Supply Chain Management and its Types

Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. In this blog, we will be giving a brief overview on it; explaining some theories, a small bit of history and a few of its applications.

Overview

Introduction

Supply chain management (SCM) is the management of the flow of goods and services. A single Supply chain includes the movement and storage of raw materials, work-in-process inventory, and the transportation of goods from point of origin to point of consumption. Optimization of these is to save significant energy and also for reduction of related carbon emissions.

All businesses, be they healthcare, warehousing, governmental or whatever, use supply chain management principles to plan, assemble, store, ship, and track products from the beginning to the end of the supply chain.

SCM focuses on production planning and control, production R&D,  maintenance and diagnosis, and quality management. In the logistics and transportation area, SCM focuses on logistics planning, in-transit inventory, and management. In the warehousing area, SCM focuses on storage assignment, order picking, and inventory control. In the demand management area, SCM focuses on sensing current demand, shaping future demand, and demand forecasting.

Today, with the use of advanced analytics techniques to extract valuable knowledge from big data facilitating date-driven decision-making, We are extensively applying a large variety of technologies, such as sensors, barcodes, and internet of things to integrate and coordinate every linkage of the chain. Current evidence demonstrates obvious advantages of big data analytics in SCM in reducing operational costs, improving supply chain agility, and increasing customer satisfaction.

A Brief History

The term "supply chain management" was first used by Keith Oliver in 1982. However, the concept of a supply chain in management was of great importance even before that, in the early 20th century. 

The Supply-chain-management studies were highlighted with the development of electronic data interchange (EDI) systems in the 1960s, and developed through the 1990s by the  enterprise resource planning (ERP) systems. This study has continued to develop into the 21st century with the expansion of Internet-based collaborative systems.

The current movement of supply-chain-management development is towards globalisation and can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chains beyond national boundaries and into other continents.

Features

The supply chain is the most obvious part of the business for people involved in it, although not as much for the general consumer. The better and more effective a company’s supply chain management is, the better it's long-term sustainability. Some more benefits and features of a well-managed modern supply chain are:

Connected

Being able to access unstructured data from social media, structured data from the Internet of Things (IoT) and more traditional data sets available online, we can obtain a large amount of data for every process in the supply chain

Collaborative

Improving collaboration with suppliers increasingly means the use of cloud-based commerce networks to enable multi-enterprise collaboration and engagement.

Secure

The supply chain must harden its systems and protect them from cyber-intrusions and hacks, which should be an enterprise-wide concern.

Smarter

The AI platform becomes the modern supply chain's controller by collating, coordinating and conducting decisions and actions across the chain. Most of the supply chain is automated and self-learning.

5 Components

Supply chain management is often described as having five key elements: planning, sourcing of raw materials, manufacturing, delivery, and returns.

Plan

Planning starts with making sure of all the details of the operation. First is deciding the location and whether it is better to be oriented locally or globally. Next, to decide how the business will produce and store their product. Will it be made in advance and stored to await order? Or made once the customer orders? Any combination of these strategies can be used and the method for performance measurement must be established before planning begins.

Source

The next phase is procuring the raw materials and any components that need to be outsourced. This needs to happen at the best possible price, at the right time, in the right quantity. It’s important that all suppliers are thoroughly vetted and all contracts are negotiated to get the best value without sacrificing quality. Delivery scheduling is critical, too.

Assessing supplier performance is a continuous requirement for optimal supply chain management, as well as scheduling payments and ensuring import/export requirements are met.

Make

This is where assembling, testing, and packing activities happen. This stage also includes establishing rules for performance measurement, how data is stored, the production facilities, and regulatory compliance.

Deliver

Also called logistics, this component encompasses all the steps for processing customer orders, distributing them, and transporting them. Warehousing and inventory, or paying a service provider to manage both, are also included in this stage. This is also where trial and warranty periods and invoicing are factored in.

Return

Customers need a smooth and easy process to return defective products. This will also include how to handle “end of life” products for when the time comes to discontinue making, selling, and supporting certain products.

Types of Supply Chain Models

The Continuous Flow Models

The Continuous Flow Model for supply offers stability in high demand situations that vary very little. Manufacturers that produce the same goods repeatedly with very little fluctuation can benefit from the continuous flow model. It is ideal for commodity manufacturing and is one of the most traditional supply chain models.

The Fast Chain Models

These are ideal for manufacturers that manufacture products that are trendy with short life cycles. It works well with a business that must change their products frequently and that needs to get them out fast before the trend ends. It is a flexible model.

The Efficient Chain models

This is a model that is best for businesses that are in very competitive markets and where end to end efficiency is the premium goal.

The Custom Configured model

The custom configured models focus on providing custom configurations especially during assembly and production. It is a combination of the agile model and the continuous flow model, a hybrid of sorts.

The Agile Model

The agile model is primarily a method of supply chain management that is ideal for businesses that deal in specialty order items.  It is a model that focuses on the ability of the supply chain to amp up in some cases but also be solid when there is not much movement happening.

The Flexible Model

The flexible model gives businesses the freedom to meet high demand peaks and manage long periods of low volume movement. It can be switched on and off easily.

Role of New Technologies in SCM

Machine Learning

Inventory management 

Storing and maintaining inventory in a good condition is costly. So supply chain professionals approach inventory planning very thoroughly as it has a direct impact on a company's cash flow and profit margins. Inventory management is one of the most typical machine learning use cases in the supply chain. Machine learning can help solve the problem of under- or over-stocking. Based on the data that can be sourced from many areas like the marketplace environment, seasonal trends, promotions, sales, and historic analysis, ML can also predict the demand growth. 

Warehouse Management

In warehousing, machine learning is used to automate manual work, predict possible issues, and reduce paperwork for warehouse staff. For example, computer vision makes it possible to control the work of the conveyor belt and predict when it is going to get blocked. NLP and OCR allow warehouse specialists to automatically detect the arrival of packages and change their delivery statuses. Cameras scan barcodes and labels on the package and all the necessary information goes directly into the system. 

Also, machine learning helps to program autonomous vehicles and robots which are widely used in warehouses. With the help of guides that are built in the system, autonomous vehicles and robots help receive, pack/unpack, transport as wells as upload/unload boxes. Computer vision in this case helps find a free place for a box, control whether it is placed correctly, and prevent collision of robots and vehicles in warehouses. 

Logistics & transportation

ML helps understand where a package is in the entire logistics cycle. It allows supply chain professionals to track the location of goods during transportation. Also, it provides visibility into the conditions under which the package is being transported. With the help of sensors, retailers can monitor such parameters as humidity, vibration, temperature, etc.

Blockchain

Procurement

Blockchain can act as a “single source of truth” for all the entities (subsidiaries, partners, etc.) doing purchases on your behalf and negotiating different terms with suppliers. A blockchain-based database can store relevant data from all partners, giving companies a full overview of the total volume of purchases, regardless of who managed the purchase activity. There will be no need for individual users to constantly share operational data and someone else to crosscheck it — the audits will be conducted automatically, eliminating the resource-heavy processes such as extra price verification.

Provenance and Improved Traceability

The food supply chain will likely be the first one to undergo major blockchainization, especially when it comes to the distribution of fresh produce. Recalls have been a major and costly industry issue for years. Thus, several major food-borne bacteria outbreaks, which have recently happened in the US, are encouraging more and more companies to look into blockchain as a new method for increasing visibility and traceability of the goods.

Logistics

The logistics industry still relies on a massive paper trail of documents, especially when it comes to the customs’ process. This majorly reduces the visibility companies have regarding the status of shipments as they travel along the supply chain. Blockchain can do several things to solve this issue such as:

• Increase the volume of seamless data exchanges between all stakeholders to achieve greater transparency and predictability of logistics operations
• Generate cost savings by powering more automated, error-prone and secure processes
• Help establish more sustainable and responsible supply chains at scale. Pairing blockchain with IoT can help logistics companies gain more insights about the transportation conditions and add additional preventive measures against counterfeiting.

Conclusion

Mapping out a supply chain is one of the critical steps in performing an external analysis in a strategic planning process. The importance of clearly laying out the supply chain is that it helps a company define its own market and decide where it wants to be in the future. In developing corporate-level strategies, a company often needs to make decisions on whether to operate a single line of business or enter into other related or unrelated industries.

Each stage of a supply chain is essentially a different industry, for example, raw material extraction and manufacturing. The supply chain enables a company to understand others that are involved in each of the stages, and thereby provides some insights on the attractiveness or competitiveness in industries the company might want to enter in the future.

References

[1] "Supply Chain Management - An Overview (pdf)", Journal of Cleaner Production, 2017

[2] "Use Cases of Machine Learning in Supply Chain Management", N-ix.com

[3] "Blockchain in Supply Chain Management", infopulse.com

[4] "The Evolution and History of Supply Chain Management", globaltranz.com

[5] "Types of Supply Chain Models", Box Around the World, 2019