Nowadays starting a startup and running it without having a minimum of knowledge in Supply Chain Management is a huge risk. Indeed, in recent years, this area has become absolutely central within companies, with all that this entails in terms of benefits and risks. If you want to maximize the former and avoid the latter, you are on the right page: in this guide, in fact, you will discover what Supply Chain is, how it can improve your company’s efficiency and competitiveness, and how you can best manage and optimize it.
Supply chain management: what is it?
As in any self-respecting guide, the first step, of course, is to understand in concrete terms what you are talking about. Have you ever played chess? Knowing this game might help you on your journey of discovery in Supply Chain Management. The reason you are about to find out.
Definition of Supply Chain
A suggestive definition of Supply Chain, which bears the signature of economist Michael Porter, reads:
“Supply chain management is like the game of chess: it requires strategic thinking, advance planning and precise movements to win the global market game.”
Porter’s metaphor between Supply Chain Management and the game of chess highlights some key points of the former but does not clarify, in practical terms, what it is. In this regard, you need to know first of all that the first to talk about Supply Chain Management were two scholars (Oliver and Webber) in 1982, in reference to a technique of inventory reduction in companies that were part of the same supply chain.
This concept was initially used mainly in the context of warehouse and inventory management. Nowadays, however, Supply Chain includes all those activities that enable the transformation of raw materials into finished products to be offered to customers.
Among these, 9 stand out: marketing, supplier relations, procurement, raw material inventory management and storage, production, finished goods management and storage, purchase order management, delivery management, and, finally, logistics related to returns.
In addition to the 9 basic supply chain activities, it is important that you also know the 4 pillars of the Supply Chain.
These are different parts that, linked together, ensure that the entire process is carried out as smoothly as possible. Specifically, these 4 pillars are: Integration between the different people involved in the production process, day-to-day operations (and their monitoring), purchasing (which serves to ensure that there are all the materials and tools to produce the products), and product distribution (all the way to the hands of consumers).
There is another aspect you need to consider if you really want to understand what Supply Chain is and what Supply Chain Management is all about: as the years have gone by, not only has the scope of interest widened, but people have also stopped thinking of the company as a stand-alone entity and have placed more and more emphasis on the interconnections between companies involved in the distribution and logistics process.
In the next few lines we will focus on why the evolution of the Supply Chain Management concept has made this activity even more important for modern companies.
The strategic importance for modern enterprises
Supply Chain Management was important back in 1982, but it is even more so now that its concept has expanded to involve new areas related to how to fulfill an order (and beyond).
The main purpose of proper supply chain management is, today, to control performance and improve business efficiency in order to optimize the level of service rendered to the end customer, rationalizing operating costs and capital.
Based on the information gathered in Supply Chain Management, it is possible to formulate a more accurate and complete forecast of consumer needs and market demand and, consequently, refine action plans to increase customer satisfaction and one’s competitiveness. How? For example, by optimizing the use of raw materials and facilities and/or decreasing the time to market (i.e., the time it takes to get a product or service to market).
The Internet, by making communication and coordination between the different members operating along the supply chain easier and faster, has made Supply Chain Management even more strategic, which today, when properly executed, ensures seamless integration between demand and supply, as well as production, logistics and marketing.
Technology and Innovation in the Supply Chain
Like so many other areas, Supply Chain Management has benefited from the increasing digitization of logistics operations that used to be performed analogically (with all that that entails in terms of misses, delays and errors).
In general terms, the benefits of this translate mainly into the ability to intervene early to prevent setbacks along the process (by performing what is called “predictive maintenance“) and greater integration between data, which allows customer needs to be met sooner and better.
To get more specific, however, it is time now to look at how technological innovation has changed and, in some ways, revolutionized, Supply Chain Management.
How IoT is transforming supply chain management
The Internet of Things, thanks to RFID technologies, for example, is radically transforming supply chain management and, in particular, that of warehouse picking and inventory because it allows the precise location of items to be determined at any time and their storage status to be monitored.
Big data and analytics: interpreting data for strategic decisions
Modern advanced data analysis systems (so-called Advanced Analytics) are other valuable allies in supply chain management because they make it possible to make sense of the vast amount of data and information that, today, can be gathered more easily.
But how does this materialize in terms of benefits? Thanks to Advanced Analytics, it is possible, for example, to draw more accurate projections of future trends in market demand and thus make more effective strategic decisions.
Cloud Computing and Automation
Cloud computing is another major technological revolution in recent years. Thanks to it, which allows multiple platforms to be integrated and different tools and resources to be connected, the Supply Chain has become leaner and more responsive, that is, ready to analyze and meet new customer demands quickly.
The latest technological trend that deserves a mention among the factors that are most transforming supply chain management is automation: more and more operations, in the field of logistics, are in fact automated (just think of transport or warehousing activities), and all of this allows more time to be set aside for other activities that are considered to have greater added value.
The Supply Chain Manager
The importance of Supply Chain Management has forced in recent years the emergence of a figure in charge of this activity, called Supply Chain Manager. But who is he and, more importantly, what does he do?
Responsibilities and challenges of the role
The Supply Chain Manager, as already mentioned, is the figure within the company to whom is entrusted with the entire responsibility for the operation of the supply chain. In concrete terms, he is in charge of planning, organizing, controlling and optimizing all the activities that are involved in the process by which resources are transformed into goods or services to be offered in the market. He, therefore, is responsible for optimizing operating costs and capital employed and maximizing the level of service offered to customers.
As you might guess, this is a very delicate role, not least because his duties extend beyond the boundaries of the company. In fact, among his various responsibilities, the Supply Chain Manager must also negotiate contracts with all parties involved in the process of buying, selling, and storing goods, with the constant goal of reducing the company’s expenses, avoiding waste, and optimizing the operational resources available.
Key competencies for success
Given the great responsibilities entrusted to this figure, to be a Supply Chain Manager it cannot be enough to have specific skills in this particular area or to know the main management software used in this sector. In fact, the supply chain manager must also have strong leadership skills, as well as negotiation skills and a great sensitivity to grasping (and, if possible, anticipating) future changes.
Operational strategies for an efficient supply chain
We have clarified in the previous lines the responsibilities and tasks of the Supply Chain Manager, but knowing what such a figure does is not enough: in fact, it is essential that you also know how he or she does it. We are referring, specifically, to the operational strategies that you can put in place to make your Supply Chain more efficient. Have you ever heard of Lean Management? If you have no idea what it means, pay special attention to what you are about to read.
Principles of Lean Management to reduce waste
The concept of Lean Management is based on what is known as Lean Thinking, a particular philosophy that aims to create maximum value for the customer at minimum cost by minimizing waste of resources, time, energy and effort.
Lean management is a mode of business management derived from the Toyota Production System (TPS), a model developed by Taiichi Ohno, Shigeo Shingo, Sakichi Toyoda, and Kiichirō Toyoda in the 1940s. The TPS is a method of organizing production that departs from mass production and is based on the idea of “doing more with less“, that is, using available resources as productively as possible and thereby dramatically increasing productivity.
The art of balancing inventory and logistics
Reducing waste is essential, but you must not run the risk of confusing inventory optimization with mere inventory reduction: proper inventory management, in fact, is linked to the level of service offered to customers and, therefore, in one’s business model it is necessary to aim for a balance such that it does not penalize the ability to deliver one’s services. It is no coincidence, in fact, that one of the principles of “lean manufacturing” is, precisely, the search for perfect synchrony between supply/production and market demand.
Okay, but what does the above mean in practical terms? For example, it means that a company should expend capital and resources to form inventories (and manage them in its warehouses) only if it has the understanding that they are really essential to make production processes smooth (as well as more economical) and ensure the level of service at minimum cost.
Digitization: the future of the supply chain
Although Supply Chain Management plays an even more strategic role today than in the past, many companies manage their supply chains with outdated tools and processes. Not only that, until not so long ago, the customer was involved in the supply chain only at the end, and how products were made and landed in the store was relegated to the background.
Nowadays, however, consumers pay close attention to the Supply Chain (and, in particular, its transparency and sustainability) and want to have a say in how and where they shop. Customer experience is likely to become increasingly central, making it even more important in the coming years to be able to meet new customer needs quickly and on time. New technologies make it possible to do just that.
Benefits of digital transition
The digital transition enables companies to automate processes to become faster and offer logistics tailored to the needs of the specific customer. Not only that, the use of new technologies also makes the supply chain more agile and flexible.
Modern Supply Chain Management software enables large amounts of data to be managed in real time and used to automate workflows in a more streamlined and efficient manner. Unforeseen events locally and globally (just think of Covid) can quickly revolutionize customer needs and demands, and data-driven supply chain management, thanks to technological innovation, enables a more responsive response to new scenarios.
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