What is supply chain management (SCM)?

Contributor(s): Diann Daniel

Supply chain management (SCM) is the optimization of a product's creation and flow from raw material sourcing to production, logistics and delivery to the final customer. 

SCM encompasses the integrated planning and execution of processes required to manage the movement of materials, information and financial capital in activities that broadly include demand planning, sourcing, production, inventory management and storage, transportation -- or logistics -- and returning excess or defective products. Supply chain management relies on both business strategy, specialized software and collaboration to work.

Because it's such an expansive, complex undertaking, each partner -- from suppliers to manufacturers and beyond -- must communicate and work together to create efficiencies, manage risk and adapt quickly to change.

In addition, supply chain sustainability -- which covers environmental, social and legal issues, in addition to sustainable procurement -- and the closely related concept of corporate social responsibility -- which evaluates a company's effect on the environment and social well-being -- are areas of major concern for today's companies.

Benefits of supply chain management

Supply chain management creates a number of benefits that translate to higher profits, better brand image and greater competitive advantage. These include the following:

  • better ability to predict and meet customer demand;
  • better supply chain visibility, risk management and predictive capabilities;
  • fewer process inefficiencies and less product waste;
  • improvements in quality;
  • increased sustainability, both from a societal and an environmental standpoint;
  • lower overhead;
  • improvements in cash flow; and
  • more efficient logistics.

Five stages of supply chain management

Supply chain management can be broadly categorized into five steps or areas:

Plan. Using supply chain analytics and materials management features in ERP systems, organizations create strategic plans to meet customer demand for product and avoid a bullwhip effect.

Source. Organizations identify and select vendors that can supply materials in a streamlined and efficient way according to agreements. Supply chain collaboration starts at this stage and is important throughout the supply chain management process.

Make. In this stage, products are manufactured. It includes scheduling the production, testing, ensuring compliance requirements are followed, packing, storage and release. Multiple machines are likely to be involved, especially for larger companies, and these increasingly use technologies such as IoT and AI to work more efficiently.

Deliver. The delivery stage pertains to logistics and focuses on getting finished goods to consumers, in whatever manner of transportation is needed. As the Amazon effect has grown, especially as a result COVID-19, more focus is on doorstep delivery. Greater emphasis is now also on supply chain leaders working more closely with customer service. Inventory management and warehouse management systems are especially crucial at this stage.

Return. The return stage includes all product returns, including defective products and products that will no longer be supported. This stage also includes elements from other stages, including inventory and transportation management.

Example of SCM

The most basic version of a supply chain includes a company, its suppliers and the customers of that company. An example would be: raw material producer, manufacturer, distributor, retailer and retail customer.

supply chain management
How a supply chain system works

Most supply chains are far more complex and layered. This is why examples of unsuccessful supply chain management, where risk is not managed or disruption occurs, can be so helpful.

Food shortages due to COVID-19 are a good example of supply chain management gone awry. The food supply chain was disrupted in a number of ways. For example, many restaurants and schools closed to accommodate stay-at-home orders, causing products meant to go to institutional settings in bulk to no longer be needed. Instead, an exponential number of consumers were eating at home, which had different packaging requirements, among other issues. The meat industry also ran into supply chain management disruptions due to issues such as COVID-19 outbreaks in slaughterhouses.

The role of supply chain management software

Technology is critical in managing today's supply chains, and ERP vendors offer modules that focus on key functions within SCM. There are also business software vendors that focus specifically on SCM. A few important areas to note include the following:

  • supply chain planning software for activities such as demand management;
  • supply chain execution software for activities such as day-to-day manufacturing operations;
  • supply chain visibility software for tasks such as spotting and anticipating risks and proactively managing them;
  • inventory management software for tasks such as tracking and optimizing inventory levels;
  • logistics management software and transportation management systems for activities such as managing the transport of goods, especially across global supply chains; and
  • warehouse management systems for activities related to warehouse operations.

Infor, Blue Yonder (formerly JDA Software), Manhattan Associates, Oracle and SAP are well-known vendors of supply chain software.

The increasingly global nature of today's supply chains and the rise of e-commerce, with its focus on nearly instant small deliveries straight to consumers, are posing challenges, particularly in the area of logistics and demand planning. A number of strategies -- such as lean manufacturing -- and newer approaches -- such as demand-driven material requirements planning -- may prove helpful.

Technology -- especially big data, predictive analytics, IoT technology, supply chain analytics, robotics and autonomous vehicles -- is also being used to help solve modern challenges, including in the areas of supply chain risk and disruption and supply chain sustainability.

As just two examples, IoT can help with transparency and traceability to help boost food quality and safety by using sensors to monitor the temperature of perishable food while it's in transit. And analytics can help determine where to put smart lockers in densely populated areas to cut the number of single-item deliveries and lower greenhouse gas emissions.

This was last updated in November 2020

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Which supply chain management functions are most challenging for your company?
What's the most important part of supply chain management, and why?
Expository and informative.
Supply chain management plays important rules to run the business.
Is banking domain needs supply chain management to manage finance?
What are the differences between supply chain strategy and strategic supply chain management? Any intellectual to help me?
Not really for me. The supply chain strategy can be the plans that you make, the strategic organization of your supply chain whereas the strategic supply chain management is the implementation of this strategy, its real achievement. :)
Supply Chain Management encompasses the whole vision & its achieving success of any business.


what is supply chain in simple definition?
art to achieve the maximum profit of goods in "non-production" sector ,.(?)
Good informative piece on SC basics ! Thanks. 
It would have been well rounded off with mention of some really important strategic trends that have huge implications for the transformation of SC as we know them and that we should all take note of:
  • Supply chain today is End to End , demand-market-customer-patient value driven; no longer just supply-driven!
  • Supply chain - or the "Demand-driven Value Network" is today's Business Operating Model focused on business growth not just eliminating costs ( off a sound cost-management base).
  • New Digital capabilities like Amazon, Google, Microsoft platforms etc are providing fundamentally new digital foundations for E2E value network platforms and E2E SC transformation. 
  • While there are many IT applications and vendors supporting SC activities - the real challenge is enabling customer driven demand-responsiveness through end to end "visibility enabled orchestration" ( who cares at what manufacturing or suppliers did if customer service levels and perfect orders aren't delivered and requirements met ) 
  • The holy grail today is "continuous integrative business planning" (CIBP) - making continuous business trade offs across supply and demand networks; quite a few steps from what traditional Sales and Operations Planning ever were ! 
  • Advanced analytics like AI, ML, Cognitive will change the face of E2E Value network orchestration and will find and answer business and supply chain questions we didn't think of or think we could answer !
  • Transformation is a 5 stage capability development journey - understand the Gartner 5 Stage Maturity model - it will help you plan your journey
"Supply Chain Transformation" has become an exciting space as it integratively brings together people, process, and technology elements to "win at every customer every time"!
how does supply chain management system coordinate planning, production and logistics with suppliers.
Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer Also thanks for sharing the role of supply chain management software.
good information about supply chain
Hello friends,

I penned down this write up and I wanna dedicate this to Ms. Margaret madam....