Supply chain management (SCM) has evolved from manual, logistics- and mechanization-focused optimization to modern, digital, and automated integration and coordination of all supply chain elements. It plays a vital role in addressing the growing complexity of today’s global supply chains. Primarily, it facilitates and optimizes the flow of products, information, and finances, allowing companies to create better relationship value and improve overall business efficiency.
But to fully realize the potential benefits of SCM, companies should embrace a data-driven approach, because data is the fundamental element in every aspect of supply chain optimization. Data-driven SCM allows for further competitive advantages such as seamless integration of business elements, schema-on-read approach to supply chain data management, and real-time data transparency.
Supply Chain Management Evolution
Prior to the 1960s, logistics enhancement, mechanization, and warehouse space maximization were the focus of supply chain facilitation. Information management was highly manual, while freight transportation was intermodal. But by the 1960s, trucks eventually became the main container particularly for time-dependent goods. This trend resulted in the conceptualization of Physical Distribution to facilitate an effective confluence of freight transportation, warehousing, and materials handling. Supply chain data management, however, remained highly paper-based.
By the 1970s, the computerization of data began. A decade later, supply chain planners had access to personal computers, which allowed them to enable further logistics optimizations and innovations.
Beginning in the 1990s, the rise of the Internet and other technological advancements led to a sea-change in the management of supply chain networks. Businesses became interested in supply chain management (SCM) and started investing in supply chain management solutions such as Enterprise Resource Planning (ERP) to break information silos, ensure “data accuracy and availability,” and integrate all supply chain functions.
Growing Supply Chain Complexity
Today, companies are modernizing and digitizing their supply chain network to competitively operate at the edge. This supply chain facelift requires an all-encompassing array of strategies beyond mere logistics enhancement and mechanization so that companies will be able to overcome the pressing issues in today’s supply chains.
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Supply chain challenges have become more taxing due to the variable, unpredictable demands of today’s customers. Take for example the supply chain challenges in healthcare. Nearly all (90%) of supply chain leaders say that their top challenge is customer demand for faster response times, followed by hiring and retaining a skilled workforce, customer demand for lower delivered costs/pricing, increasing competitive intensity, and rising customer service expectations.
To overcome these challenges, an effective SCM solution should be implemented.
What is Supply Chain Management?
Recognizing the growing supply chain complexity, companies became highly interested in supply chain management (SCM). They realized that they need a powerful array of strategies that can help them cost-effectively facilitate all supply chain processes for enhanced visibility and traceability, minimized wastes and costs, streamlined and integrated operations, accelerated “time-to-customer,” and optimized overall performance.
But what exactly is SCM?
Before we provide a working definition of SCM, however, it is important to understand what SCM is not. SCM is not “inventory management, logistics management, supplier partnerships, shipping strategies, distribution management, logistics pipeline, procurement management, or even a computer system.” But supply chain management systems may encompass all these processes.
Ellram and Cooper (1993) defined SCM as “an integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer.” A more recent definition from WhatIs.com states that “supply chain management is the oversight of materials, information, and finances as they travel through the supply chain from supplier to manufacturer, wholesaler, retailer, and customer.” On the other hand, supply chain management is “all about integrating and coordinating all the functions, activities, transactions, and people interconnected in an integral value chain through which products or services – whether physical or virtual – constantly flow back and forth from supplier and manufacturer to distributor and, finally, to consumers.”
Supply Chain Management Benefits
Implementing effective supply chain management using powerful SCM solutions will allow businesses to optimize the three key flows in the supply chain: product flow, information flow, and financial flow.
Improved product and material flow
- Time-to-consumer is a crucial indicator of product flow efficiency. The less time it takes for goods to reach the end customer, the more efficient the product flow. However, there are many other factors to consider such as the quality of the materials or goods that reach customers, the supply and demand balance, shipment options and costs, and inventories.
- Effective supply chain management enables companies to improve product flow through accurate demand and sales forecasting and also improve inventory management to arrest the bullwhip effect and avoid underproduction. SCM also minimizes delays and allows full traceability and visibility into the movements of goods from the supplier to the customer. SCM enables working strategies that can accelerate time-to-market and optimize business speed, while ensuring high level of product quality.
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Seamless information flow
- “The effective SCM requires not only the integration of material flows but also the integration of information flows in the supply chain (Frohlich & Westbrook, 2001; Trent & Monczka, 1998).” Today, with customers constantly demanding for real-time response and easy access to product and other supply chain content, information flow should be uninterrupted. Intermittent and insufficient information flow due to a fragmented supply chain can lead to poor supplier and customer relationships and huge costs – to the tune of £1.2 billion per year, according to Oracle.
- Companies with effective supply chain management can remove the bottlenecks to supply chain information flow. It can help them evaluate the quality of information sharing, then implement solutions to best fill the gaps. SCM helps design effective best practices to facilitate different types of supply chain information that usually come in different formats and structures. SCM also enables accurate, timely, complete, and relevant information flow to avoid missed opportunities and possible risks.
- Effective and seamless information flow addresses information distortion and miscommunication and promotes enhanced collaboration and relationship value among supply chain stakeholders. It also helps improve visibility into all transactions and accelerate generation of supply chain insights through past reports creation.
Enhanced financial flow
- Another pain point for supply chain players is how to improve cash flow in the value chain, which involves “thousands of invoices and payments in a given year.” The unpredictability and variability of financial inflows and outflows can add more complexity to the inherently complex supply chain financial flow.
- According to Visa, generally, financial management challenges are (1) slow processing due to manual and silo processes; (2) unreliable, unpredictable cash flows because of lack of timely information; (3) costly processes due to compliance and lack of employee empowerment; (4) high Days Sales Outstanding (DSO) caused by invoice reconciliation delays; and (5) suboptimal credit decisions due to manual processes for setting optimal limits.
- Implementing supply chain management can help companies address all these cash flow challenges, allowing them to carefully evaluate their current processes, identify the weakest links that slow down and hamper financial flow, and determine the right solutions to address the problems.
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By optimizing product, information and financial flow, companies can proactively create and seize new market opportunities and mitigate risks that can negatively impact their entire business. With an effective supply chain management system in place, enterprises can comprehensively and continually assess their processes, identify and fill all the gaps, lower costs, competently evolve with ever-evolving supply chains, and enable quicker decision making.
Data-Driven Supply Chain Management
To maximize the potential of SCM, however, companies should embrace a data-driven approach because data is at the core of every supply chain transaction and is fundamental to product, information, and financial flow optimization. A data-driven approach to SCM enables seamless integration of business elements, schema-on-read approach to data management, and real-time data transparency.
Data-driven SCM can be achieved by leveraging the OpenText ALLOY™ Platform, which embodies a new approach to integration called Data Platform as a Service (DPaaS). DPaaS is a cloud integration and data management model named for its ability to provide PaaS functionality at the point of data analysis, without the hassle of the underlying data capture, integration, or management mechanics.
Supply chain network complexity is growing as further technological advancements are underway such as 3D printing, “uberization,” IoT, and Mobility. But with effective supply chain management in place – which consists of strategies and best practices for integrating and coordinating all the functions, activities, transactions, and people in the entire value chain – companies will be able to address and adapt to ever-increasing complexities.
To totally maximize the benefits of SCM, companies should embrace a data-driven approach to SCM using the OpenText ALLOY Platform, because data is the basic element in production, information, and financial flow in the supply chain network.