What is supply chain management?

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

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:

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.

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.