefficient processes. The goal is to create a streamlined, cost-effective supply chain.
This approach emphasizes quick response to changes in customer demand and market conditions. It often involves practices such as quick batch production, rapid replenishment and flexible supplier contracts.
This approach is data-driven and aims to eliminate defects and reduce variability in supply chain processes. It uses statistical methods to identify and remove the causes of errors and minimize variability in manufacturing and business processes.
This approach focuses on improving quality throughout the supply chain, with the goal of increasing customer satisfaction. It involves continuous improvement efforts and often includes practices such as supplier quality management and process standardization.
This approach focuses on building a supply chain that can withstand disruptions and adapt to changing conditions. It focuses on identifying potential risks in the supply chain and developing strategies to mitigate them. These strategies might include diversifying suppliers, creating contingency plans and investing in supply chain visibility tools.
This approach focuses on minimizing the environmental impact of the supply chain and promoting social responsibility. It can involve practices such as sustainable procurement and participation in the circular economy.
This approach uses technologies such as artificial intelligence (AI), machine learning (ML), Internet of Things (IoT) and advanced analytics to enhance various aspects of supply chain management, including demand forecasting, inventory management and logistics.
Supply chain managers play a critical role in maintaining the smooth operation of the supply chain. They are responsible for planning, implementing and controlling the efficient and effective flow of goods, services and information from the point of origin to the point of consumption.
Professionals in this type of management work tend to deal with various challenges, including the growing complexity of global supply chain networks and an increasing number of risks and disruptions. People in this career path might also align the company’s supply chain strategy to meet sustainability goals.
Many companies face an SCM talent shortage as demand for skilled workers grows. For example, the US Bureau of Labor Statistics expects the need for logisticians to increase 18% by 2032—more than five times the anticipated growth rate for all occupations.3
Supply chain managers must have a deep understanding of all parts of the supply chain and strong analytical and problem-solving skills. They might gain this expertise in SCM through university degrees (including master’s of business administration or bachelor’s degrees), certificate programs and experience in the industry. Areas for skilled knowledge include project management, logistics management, procurement, strategic sourcing, inventory management and demand planning or forecasting, along with operations management, analytics and supplier relationship management.
The concept of SCM emerged in the 1980s, but its roots go back to the creation of assembly lines in the early 20th century. Initially, SCM focused on improving manufacturing efficiency and reducing inventory levels. However, with globalization and advancements in information technology, today’s supply chains have evolved into complex networks spanning countries and continents.
The boom in e-commerce altered the dynamics of supply chain management. Over the years, the focus shifted from traditional retail-centric models to direct-to-consumer models. This shift requires more complex and agile supply chains to handle smaller, more frequent deliveries, often on a global scale.
Recent disruptions, such as the COVID-19 pandemic, highlight the importance of risk management and resilience. As a result, companies are diversifying their supplier base, increasing inventory buffers and investing in technologies to improve visibility and responsiveness. And while globalization has expanded supply chains across borders, there is also a shift toward localization in response to trade tensions, higher transportation costs and the need for faster delivery times.
The integration of new technologies is transforming the way that businesses manage their supply chains.
AI and ML revolutionized demand forecasting, allowing companies to predict sales with greater accuracy and adjust their production, inventory levels and pricing strategies accordingly. AI-powered chatbots and virtual assistants streamline interactions for improved customer experience. ML algorithms analyze collected data across the supply chain to identify bottlenecks, optimize routes and improve overall visibility.
IoT devices, such as sensors and radio-frequency identification (RFID) tags, collect real-time data on inventory levels, shipment tracking and asset performance. IoT-enabled smart warehouses are also becoming more common; they offer automated storage and retrieval systems, robotic picking and drones for inventory management.
IoT is also integral to the rise of Industry 4.0, a term used to refer to the digital transformation of manufacturing. Industry 4.0 incorporates new technologies such as digital-physical systems, augmented reality, cloud computing and advanced data analysis. Robotics and 3D printing streamline production and warehousing processes, reducing lead times and costs. Industry 4.0 capabilities allow for faster decision making, automation and customization at new levels.
Blockchain technology is enhancing supply chain transparency, traceability and security. By creating an immutable, decentralized ledger of transactions, the blockchain can help prevent counterfeiting, improve product safety and streamline compliance processes.
Technologies such as 5G allow faster, more reliable data transmission, supporting the deployment of more advanced IoT devices and real-time monitoring systems. And autonomous vehicles, such as self-driving trucks and drones, will become more prevalent, reducing transportation costs and improving delivery times. Although still in early stages, quantum computing is shaping the future of SCM by solving complex problems and enabling more accurate simulations and scenario planning.
A range of SCM software products are emerging to support supply chain professionals. These software options include:
- Inventory management software
- Order management systems (OMS)
- Warehouse management systems (WMS)
- Transportation management systems (TMS)
- Demand planning software
- Supplier relationship management (SRM) software
- Enterprise resource planning (ERP) systems
- Supply chain analytics software
- Supply chain visibility software
These tools streamline and automate processes such as procurement, production, logistics and sales, which in turn improves efficiency and reduces costs. For example, ERP systems provide real-time visibility into supply chain processes, enabling quick decision-making and optimization. Similarly, WMS and TMS help manage and control warehouse and transportation operations.
IBM Planning Analytics helps organizations achieve end-to-end supply chain visibility for optimal profitability.
Traditional transformation is not enough to solve your supply chain disruptions. Apply the power of AI and the speed of automation to improve supply chain management, resiliency and sustainability.
IBM supply chain consulting services use market-leading technologies and AI capabilities to prepare your business for the future of work.
A supply chain control tower is traditionally defined as a connected, personalized dashboard of data, key business metrics and events across the supply chain.
Order management is the tracking of orders from inception to fulfillment, and the management of the people, processes and data connected to the order as it moves through its lifecycle.
Inventory management, a critical element of the supply chain, is tracking inventory from manufacturers to warehouses and from these facilities to the point of sale.
Sustainable supply chain management aims to minimize any negative impacts of business operations on the environment and society while ensuring efficiency and reliability.
Supply chain analytics helps to make sense of the massive amounts of data a supply chain generates by uncovering patterns and generating insights.
Supply chain optimization makes use of technology and resources like blockchain, AI and IoT to maximize efficiency and performance in a supply network.
Footnotes
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1 "CSCMP Supply Chain Management Definitions and Glossary", Council of Supply Chain Management Professionals, July 2024.
2 "Next stop, next-gen", Accenture, July 2024.
3 "Occupational Outlook Handbook: Logisticians", US Bureau of Labor Statistics, 17 April 2024.