What is the role of supply chain management

digitalization

Only a few terms can boast of combining an almost endlessly complex system with a multitude of even more complex processes - “Supply Chain Management” (SCM), for example. Previously known as the value chain, the supply chain is now the heart of every company. This article answers the most important W-questions about the supply chain.

What is supply chain management?

Supply chain management encompasses the control, monitoring, review and optimization of material, information and cash flows in the entire value creation process of a company. This extends from the procurement of parts, through production and refinement, to the end customer - and back again.

The metaphor of the chain with a fixed beginning and an end only applies to a limited extent to the supply chain. Rather, it is a "Supply and Information Circle". The product is created on the way from the supplier to the end customer. This in turn provides information in the form of increasing or decreasing demand, which in turn affects the suppliers. It is therefore a closed cycle that has to be constantly questioned and adapted.

You should know: SCM is more than logistics. Controlling and optimizing logistic processes is an important aspect in the value chain and contributes significantly to a successful SCM. However, there are other, overarching facets to consider in supply chain management, such as:

  • Have the planned production figures been achieved? If not, why not?

  • What has to happen in order for it to be achieved?

  • Are the flow of information and money running smoothly?

  • Are there already bottlenecks or are there any threats, both in terms of material and production as well as human resources?

  • How does our supply relate to demand and vice versa?

How is the supply chain structured?

The supply chain can be roughly divided into the following three areas:

  1. procurement

  2. Production and intralogistics

  3. distribution

These in turn combine other aspects and interact with almost every other department in the company. All areas require a corresponding analysis, i.e. the determination of requirements as well as production and distribution planning.

The next step is to select the appropriate suppliers, transport and logistics service providers. The processes involved in parts delivery and delivery must be monitored, checked and, if necessary, adjusted. Last, but not least, billing plays an important role in all areas. Taken together, you should be able to provide answers to the following questions:

  • Are we operating profitably and efficiently as a company?

  • Can we react flexibly to fluctuating customer demand?

  • Are we competitive?

  • What and where do we need to optimize?

Where does SCM take place?

Almost every company has to deal with its value chain, regardless of the economic sector or industry. The biggest differentiator, however, is the complexity. Manufacturing companies in particular, such as automobile manufacturers or machine builders, control a large number of suppliers and transport service providers. You have to plan material, production and employee capacities precisely - and usually across different national borders and continents. Even in the service industry, the supply chain is the backbone of the company. Gastronomy companies must also organize their procurement, logistics and production as efficiently as possible so that their prices remain attractive for guests.

Who is part of the supply chain?

The supply chain of some companies contains several hundred players. A car, for example, consists of around 10,000 parts from different suppliers. The supplier himself also commissions other suppliers, for example for certain raw materials, modules or components. So that these parts can be used in good time, automobile manufacturers rely on a range of transport service providers. In addition to forwarding agents and CEPs (courier, express and parcel service providers), this also includes air and sea freight service providers. Your job is to deliver the parts to the factories, warehouses, dealers or authorized workshops at the agreed time, and of course worldwide.

This results in a variety of challenges, such as the reliability of pick-up times. Because not all third-party drivers provide a current status report on the transport and the actual arrival time, for example. All of these actors must be controlled and their use planned in such a way that the end customer, who plays the main role in the supply chain, is always satisfied. One way of making these processes as efficient as possible and keeping an eye on all deliveries can also be the use of digital solutions for SCM and logistics processes.

Who has which tasks in the supply chain?

Monitoring, controlling and ongoing optimization of the entire supply chain is part of the supply chain manager's day-to-day work. He is responsible for the entire value chain of the company, both in intralogistics and for the cross-company areas. He is still responsible for strategy and feedback to the management.

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Depending on the agreement, the supplier or the company itself selects and controls the transport service provider. In retail, for example, it is common that according to the Push principle is proceeded. This means that the supplier receives a deadline for the delivery from the dealer. He commissions the transport service provider and must ensure that it delivers to the dealer on time.
In contrast, in the manufacturing industry this occurs Pull principle for use. The company informs the supplier when a transport service provider commissioned by it will pick up the delivery.

No rule without exceptions: There are various mixed forms and individual contractual agreements, especially for the coordination of transports.

How does supply chain management become successful?

Supply chain management is complex and diverse. In order for SCM not only to be successful, but also to make everyday work and the nervous effort more bearable for SCM managers, the following rules should be observed in SCM:

1. Open exchange
True to the phrase "butter in the fish", it is also important in supply chain management not to talk about the bush, but to communicate clearly and honestly. An open exchange of information between all those involved is essential for smooth processes and real process implementation. This also includes a clear definition of rules and responsibilities within the entire supply chain, also in the event of conflicts or escalations.

2. Think outside the box
Supply chain management goes far beyond the company's own boundaries. In order for SCM to be successful, it is essential to consider all facets and interrelationships in value creation. This also includes, for example, the value chains of the suppliers used, who in turn are themselves dependent on other suppliers. Companies should therefore ensure and take into account that additional partners can be easily integrated into the existing structure of the supply chain or, if necessary, exchanged.

3. Automation creates free capacities
So that those responsible can keep an overview of the supply chain at all times, it is essential to set up the communication and information flows in such a way that all process actors can exchange data with each other in real time. This can be, for example, open and interoperable multi-carrier platforms that work via the cloud. They connect everyone involved and ensure that the processes and relationships among each other are transparent. Automated processes, communication and data in real time create a transparent supply chain. Rule-based algorithms minimize manual effort and enable "management by exception". This means that those responsible then mainly only deal with the exceptional cases and deviations, the rest is automated.

4. Activate the inner detective
Supply chain management is detective work: The precise and constant analysis of all SCM processes requires the inner drive to always want to identify potential for optimization. However, the prerequisite for this is that those responsible know and understand all the business processes and relationships in their own company as precisely as possible. Only when this is the case, technologies such as artificial intelligence can be integrated in order to create rule-based configurations and thus automation.

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5. Jump over your own shadow
Due to the complexity of the supply chain, it can also make sense to work with external specialists. Be it in the area of ​​analysis and consulting or at the operational level for the digital control of the SCM processes. In order not to have to outsource all of the know-how, only partial areas can be defined for this.

6. Yesterday's success is seldom tomorrow's success
For a successful supply chain management it is essential to keep an eye on the market at all times. Economic changes, new laws, changed consumer behavior are decisive for your own value creation processes. Even business processes that have been established for years or decades do not guarantee infinite corporate success. The markets and information technology are dynamic, as is the supply chain.

The complexity and diversity of supply chain management continue to pose major challenges for companies. In the meantime, digitization can support the networking of all supply chain actors and make automated procedures and processes transparent. (bw)