What Supply Chain Management is and How It Works

In today's fast-paced business environment, companies need to have an efficient and effective supply chain management system in place to stay competitive. Supply chain management is the process of managing the flow of goods and services from the supplier to the final consumer. It involves the coordination and management of all activities involved in the production and distribution of goods and services. In this guide, we will provide a comprehensive overview of what supply chain management is, how it works, and why it is important for businesses to understand.    

 

Understanding Supply Chain Management   
 

What is supply chain management? 

Supply chain management can be defined as the coordination and management of all activities involved in the production and distribution of goods and services. It includes the management of raw materials, production processes, inventory levels, transportation, and delivery of goods and services to the end consumer.   

 

History of supply chain management

The concept of supply chain management has a long history dating back to the early 20th century when Henry Ford introduced the concept of the assembly line. However, it was not until the 1980s that supply chain management became a recognised field of study. Since then, it has evolved to become an essential part of any successful business.   


 

Key Components of Supply Chain Management

The key components of supply chain management include:   
 

1. Planning and forecasting demand for goods and services: This involves developing a coordinated plan for the entire supply chain, including selecting suppliers, manufacturing processes, transportation methods, and delivery channels.

2. Sourcing and procurement: This involves selecting suppliers, negotiating contracts, and purchasing raw materials/products needed to manufacture the goods or services.

3. Manufacturing and production: They involve transforming raw materials into finished goods. This includes managing production schedules, ensuring quality control, and optimising production processes.

4. Transportation and logistics: This involves managing the movement of goods and services from one point to another in a timely and cost-effective manner.

5. Warehousing and Inventory Management: This involves managing the storage of goods and materials, ensuring they are stored in appropriate conditions and tracking inventory levels to ensure adequate stock is available when needed.

6. Customer service and distribution: This involves ensuring that the finished goods are delivered to customers in a timely and efficient manner.

7. Risk Management: This involves identifying potential risks within the supply chain and developing strategies to mitigate those risks, which can include anything from natural disasters to delays in transportation or production processes.

How Supply Chain Management Works

Supply chain management works by integrating all the key components mentioned above into a coordinated system that manages the entire supply chain efficiently and effectively. This involves collaborating with suppliers and customers to ensure that operations are in sync. By coordinating the flow of goods and services, information, and funds across all stages of the supply chain, organizations can optimize efficiency, reduce costs, and improve overall customer satisfaction. Successful supply chain management also requires advanced technologies like ERP systems, IoT devices and other digital platforms to enable real-time tracking of operations.    


 

How ERP system can help you with supply chain management

ERP systems can play a crucial role in supply chain management by providing real-time data on inventory levels, production schedules, and transportation tracking. Firstly, ERP is Enterprise Resource Planning. It is a type of software application that organisations use to manage their entire business processes. An ERP system can help organisations to integrate and manage different aspects of the supply chain, providing a single source of truth for data across the organisation.

With an ERP system, companies can effectively manage and track inventory levels, automate production scheduling, and monitor transportation routes in real time. Additionally, ERP systems can provide analytics and forecasting capabilities, allowing you to identify potential risks in the supply chain and take proactive measures to mitigate them. 

Importance of Supply Chain Management

Effective supply chain management is crucial for any organization to ensure it operates efficiently, profitably and sustainably. Here are 3 reasons why it's crucial to have a robust supply chain management system in place:

1. Improved Efficiency: Effective supply chain management enhances business efficiency by streamlining processes and minimizing waste. For instance, SpaceManager Closets, as detailed in their case study, leveraged Acumatica Manufacturing Edition to optimize their production and inventory management. This led to a 30% decrease in goods sold cost, underlining how effective supply chain management can significantly enhance operational efficiency. Similarly, Boca Terry utilized Acumatica Retail Edition to gain real-time visibility into their operations, which streamlined their inventory management and improved decision-making processes. This example illustrates how efficient supply chain management can transform a company’s operational dynamics. Additionally, Redmond Inc. achieved remarkable improvements in efficiency by deploying Acumatica Cloud ERP across its seven companies, leading to better real-time operational visibility and reduced period close times.

2. Cost Reduction: Supply chain management practices such as lean production and just-in-time inventory help organizations cut costs. For example, Boca Terry’s implementation of Acumatica led to the elimination of manual data entry and automated financial reporting, saving significant employee time and reducing operational costs. This demonstrates the cost-saving potential of effective supply chain management. In the case of Redmond Inc., the integration of Acumatica Cloud ERP brought about a significant reduction in software development time - from 40 hours to 4 hours for new applications - illustrating the cost benefits of streamlined supply chain processes. Moreover, Killer Merch and Jeffree Star Cosmetics efficiently managed their inventory and operations through Acumatica, which reduced their shipping times and customer service staffing needs, thereby saving considerable costs.

3. Enhanced Customer Satisfaction: Timely and cost-effective delivery of goods and services is crucial for customer satisfaction. The case study of SpaceManager Closets shows how the adoption of Acumatica’s Field Service application led to better scheduling and productivity among remote installers, enhancing the overall customer experience. This case underscores the direct impact of supply chain management on customer satisfaction. In the context of Boca Terry, the use of Acumatica allowed for better visibility into overseas shipping information, which improved customer service by providing more accurate delivery estimates. This highlights how effective supply chain management can enhance customer relations. Additionally, Killer Merch’s use of Acumatica helped in streamlining customer communications and improving satisfaction by ensuring quick and accurate order fulfillment, demonstrating the vital role of supply chain management in maintaining high levels of customer satisfaction.

Challenges of Supply Chain Management

Despite the benefits of effective supply chain management, organizations are often faced with several challenges.

1. Complexity: Managing the complexity of supply chains involves balancing multiple processes and stakeholders. For example, Boca Terry, a luxury hotel robe and linen provider, faced difficulties with disconnected software systems, leading to operational inefficiencies. Acumatica helped streamline their operations by integrating key processes into a single platform, improving decision-making and productivity. Similarly, SpaceManager Closets, which designs and manufactures custom storage solutions, found that Acumatica's Manufacturing Edition enabled them to efficiently manage complex manufacturing and inventory processes, leading to a 30% decrease in cost of goods sold.

2. Globalisation: The global nature of supply chains introduces complexities such as longer lead times and increased regulatory burdens. Redmond Inc., with its multiple business units, overcame these challenges by implementing Acumatica, which provided real-time operational visibility and integrated reports across its global operations. This resulted in dramatically reduced period close times and saved millions through better inventory insight and management.

3. Technology: While technology is crucial for managing supply chains, its implementation can be daunting. Killer Merch, supporting Jeffree Star Cosmetics, faced significant challenges due to a rapid increase in order volumes and the need for technological upgrades. Acumatica enabled them to efficiently handle millions of products and orders by providing a robust, connected platform that integrated seamlessly with their e-commerce systems.

4. Risk Management: Supply chains are vulnerable to a variety of risks, including natural disasters, geopolitical tensions, economic instability and cyber-attacks. Do you remember when a Ever Given, one of the largest cargo ships in the world, blocked the Suez Canal for nearly a week? This incident caused a ripple effect across global supply chains, delaying shipments and causing disruptions. Fabuwood, a large kitchen cabinetry manufacturer, mitigated these risks by leveraging Acumatica's robust data management and real-time visibility. This approach enabled them to adjust rapidly to market changes and maintain a steady supply chain, even during disruptive events.

5. Sustainability: Environmental and social sustainability has become a growing concern in recent years, and supply chain management plays an important role in addressing this challenge. By ensuring that supply chains are environmentally responsible, socially equitable and economically viable, organizations can improve their reputation, reduce costs and increase customer loyalty. Midaya Ceramic Company, which crafts unique ceramic products, utilized Acumatica to streamline their operations and gain insights into their manufacturing processes. This allowed them to make more environmentally responsible decisions, reducing waste and improving resource utilization, thus contributing to a more sustainable supply chain.

Best Practices in Supply Chain Management      
 

To address these challenges, organisations can implement several best practices in supply chain management to improve efficiency and reduce risks. These include:

1. Collaboration: Developing strong relationships with suppliers, partners and stakeholders is critical to the success of supply chain management. Collaboration can improve communication, increase transparency and foster innovation across the supply chain. Boca Terry, a luxury hotel robe and linen provider, faced challenges in their supply chain due to disconnected software systems. By implementing Acumatica Retail Edition, they established a single connected platform, fostering stronger relationships with suppliers and partners. This integration enhanced communication and transparency, enabling real-time decision-making and capturing growth opportunities, showcasing the power of collaboration in the supply chain​​.;

2. Automation: Automation can streamline repetitive tasks and improve accuracy, leading to increased efficiency and reduced costs. Redmond Inc., dealing in sea salt and agricultural products, struggled with disconnected third-party and custom-built systems, resulting in inefficiencies. Their adoption of Acumatica Cloud ERP automated many of their processes, including warehouse management and order management. This automation not only streamlined their operations but also reduced manual data entry, thereby increasing productivity and reducing costs significantly​​.

3. Visibility: To manage a complex supply chain effectively, organizations need to have real-time visibility of their inventory, orders, and shipments. This can be achieved through implementing technology such as automated tracking, ERP systems, and monitoring systems. For SpaceManager Closets, which designs and manufactures custom home organizational systems, lack of inventory visibility was a major hurdle. Implementing Acumatica Manufacturing Edition provided them with real-time data on inventory and material requirements planning. This enhanced visibility enabled them to optimize inventory, improve production, and make data-driven decisions, illustrating the importance of technological integration for effective supply chain management​​.

4. Risk Management: Organisations should have a risk management strategy in place to prepare for and mitigate supply chain disruptions caused by natural disasters, geopolitical tensions or cyber-attacks. Killer Merch, handling distribution for Jeffree Star Cosmetics and other influencers, faced significant risks due to overwhelming order volumes and system inefficiencies. With Acumatica’s Retail and Distribution Editions, they managed to streamline their operations and better handle large order volumes. This move not only improved their shipping times but also provided them with a robust platform for managing operational risks, showing the effectiveness of ERP systems in mitigating supply chain disruptions​​.

In conclusion, supply chain management is a critical component of business success. It involves coordinating and managing the flow of goods, services, information and finances throughout the supply chain network. By implementing best practices such as collaboration, automation, visibility and risk management, your company can improve supply chain efficiency, reduce costs and mitigate risks.

The global supply chain has become increasingly complex and vulnerable to disruptions, making effective supply chain management more important than ever for businesses like yours to remain competitive. ERP systems, such as Acumatica, can be powerful tools for managing supply chains, providing core IT functionality that integrates manufacturing processes and parts with orders in the supply chain. Overall, with careful planning and implementation of best practices in supply chain management and technology, such as ERP systems, your company can increase its competitiveness in the market and create resilient supply chains that can adapt to changing business environments.