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7 supply chain management key terms you need to know

Consumers are demanding greater visibility, but how do you give it them? We're starting with a list of supply chain management basic terms that you should be aware of.

Supply chain management (SCM) can help maximize customer satisfaction and boost profitability, but it is also rather complex and requires collaboration across the entire enterprise and beyond. SCM covers a vast number of processes in the supply chain -- from planning and procurement to production and distribution --  that are necessary to get a product out of the warehouse and to the customer in the most efficient and effective way possible.

Because SCM lies at the core of many businesses, it's important to have a strong understanding of the processes involved and how they differ. To start, we've compiled a list of seven supply chain management key terms that both organizations and customers should be familiar with.

Logistics: Logistics and SCM are often used interchangeably, but whereas SCM covers a wide range of activities needed to plan and execute a product's journey from the factory to the warehouse and then to the consumer, logistics only focuses on two essential constituents in the supply chain: transportation and warehousing. It's a matter of moving products and materials efficiently, which extends to the optimization of routes and load shipments, freight audits and financial payments. Logistics has become increasingly important over the years, specifically since e-commerce was introduced to manufacturing and retailing and, as a result, left distributors and suppliers with little choice but to rely on an omnichannel supply chain that can ship directly to consumers in a timely manner.

Supply chain sustainability (SCS): SCS focuses on the big-picture environmental, social, economic and legal issues of supply chains. Organizations have to consider a number of issues that could affect SCS, such as waste, carbon footprint, air pollution, labor violations, deforestation and the health and safety of workers. The goal is to apply socially responsible practices that are environmentally friendly and to promote positive brand awareness for the business. Some ways to improve SCS include identifying and focusing on areas with the most potential risks, setting global sustainability goals, using SCM tools to help track progress, collaborating with other sustainable providers and purchasing carbon offsets. Organizations can also hire outside supply chain analysts or sustainability officers to ensure they are following proper guidelines and policies.

Supply chain traceability: Companies can benefit from implementing traceability, the ability to identify and track the components that make up a final product. It essentially allows a producer, distributor or supplier to inspect for any issues that may arise before or after a product reaches the consumer. The recent contamination outbreak that was linked to romaine lettuce in the U.S. is a great example. A traceability system is vital in a case like this because it collects all necessary information and records of every component that moved through the supply chain during a specific timeframe. This is the most accurate and efficient way to find out what went wrong and where, and in some cases, prevent the problem in the first place. Without proper traceability best practices, companies -- especially larger businesses -- will not only be at risk of losing millions of dollars in sales, production costs, fines and legal bills, but will inevitably put their customers at risk as well. Fortunately, national and international laws address economic, health or environmental concerns and enforce traceability across a number of industries.

Supply chain visibility (SCV): SCV is one of the more valuable supply chain management key terms because it offers companies and their customers more timely, actionable information about their supply chain orders. Manufacturers and retailers have the ability to pull information from SCV software that they can share with customers so they can track their orders in real time. If there's a disruption or issue while a product is in transit to its final destination, SCV will quickly provide data that gives manufacturers the fastest option to redirect the supply. To put it simply, SCV's main objective is to improve and strengthen the supply chain by providing accurate real-time data to all parties involved. Furthermore, manufacturers are using SCV to meet compliance directives associated with trade practices, environmental mandates and upcoming serialization and track-and-trace laws.

Supply chain planning (SCP): SCP is used to balance supply and demand, forecast future needs and ensure adequate supply to meet those needs. It starts with a demand plan, which gathers all the necessary data and information in one place before translating it into the respective planning, execution and distribution processes. Once approved, you can then create a master production schedule that will monitor items across the supply chain by location, inventory, order, production time and quantity. Other key elements of SCP that help the business plan for the future are consumer forecasting and supply collaboration.

Inventory management: Tight control of inventory can be crucial to a company's success. By implementing inventory management software, you can keep detailed records of every product or material that goes in and out of the warehouse, whether it's new or returned. Lot and serial numbers, quantity of goods, and cost of goods are just some of the data employed in inventory management. There are also specific techniques or methodologies to inventory management such as stock review, just-in-time methodology and ABC analysis that ensure you have the right amount of materials to meet demand at the lowest possible cost.

Supply chain execution (SCE): One of the more common supply chain management key terms, SCE focuses on all of the actions needed to get a product to the customer before or on the estimated date of arrival. This includes monitoring the goods and materials as they arrive and move through the warehouse, the transportation services scheduled to deliver the final product and the financial transactions of everyone involved. By doing so, SCE applications, which are often connected to SCP systems, also give customers the ability to track a product and receive updates.

This was last published in April 2019

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