Supply Chain Management: What You Should Know

Since the onset of the Covid 19 pandemic, the words “global supply chain” have become a familiar sight, not only in the financial pages, but on the front page as well. 

For those who work in this space, there’s been a tug of contradictory feelings: while it’s wonderful to (finally) garner some much deserved attention, it’s distressing to have that notice be attached to a time of complex and widespread disruption.

We thought it might be helpful to give readers a quick overview of: 

  1. 1. Why supply chain management is important
  2. 2. How does supply chain management “work,” and 
  3. 3. What’s new in supply chain management

How The Supply Chain Went Global 

With so many headlines focusing on its current vulnerability, let’s gain a little perspective with a quick look back on the rise of supply chain.

Despite the recent attention paid to them, throughout most of human history, supply chains have operated essentially “behind the scenes.” Before the 20th century, supply chains were largely local or regional in nature. The industrial revolution and the advent of the railroad and ocean freighters opened the door to national and global supply networks. The 50’s saw the development of “containerization” which enabled intermodal (ship, rail, air, truck) transport. Through the 70’s and 80’s, computers brought the next major advances, with sophistication and speed for tracking, routing, and higher-order functions like analytics and planning. In the 90s, new operating philosophies – like Lean and Just-in-Time – ushered in an era of efficient supply chains.

Why is Supply Chain Management Important?

Simply put, supply chain management is important because of its enormous breadth and scope. The global economy is more than $85T (Trillion) annually — roughly split between services and products – which means the global supply chain is involved in about $40T of spend every year. Whether it’s the goods you require for your everyday life, or it’s the dollars pouring into the economy from the goods and services other people are buying, society’s wellbeing is directly connected to the health of the global supply chain. A few more statistics to give some useful perspective on supply chain’s reach:

  • • In 2020, worldwide, $835 billion of consumer goods were manufactured, a process highly dependent on the global supply chain. 
  • • 131 billion parcels were delivered. That means that more than 4,000 shipments are delivered every second.
  • • Worldwide, more than 450 million people work in the supply chain industry.
  • • The US alone houses ten billion square feet of warehouse and distribution space.
  • • Also in the US: 4.9 million suppliers support just the Fortune 1000 companies
  • • If supply chains stopped running for just one day, the world would lose $109B.

How Does Supply Chain Management Work?

The American Production and Inventory Control society, known as APICs, was formed in 1957, officially launching the era of supply chain as a profession and discipline of its own. APICs is now known as the Association for Supply Chain Management, ASCM — and their work to improve the application of supply chain best practices continues today. The CSCMP (Council of Supply Chain Management Professionals) formed soon after, still offers networking, career development, and educational opportunities.

In simplest terms, supply chain management is the coordination of several discreet disciplines to move goods from sources, to suppliers, to customers with optimal efficiency. ASCM developed a model, SCOR, to define and standardize the elementary functions of this work. As you can see at the link, SCOR now comprises a digital standard, including the following capabilities:

  • Plan: Predicting demand and creating the demand plan to balance requirements against resources, identifying and remediating any gaps. Insider’s scoop: A lot of attention in supply chain is paid to building the “perfect plan.” In reality, most organizations would see a higher ROI by investing in the other areas of the SCOR model. Demand will always be volatile. The goal should be to create an agile supply chain, which will always outperform an incrementally better plan.
  • Source: Ordering, delivery, receipt and transfer of raw material items, subassemblies, products or services. 
    Supply chain resilience has gotten a lot of attention lately, the idea being that companies should map out their entire sourcing networks to identify all potential risks. However, supply chain disruptions are a lot like lightning strikes. We know there will be more lighting in the future but predicting exactly where would be futile. Similar with supply chain: instead of trying to predict where the next disruption will be, build a flexible supply chain that can respond as quickly as possible.
  • Make: Converting materials into products or components. This includes assembly, processing, maintenance, repair, refurbishment, quality control, and manufacturing.
    As we’ll discuss in the next section, the trend over the last few decades was to outsource the Make portion of the supply chain. However, with more global challenges (e.g. tariffs, natural disasters, localization, etc.), we expect to see more companies bring manufacturing, assembly, and repair back inhouse.
  • Deliver: Receiving, creating, and validating customer orders; scheduling deliveries; picking, packing and shipping; and finally, invoicing.
    Container shortages wreaked havoc in 2021. While prices are still above historical averages, the worst of the bottlenecks have dislodged. If you’re still being charged expedited prices for standard shipments, you need to look for new partners.
  • Return: Of course some items will need to be returned, so supply chains must offer this flexibility: managing return scheduling, shipping, and receiving of returned goods.
    The reverse supply chain deserves proper attention. Many companies will tuck Return within Deliver, but the best performing companies have separate leadership and KPIs for Deliver and Return.
  • Enable: Management of business rules, performance, data, resources, facilities, contracts, overhead costs, regulatory & compliance functions, risk management and procurement.
    If your company doesn’t have an active supply chain digitization initiative, then you’re losing ground on the competition. Supply chains need to be digitized to be truly Enabled.

Within each discipline of the supply chain, multiple parties must work together in unison. Today a typical supply network includes:

  • Brand owners: They own copyrights, trademarks, and designs for their products. Most of the big names even have internal supply chain teams who oversee their partners — among them:
  • Suppliers: Acquiring, extracting, or procuring goods required to create end-products.
  • Manufacturers: Assembling components into subcomponents or finished products. 
  • Carriers: Moving material, components, or products from place to place.
  • Distributors: Acquiring, storing, and reselling products to retail endpoints.
  • Retailers: Offering goods and products to consumers.

Supply chains today are almost all managed with a suite of supply chain management systems, including ERP (Enterprise Resource Planning); TMS (Transportation Management Systems); WMS (Warehouse Management Systems); and MES (Management Execution Systems — for shop floor and work order management). These systems are meant to accelerate the movement of goods, decrease costs, and add higher efficiency to overall operations.

Collectively, it’s this coming together of supply chain disciplines, participants, and systems that make supply chains work.

What’s new in Supply Chain Management?

Supply chains are rapidly shifting from defense to offense. In 2021, supply chains were plagued by material shortages, part shortages, labor shortages, and container shortages. This meant that every ounce of effort was directed to firefighting. In other words, solve today’s problems now, and worry about tomorrow’s problems later.

Today, many of these problems still exist, but customer and investor patience has reached its end. That much was made clear when companies reported their Q1 results. Any company citing supply chain for missed earnings was punished with a lower stock price. 

As a result, more companies are turning to new innovative technologies to counteract the ongoing supply and labor challenges. These include solutions to digitize:

  • The booking and tendering of shipments
  • Real-time track and trace, particularly within maritime and cross-border shipping
  • Workflows and processes

There’s a new focus on automation and visibility to increase productivity. Technology can’t solve all of supply chain’s challenges, but it can differentiate the winners from the losers in a very competitive market. 

David Blonski

David Blonski

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