Supply chain man­age­ment (SCM): what is it and what does it do?

Well-developed supply chains can make or break a company. Es­pe­cial­ly during a crisis, the right strategy can mean continued sales – despite chal­lenges in logistics or pro­duc­tion. By way of efficient supply chain man­age­ment, large in­ter­na­tion­al cor­po­ra­tions can make use of al­ter­na­tive delivery in­ter­faces, big data analytics, and detailed in­for­ma­tion sur­round­ing the avail­abil­i­ty and demand for goods from global suppliers.

The syn­chro­niza­tion of cross-company in­for­ma­tion and goods flows can not only strength­en a company's ability to adapt to flexible market con­di­tions, but also helps maintain re­la­tion­ships with suppliers, man­u­fac­tur­ers, and end customers during a crisis.

But what exactly is supply chain man­age­ment? How does it work? And why is it also of great im­por­tance for e-commerce?

Global supply and pro­duc­tion chains and in­creas­ing dig­i­tal­iza­tion are not just a challenge for companies, but also an op­por­tu­ni­ty. By or­ga­niz­ing the future flow of goods and in­for­ma­tion through supply chain man­age­ment, companies can not only balance out market un­cer­tain­ties but also create a flexible network of services.

Supply chain man­age­ment rep­re­sents the overview and op­ti­miza­tion of physical and digital supply chains, from raw material suppliers to the end consumer. An efficient SCM enables supply and pro­duc­tion processes at com­pet­i­tive prices and a constant flow within the value chain. Here, it’s not about op­ti­miz­ing the weakest link in the supply chain, but that every link plays its part.

An open and trans­par­ent exchange of in­for­ma­tion between dealers, suppliers, and producers guar­an­tees that companies can react flexibly and quickly to fluc­tu­a­tions in demand, as with the bullwhip effect. This ensures that the flow of goods is as un­in­ter­rupt­ed as possible and in­ven­to­ries don’t ac­cu­mu­late. The supply chain can only be made more efficient if short com­mu­ni­ca­tion channels, big data analytics, and in­no­v­a­tive tech­nolo­gies are used to influence suppliers and the flow of goods.

Central to efficient supply chain man­age­ment is the im­ple­men­ta­tion of modern in­for­ma­tion and com­mu­ni­ca­tion tech­nol­o­gy in the form of software solutions and machine learning. The faster, more uniform, and automated the data exchange, the better the links in the supply chain interlock.

Product life cycles and turn­around times are becoming ever shorter in our glob­al­ized world, while customer ex­pec­ta­tions continue to increase and the need for cheaper pro­duc­tion and fast delivery times grow. Supply chain man­age­ment can establish a trans­par­ent network along the entire value chain by way of stability and co­op­er­a­tion.

Key goals of SCM are lower costs, customer focus, and demand-oriented pro­duc­tion through an effective division of labor. Companies can only make physical and lo­gis­ti­cal in­fra­struc­tures cheaper, faster, and more com­pet­i­tive by co­op­er­at­ing with partners and making in­for­ma­tion trans­par­ent.

The division of labor lets partner companies con­cen­trate on their core com­pe­ten­cies. A product is no longer man­u­fac­tured centrally. Instead, com­po­nents and raw materials are brought in by producers, suppliers, and sub-con­trac­tors at the best price-per­for­mance ratio and delivered to the end customer as a finished product. However, it is the in­te­gra­tion of big data analytics and machine learning that makes it possible to syn­chro­nize demand and supply, and balance pro­duc­tion with demand.

SCM can be split into three fields of ap­pli­ca­tion:

Product flow: Not only do companies need to maintain a good re­la­tion­ship with affiliate companies; companies also need to know which sub-con­trac­tors are used along the supply chain. Only if they are fully aware of a product’s journey from the raw material suppliers to man­u­fac­tur­ing and to the end consumer can they manage the product flow of de­liv­er­ies and returns.

In­for­ma­tion flow: In­for­ma­tion must flow in two di­rec­tions along the supply chain. To deliver products ef­fi­cient­ly, companies must rely on customer behavior. How much are they buying? Are there places where consumers request certain products? Are there regular peaks in demand? These transfers of data from sales outlets to companies make sure supply flows are ef­fec­tive­ly managed. In­for­ma­tion about transport routes and a com­pre­hen­sive com­mu­ni­ca­tion in­fra­struc­ture are an integral part of SCM.

Financial flow: Financial flows take place parallel to and in con­nec­tion with pro­duc­tion processes. Each link in the value chain has its own financial interests and wants to benefit from the co­op­er­a­tion. The control and op­ti­miza­tion of financial flows is essential for SCM in order to reduce costs and increase profits for all involved.

Supply chain man­age­ment has three phases:

In the strategic phase, a company makes long-term decisions over months and years to optimize and stabilize the logistics network along the value chain (e.g. location planning and expansion, in­vest­ments, out­sourc­ing, ca­pac­i­ties).

In the tactical phase, medium-term decisions are co­or­di­nat­ed and im­ple­ment­ed within a quarter or a year (e.g. delivery strate­gies, warehouse logistics, personnel planning).

In the op­er­a­tional phase, short-term pro­duc­tion and delivery decisions are made within days or weeks (e.g. product sales and storage and order dis­tri­b­u­tion).

To implement SCM, effective and in­no­v­a­tive tech­nolo­gies and strate­gies are needed. Here, modules and ap­pli­ca­tions are in­ter­con­nect­ed to implement company-wide planning concepts in a uniform and process-oriented way. This includes product and financial flows, resource op­ti­miza­tion, data transfers, and logistics. Companies like Amazon and Netflix have long made use of big data analytics, real-time content, and systems of en­gage­ment to evaluate user data and interests, and derive ap­pro­pri­ate measures.

According to a global research study on the current and future state of digital supply chain trans­for­ma­tion, 70% of ex­ec­u­tives from some of the largest global man­u­fac­tur­ing and retail or­ga­ni­za­tions said that they have initiated a digital supply chain trans­for­ma­tion and that dramatic changes are expected within just 5 years. While only 23% of re­spon­dents said that currently most data is analyzed and used for decision-making, within 5 years that number jumps to 68%.

The key com­po­nents that make up suc­cess­ful supply chain man­age­ment include big data analytics, cloud computing, sim­u­la­tion tools, real-time content, bimodal strate­gies, and a strong customer focus. The mon­i­tor­ing of one's own products could be increased, for example, with RFID tech­nolo­gies (Radio Frequency Iden­ti­fi­ca­tion), in which in­for­ma­tion on pur­chas­ing behavior and demand reaches man­u­fac­tur­ers and suppliers directly.

Trans­form­ing a company through supply chain man­age­ment requires that complex changes be made to its IT systems and com­mu­ni­ca­tion streams along the supply chain, making it a chal­leng­ing tran­si­tion.

In light of growing global pro­tec­tion­ism and the severe blows that have hit global trade in recent years, many companies have no choice but to fa­mil­iar­ize them­selves with SCM. Due to ever-shorter market launches and product life cycles, lowering costs and in­creas­ing profits without constant contact to national or in­ter­na­tion­al partners is almost im­pos­si­ble to achieve.

Par­tic­u­lar­ly during a crisis or in uncertain markets, changes to delivery routes and pro­duc­tion figures are necessary to reduce in­ven­to­ries and maintain the flow of goods. Be it Walmart, Tesla, Apple, or Amazon – big players on the market have for a while already made in­no­v­a­tive tech­nolo­gies, ar­ti­fi­cial in­tel­li­gence, and au­toma­tion part of their business model.

Common issues that arise due to supply chain man­age­ment include:

• Clashing company goals: Along the supply chain, con­flict­ing business ob­jec­tives can clash
• Dis­tri­b­u­tion of costs/tasks/re­spon­si­bil­i­ties/profits: The fair or equal dis­tri­b­u­tion of tasks, costs, and re­spon­si­bil­i­ties links all those in the supply chain
• National and in­ter­na­tion­al standards: Agreeing on company-wide standards for the entire planning process
• Data security: The safe­guard­ing of internal financial and pro­duc­tion data and in­ter­na­tion­al­ly differing safety standards
• Lack of proximity: Main­tain­ing close and trans­par­ent co­op­er­a­tion across borders without direct contact

In our glob­al­ized world, e-commerce is growing in im­por­tance. The buying and selling of goods and services via online shops and internet platforms can be con­trolled by means of an advanced SCM. Key elements for adaptable and forward-looking e-commerce platforms include a trans­par­ent overview of stock levels, a demand for goods, and the ability to estimate scal­a­bil­i­ty.

The timely im­ple­men­ta­tion of supply chain man­age­ment can improve sales fore­cast­ing and make pro­duc­tion needs more pre­dictable. For e-commerce, specif­i­cal­ly, the ad­van­tages include customer proximity as well as the fast eval­u­a­tion of big data and buying behavior. Due to these factors, SCM is very well suited to online sales.

To suc­cess­ful­ly apply SCM in e-commerce, it’s important to take certain factors into account.

Personnel man­age­ment and digital in­fra­struc­ture: To guarantee reliable supply chains, it’s important to build a flexible network of man­u­fac­tur­ers and suppliers that can keep pace with the demands of a growing company. In in­ter­na­tion­al trade, it is of great im­por­tance to exchange in­for­ma­tion with experts who can advise on issues relating to con­trac­tu­al oblig­a­tions, cur­ren­cies, and customs.

Avail­abil­i­ty of goods and delivery times: Customer ex­pec­ta­tions are extremely high in the face of com­peti­tors like Amazon Prime. Short delivery times, low prices, and high quality are decisive factors for most consumers. Com­pet­i­tive business is only possible when an effective logistics chain, forward-looking inventory man­age­ment, and struc­tur­al adapt­abil­i­ty by way of al­ter­na­tive sub-con­trac­tors are in place.

Reduce excess stock: In order to reduce old stock and un­nec­es­sary costs, over­stock­ing must be avoided and in­ven­to­ries must be adjusted to the demand for goods. With the eval­u­a­tion of customer data and an overview of warehouse ca­pac­i­ties, man­u­fac­tur­ers and suppliers can flexibly navigate the e-commerce market.

Manage returns: Es­pe­cial­ly in online sales, customers expect returns to be handled without problems. Favorable con­di­tions with your own suppliers in terms of returns are therefore par­tic­u­lar­ly important for achieving a balance between business losses and good customer service.