What is Modern Supply Chain Management?

by Dmytro Grebennikov

It’s difficult to conceive of a functioning world economy without modern supply chain management practices.  The globe is lined with interconnected trade networks, criss-crossing freight routes, international commerce, and manufacturing. A wealth of companies have already automated their manufacturing processes and continue working on quality improvement, process optimization and other elements of a modern supply chain management system. However, there are still many others using outdated technologies and lacking process automation – which means they’re losing out to their competition. And that’s the growth market for supply chain management technologies. According to Zurich Insider 63% of companies are not yet using any technology for supply chain efficiency monitoring, and 69% lack full transparency and visibility within its supply chain.

So that’s where we come to the core question of this article – what is a Supply Chain Management System (SCM System), and what challenges can it solve in a business?

From a business perspective, a supply chain is the system of organizations, people, activities, information, and resources, which transport products or services from supplier to customer. Supply chain activities can include the extraction and processing of natural resources, raw materials, and components into finished goods, and its delivery to the end-users. It can also be the movement of goods or information between different links of the chain (for instance, post-delivery). The main contributors to the supply chain are usually raw materials suppliers (farms, mineral deposits), processors and producers of goods (factories, plants, etc), warehouses for storage of goods, shipping companies and their hubs (ports, stations, airports), and organizations that distribute the final products to end-users (stores, delivery services, dealers, etc).

There are still so many companies using outdated accounting methods in their supply chain, especially when it comes to paper document flow and people-based processes in production and transportation. The main disadvantages of such regressive methods include:

  • Unreliable paper documents: easy to lose or mix, easy to counterfeit or replace, require storage space.
  • Slow access to the necessary data: it’s difficult to quickly locate a paper-based document when required; searching for information inside the document also takes a lot of time.
  • Lack of transparency: in the production and delivery of goods for different participants in the chain, and for regulatory bodies. 
  • Difficulties in monitoring: the production of goods, and the automated management of sales forecasts, inventory management and procurement.

When addressing these challenges, we look to a Supply Chain Management System (SCM System).

SCM System refers to any application software designed for the automation and control of all supply chain stages, control over all of the product’s logistics (purchase of raw materials, production, distribution of products), and flexible access to view or work with the supply chain data for stakeholders, (depending on their identity and access credentials).

There are two main large units within the SCM:

  • Supply chain planning —  planning for the resources required for every supply chain unit’s inputs and outputs, and their relationship, distribution of roles and access for participants in the supply chain, solutions on sales and procurement forecasts, supply chain design, performance analysis.
  • Supply chain execution — tracking and monitoring of production and logistics operations, verification of the history and quality of goods.

There are a variety of solutions to choose for business. It’s possible to purchase an existing solution and integrate it, adding additional modules and features to cover your business needs. Another option is to develop a custom SCM System from scratch, fully corresponding to all your business’ processes.

Let’s take a look at the SCM System in the example of a company providing postal services – the delivery of correspondence and parcels. We can imagine that such a system will maintain the following modules:

  • Servers in which the logic of the SCM System work, security and data integrity, information processing, and generation of instructions to the chain’s members is all handled.
  • Identity & Access Management unit, in which flexible management of roles and access for different participants in the chain is handled.
  • Web interface for managers of different levels of the supply chain to work in.  
  • Mobile application or special QR scanners for operators who physically manage parcels (both sending and receiving).  
  • Web interface or mobile application for the end-users, so they may register their parcels and track their location in real-time.

A similar system is able to generate the major delivery processes, and will also cover the needs of customers and the company itself. Here’s an overview:  

  • The client, using the web interface, creates a request for parcel shipping. Using the basic data input by the client, the system suggests the location of an office he can drop the parcel off at and indicates the approximate price. It’s also possible for the courier to collect the package at a given location. Using a simple interface, you can do everything in just two minutes, rather than wasting time searching for information on the Internet.
  • When the operator receives the package, he generates a unique QR code with the help of the system. The QR code will be attached to the package throughout the delivery phase. The operator immediately scans the QR code with the help of the scanner or mobile application, recording delivery data, and sends the package. This is the starting point of the package delivery journey.
  • At every interim delivery point, local operators will scan the QR code and add information, but without removing any earlier data. In such a way the whole delivery history will be saved within the system. The use of QR codes will help to eliminate possible errors of package identification, mistakes leading to package misdelivery, and even parcel loss.  
  • The client is able to check (using the interface) the package delivery status and journey at any time. Special sensors on containers enable tracking not just the country or city it’s in, but the exact location of the parcel in real time. Those sensors can also be used for tracking delivery transport.  
  • Given that all information about the logistics of the package is within the system, it’s possible to automate a series of processes: warehouses’ loading predictions in different time frames, planning the most efficient routes and delivery schedule, forecasting the necessary labor force to ensure the on-time delivery and processing of parcels, and more accurate prediction of delivery time.
  • The current system also serves as the base to integrate Robotic Process Automation, whereby artificial intelligence and robotics replace significant manual labor requirements and minimize the human factor.  

The SCM System’s functions may vary depending on the needs, budget and business processes. It’s difficult to overestimate the benefits of integrating an SCM System into supply chain management. In the example above, we took a look at the business process within one company. But today the more common practice is to step away from the old paradigm of vertical integration, in which all raw materials, services, and components are produced independently. The modern approach is seen when a company concentrates on its main competitive advantages/process, and the ‘non-core’ materials and services are produced by partners, establishing alliances in order to reduce the final cost of produced goods.

Let’s merge this modern paradigm into our example. The company has established long-term partnerships with local courier services and transportation companies. In this case, the SCM System plays an even more important role, as every participant of the supply chain might have their own operational processes, bespoke software, and a variety of services. Using a single SCM System allows them to maintain the desired level of service on all levels, even where its influence is limited.

Nowadays automation and transparency of the provenance and quality of the goods is crucial for customers and manufacturers. SCM Systems can be integrated for industries such as:

  • Food industry – healthy food, control of growing conditions, food production and delivery chain. Artificial intelligence is used to analyze and create optimal growing conditions for vegetables and fruits, fish, etc.
  • Precious metals, jewelry and mining industry – tracking origin and processing sites, quality verification and transparency of data, all of which add value to final products.
  • Tobacco and alcohol industry – history tracking, quality of elite products’ production, providing valuable information and a guarantee to end-customers and sales networks which focus on quality.
  • Drugs and pharmaceuticals – quality control of drugs, production and packaging.
  • Fine art –  recorded history of all transactions and movements of art objects with the use of special authentication methods.

For example, Anglo-Dutch transnational consumer goods company Unilever began a five-year growth strategy in 2000, including a substantial restructuring of supply chain management. They focused on optimizing their global procurement processes, interactions between supply chain participants, and technology development. As a result, they achieved a reduction in costs to the amount of USD $14.24bn by 2003.

With modern technology, it’s possible to create software for practically any purpose. However, to succeed in the field of supply chain management, it’s important to address the following questions:

 

  • Where do I start? Should I launch the company, begin operations and structure the work of the company before developing and integrating a SCM System?
  • It’s better to start doing all the above at the same time, simultaneously from the beginning – and develop the supply chain management system’s functionality if necessary. Such an approach allows you to immediately build optimized processes, achieve the required quality and save resources. But that’s one of the possible options, among many others.

 

  • What would be the cost of developing a bespoke SCM System? What should I consider before starting?
  • During the design stage and architecture planning of the system, consider the expenses not just of developing the software itself, but also the costs of business processes and integration. Analyze whether it’s possible to reach the desired Supply Chain Management System operationality as planned. Certain integrations at the enterprise level are usually required, and the system should be integrated with the software of other companies.

 

  • How to design the SCM System and business processes in such a way to ensure the authenticity and completeness of the data? How to check the quality of the goods and to make data transparent to interested parties?
  • SCM System is supposed to be transparent and trusted platform for stakeholders and clients, consists of immutable and valid data. That’s why production and shipment processes have to match these principles. It means that particular people are responsible for particular actions and it logged in the system with all history, specific approaches for data verification are implemented (four eyes method, Artificial Intelligence analysis, special quality inspectors, etc.), additional levels of security and control are implemented (video cameras, built-in chips into batches or goods, person identification methods, etc.). This part will be the main topic of the next article in this series.

 

  • Does your SCM System require the use of AI, Internet of Things, Blockchain, Robotic Process Automation (RPA), or Digital Twins?
  • Those technologies will help you win strategically, and will help you create broader functionality and gain competitive advantage.

 

  • What technologies for labeling and tracking goods is it better to use? 
  •  With a variety of choice between QR codes, sensors, seals, and other technologies, it’s difficult to decide. In order to make a correct choice, the following aspects have to be taken into account: the main goals of labeling (having unique IDs for history tracking, protection against forgery, real-time location tracking, etc.), cost of technology implementation and earned value, which technology would be realistic to implement taking into account business processes and human resources, either create a new technology or re-use one of the existing approaches, and others.

Answering these questions, but not limited by them, you will be able to define a type of required supply chain and which keys to modern SCM System are needed. The figure below demonstrates exactly such keys.

The keys to modern supply chain management

 

 

Recalling to Amazon’s experience with their automated processes of collection and packaging of goods in large warehouses with its integrated supply chain management system, we can say that they used all described keys and it has led to increased efficiency dividends of 50%.

Want to find out more on how to adjust your business processes and integrate a supply chain management system? Follow our news. We will also cover tracking technologies for popular industries in our blog.

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