Definition: What is supply chain management?
Supply chain management (SCM) is a holistic approach to managing and optimizing a company’s supply chain. It encompasses the planning, coordination and control of all activities associated with the flow of goods, information and financial resources – from the raw material supplier to the end customer. The aim of SCM is to provide the right products at the right place at the right time in the right quantity and quality at minimum cost.
Objectives of supply chain management
Effective SCM can give companies a decisive competitive edge. It pursues the following goals:
- Shorter delivery times and greater delivery reliability
- Lower stock levels and capital commitment
- Faster introduction of new products
- Greater adaptability to fluctuations in demand, disruptions or new market requirements
- Better utilization of resources and capacities, such as personnel, machines and means of transport
Ultimately, all these improvements lead to lower costs and higher profitability, as well as more satisfied customers.
Read also: Increase on-time delivery with the ERP system
Tasks in supply chain management
To achieve these goals, supply chain managers have to perform a variety of tasks:
- Strategic planning and supply chain design
- Selection and evaluation of suppliers
- Forecasting and planning demand
- Production control and capacity planning
- Optimization of warehouse stocks and transport processes
- Monitoring and controlling supply chain performance
- Risk management and continuity planning
The 5 main processes in supply chain management
Planning
The planning process forms the basis for all activities in the supply chain. This is where
Procurement
In the procurement process, the required raw materials, components and services are purchased from external suppliers. This includes the selection of suitable suppliers, the negotiation of prices and conditions and the processing of orders. All partners in the supply chain must work closely together to ensure high quality, on-time delivery and flexibility.
Production
The production process includes all activities involved in manufacturing the end products. This includes production planning, quality control and packaging.
Distribution
The finished products are then transported to customers : to retailers, processing companies or end consumers. This process includes the selection of logistics service providers, order processing, transportation planning and shipment tracking. Punctual and reliable deliveries have a major impact on customer satisfaction.
Redemption
Sometimes products have to be taken back, whether due to returns, repairs or disposal. Effective returns management can reduce costs, strengthen customer loyalty and provide valuable insights for product development.
What is the difference between logistics and supply chain management?
Supply Chain Management wird oft mit Logistik gleichgesetzt, geht aber weit darüber hinaus. Während sich die Logistik hauptsächlich mit dem physischen Transport und der Lagerung von Gütern befasst, integriert das SCM alle Prozesse entlang der Lieferkette. Dazu gehören Beschaffung, Produktion, Distribution und Rücknahme. Es betrachtet die gesamte Wertschöpfungskette als ein vernetztes System und strebt nach einer übergreifenden Optimierung.
| Logistics | Supply Chain Management |
| Transportation and storage of goods | Holistic control of the entire supply chain |
| Individual sub-processes | Procurement, production, distribution and take-back |
| Efficiency in the flow of goods | Optimization of the entire value chain |
Challenges in supply chain management
Complexity of the supply chain
Supply chains are often widely ramified. They consist of many players such as suppliers, producers, logistics service providers and customers. This complexity makes planning and controlling the processes a challenge.
Dynamic demand
Demand for products can fluctuate greatly depending on the season, the economy or current trends. Long-term planning is hardly possible. Companies must be able to react flexibly to peaks in demand, but also avoid overcapacity and high stock levels.
Supply chain disruptions
Supply chains are exposed to a variety of risks that can lead to disruptions or interruptions. Delivery failures due to capacity bottlenecks, strikes or supplier insolvencies jeopardize the security of supply. Quality defects in raw materials or components affect production and customer satisfaction. Natural disasters such as floods or earthquakes can bring entire supply chains to a standstill.
Read also: AI warehouse optimization to solve disrupted supply chains
Limited transparency and data availability
Real-time information from the supply chain is required for quick reactions: about stocks, deliveries or disruptions. Different IT systems and data formats or a lack of interfaces make it difficult to exchange information between the players. This lack of transparency leads to delayed processes, wrong decisions and increased risks.
Conflicts between functional areas
In companies, different departments such as purchasing, production, logistics or sales often pursue different goals and priorities. This can lead to conflicts and coordination problems in the supply chain. While purchasing, for example, focuses on low prices, production attaches importance to high quality and availability. Holistic supply chain management requires the dissolution of silo thinking and cross-departmental cooperation.
Success factors for effective supply chain management
Clear strategy and target definition
A clear supply chain strategy that is aligned with the company’s objectives is the basis for all decisions and measures in SCM. It defines the strategic direction of the supply chain, such as the prioritization of costs, quality or flexibility. Specific, measurable targets are derived from the strategy, providing clear orientation for all those involved. The objectives should be regularly reviewed and adapted to changing conditions.
Networked IT systems along the supply chain
In order to exchange real-time information, the IT systems of the supply chain partners must be networked and comply with common data standards. This is the prerequisite for an agile and responsive supply chain.
Close cooperation with suppliers and customers
Working in partnership with suppliers and customers is a cornerstone of SCM. Synergies can be leveraged and disruptions prevented through the intensive exchange of information, joint planning and coordinated processes. Close coordination promotes trust, reliability and flexibility in the supply chain. In addition, early involvement of suppliers and customers can drive innovation and increase customer satisfaction.
Agile processes
Companies should design their supply chains in such a way that they can react flexibly and agilely to changes. This requires lean, standardized processes, short decision-making paths and a high reaction speed
Use of modern SCM software
Specialized software solutions support companies in planning, controlling and monitoring their entire supply chain. They manage
Continuous improvement
Companies should regularly review their supply chain using defined key figures. This enables them to find sources of error,
Important instruments and methods in supply chain management
Collaborative Planning, Forecasting and Replenishment (CPFR)
CPFR is a concept for close cooperation between companies and their trading partners. By sharing sales and inventory data and coordinating demand forecasting and planning, stocks can be optimized and shortages avoided. CPFR promotes transparency and trust in the supply chain.
Vendor Managed Inventory (VMI) and consignment stock
With VMI, the supplier assumes responsibility for its customer’s stocks. He monitors the stock levels and reorders independently if necessary. Consignment warehouses are the supplier’s warehouses on the customer’s premises. Both concepts reduce inventories and capital commitment and increase the ability to deliver.
Just-in-time (JIT) and just-in-sequence (JIS) production
JIT means that materials are only delivered when they are actually needed in production. JIS is an extension in which the parts are delivered in the exact sequence of the production process. Both concepts minimize stock levels and capital commitment.
Lean Management and Six Sigma
Lean management aims to reduce waste in processes. Six Sigma is a data-driven method for error prevention and process optimization. Both approaches help to identify and eliminate inefficiencies in the supply chain.
Risk management and business continuity planning
Risk management identifies potential risks and takes precautions to avoid or manage them. Business continuity plans ensure that critical processes are maintained in the event of a crisis.
| Instrument / Method | Benefit |
| CPFR | Joint planning and forecasting, greater transparency |
| VMI & consignment warehouse | Supplier controls inventories, less capital tied up |
| JIT & JIS | Delivery exactly as required or in production sequence |
| Lean & Six Sigma | Reduce waste, optimize processes |
| Risk management & BCP | Prevent risks, safeguard critical processes |
Trends in innovations in the field of SCM
Digitalization and Industry 4.0
Technologies that are emerging in the wake of digitalization and Industry 4.0 are also revolutionizing supply chain management. These are some of them:
IoT (Internet of Things)
Moving objects such as pallets or trucks can be networked with sensors and devices. These provide real-time data on stocks, deliveries and production processes. This enables supply chain managers to react much faster.
AI (artificial intelligence), big data, predictive analytics
AI systems can evaluate huge amounts of data in order to recognize patterns and correlations. Among other things, they help to predict demand more precisely, optimize transport routes and identify potential supply bottlenecks at an early stage.
Blockchain
Blockchain technology enables tamper-proof documentation of transactions and proof of origin. The supply chain becomes more transparent and the risk of counterfeiting or fraud is reduced.
3D printing
Instead of producing spare parts in stock, for example, they are produced decentrally to order. This reduces stock levels and shortens delivery times.
Sustainability management
Companies are under pressure to make their supply chain more environmentally friendly and socially responsible. This includes measures such as reducing emissions, using renewable energy, recycling materials and ensuring that suppliers comply with labor and human rights standards. Green logistics aims to reduce emissions and resource consumption in transportation and logistics.
Careers in supply chain management
Job profiles
Supply chain management offers a wide range of career paths and development opportunities. Entry-level positions are often found in logistics, purchasing or production planning.
With increasing experience and responsibility, supply chain managers can advance to management positions, e.g. as Head of Logistics, Head of Procurement or Supply Chain Director. Specializations in areas such as sustainability management, risk management or analytics are also possible.
Supply chain managers often work in cross-functional teams and are in close contact with internal and external partners.
Qualifications
A degree in business administration, logistics or industrial engineering is often the basis for a career in supply chain management. Additional certifications can improve career opportunities.
These skills and qualifications are generally in demand:
- Analytical thinking and problem-solving skills
- Knowledge of logistics, production and procurement
- Understanding of business contexts
- IT knowledge and experience with SCM software
- Project management and leadership skills
- Communication and negotiation skills
- Intercultural competence and language skills (for international supply chains)
- Willingness to engage in lifelong learning and openness to change
FAQ on supply chain management:
What is supply chain management (SCM)?
What is supply chain management (SCM)?
What goals does SCM pursue?
What goals does SCM pursue?
What are the main tasks of supply chain management?
What are the main tasks of supply chain management?
What are the 5 key processes in supply chain management?
What are the 5 key processes in supply chain management?
How does SCM differ from logistics?
How does SCM differ from logistics?
Interesting facts from the blog
Material requirements planning with AI: 3 use cases for your ERP system
Delivery delays in make-to-order production: react immediately thanks to networked systems
