Supply chain management (SCM) is a complex discipline. It is the throughline that connects raw materials to customer experience. Supply chain management involves the procurement of raw materials, product development, manufacturing and production, logistics, data management, and more.
If your head is spinning like an 18-wheeler truck’s tires at that description, don’t worry. We’re here to step you through every step of the process. Supply chain management is complicated, but learning to understand it is rewarding. Nowhere does the abstract concept of business value feel more concrete than in supply chain management.
Let’s set the record straight on a common misconception, though. Supply chain management is all about the physical flow of goods. Logistics is also about the physical flow of goods. However, logistics is just one tiny piece of the supply chain. Indeed, supply chain management is a much, much bigger topic. By giving an overview of the parts of supply chain management, we hope to help you understand how to run an efficient business. We also hope to show Fulfillrite’s services fit into a much larger picture.
Logistics alone is a fascinating subject. In fact, we opened this whole series with a post about logistics and nothing else. Logistics is a bit of a one-trick pony, though. To borrow from that post…
Wikipedia describes logistics in a general business sense as “the flow of things between the point of origin and the point of consumption.” They go on to say that logistics of physical items usually involves “information flow, materials handling, production, packaging, inventory, transportation, warehousing, and often security.”
First, let’s define supply chain management with the help of our old friend Wikipedia. It encompasses “the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers.”
This explanation doesn’t exactly roll off the tongue, so you can think of it this way. There are ten parts to supply chain management:
At the very beginning of the supply chain management process, demand forecasting is critical. The entirety of the supply chain depends on it. With good estimates, you can figure out how much needs to be moved, stored, sold, and so on.
There is so much that goes into this discipline alone. There are all sorts of statistical methods that weigh both qualitative and quantitative data. We won’t go into all the details here. This could very easily turn into a Stats 101 course instead of a Supply Chain 101 course! If you want to know more, here is a great primer.
Managing the supply chain these days requires sophisticated technology. Forecasting demand means you need computers capable of taking in a lot of input data and processing it quickly. At the same time, you need to be able to track your raw materials, works-in-process, and inventory. When goods are in transit, you want to be able to know where they are. All of these functions require a vast network of interconnected machines, all talking to one another.
When your customer orders you online, they interact with multiple companies just for shipping alone. At a minimum, you – the seller, your warehouse, and carriers who transport goods for home delivery – all receive just enough information to do their jobs.
As all things are made of atoms, so too are all products made of materials. In order to keep the supply chain unbroken, there needs to be a nonstop flow of parts. As you may expect, this is called materials management.
You may naively think that materials management involves ordering enough parts to satisfy demand. After all, demand drives production, inventory, and transportation needs. However, that alone is just called procurement. There is more to it.
Errors in shipping, receiving, or production can all complicate materials management. It’s possible, too, to even receive misleading bills of materials which lead you to believe you have more raw materials than you do.
Done well, materials management plays a part in delivering high-quality goods on-time to the customer.
To move supplies and create goods, you need to be able to track them. This is where inventory management comes in handy. You need to always be sure you have the right stock, at the right levels, in the right place, at the right time, and at the right cost. Inventory management can become very complicated, very quickly. We’ll keep it to 10,000-foot view here.
Inventory management is valuable because it helps you manage costs and customer experience. It is also very important when taxes come due. Inventory can be broken into a few categories. The main ones are raw materials, works-in-progress, and finished goods. They are exactly what they sound like. At Fulfillrite, we actually provide software to help you easily track your inventory.
Production planning is another complex part of supply chain management. It is ultimately driven by demand forecasting and materials management, determines a lot of things:
Raw materials are not magically turned into sellable products. It takes careful planning by supply chain managers to ensure that manufacturing and production efforts are efficient and productive.
In our recent post on logistics, we heavily covered the subject of transportation. Raw materials are often moved by road, rail, sea, or air to places where goods are produced. Finished products ship by road, rail, sea, or air to a warehouse. Goods are transported from warehouses to carriers and from carriers to customers.
This zig-zagging network of vehicles is what enables goods to be physically moved from one place to another. All the planning in the world would be useless with people or companies who specialized in actually moving the goods. This much is very clear.
What is often very complex is how to do this cost-effectively. Most of the time when goods cross a border, customs fees are levied. Air is more expensive than trucks. Trucks cost more than rail. Sea shipping is the cheapest of them all, but it’s also very slow. As you can imagine, people who manage the transportation of goods are constantly making cost-benefit calculations based on time, cost, and risk of damaged or lost goods.
Factories and workshops do not hold onto finished products for very long. If they were to do so, they would eventually run out of room! Therefore, producers, in coordination with their clients, ship goods to a warehouse for storage. This is part of what Fulfillrite does – we receive and store goods.
As we had said in the previous post:
Warehouses come in many different varieties, and that determines the type of inventory can be stored. There are warehouses for packing, railyards, and ports. If you have goods that need to be refrigerated, there are cold storage warehouses. Retailers often have warehouses in the back of their stores. Even your own home can be a warehouse if you have a garage or a spare room large enough to house your inventory.
There is no point in holding onto goods forever, though. Once in a warehouse, one of two things usually happens. Either customers order the goods directly, often online, or, goods go to a distributor – such as a physical store. At Fulfillrite, receive orders from our clients on behalf of their customers. We then fill the customers’ orders. The client can even integrate their systems with ours so they never have to get involved. To borrow from our prior post once more:
In the case of fulfillment warehouses like Fulfillrite, we ship orders from the warehouse to the customer. For example, we pick and pack different items into a single package. We then label them and apply postage, then send them to their final destination. Carriers such as FedEx, UPS, or the US Post Office take care of the rest. The concept of our business and others like it is very simple, but the execution is very difficult.
Returns management is somewhat self-explanatory, but nevertheless important to mention. The world of “no refunds” is long behind us. If you ship to customers, you need to be able to undo the process. Many fulfillment companies, including our own, feature return processing to make this a little easier.
Naturally, none of the above even begins to matter without considering the customer. The customer is the end-all, be-all of your business. The grand, global stage upon which the supply chain is carried out is but a way to meet the unmet needs of the humble consumer.
And sometimes not so humble! Because of major online retailers, like Amazon, consumers have really high expectations. They want their products shipped cheaply, safely, and – above all – quickly. You must manage the supply chain in such a way that customers’ expectations are met or exceeded.
In our complicated world, it takes an extraordinary amount of thought to move goods from one place to another. Supply chain management is the discipline that makes it happen. It not only concerns the flow of goods but everything around the flow of goods that ultimately serves the customers’ needs.
You must plan for demand and transfer information around the world. You must manage materials and inventory to plan for production. Any time raw materials or finished products need to move, you have to prepare transportation and choose a warehouse. When it’s time to deal with customers, you need to be able to fill orders and process returns. You must handle all of this with the intent to give your customers a great experience.
At Fulfillrite, we are happy to play a part in the complex world of supply chain management. By offering real-time order tracking and inventory management with warehousing and fulfillment services, we hope to make your life easier.