Supply Chain Management (SCM) Explained
June 17, 2022 10 min read
Supply chain management (SCM) requires rigorous optimization. Products must move along the global supply chain as smoothly as possible—from the component manufacturer to the distribution center, to various retailers and finally on to the end consumer.
In order to achieve optimal efficiency, it’s important to engage the right tools and software, and the best supply chain model. This will ensure you can provide maximum value to your customers as well as gain a competitive edge throughout your entire operations management.
What Is Supply Chain Management?
Supply chain management is the centralized management of goods and services as they flow through various stages of the supply chain. More simply, SCM includes all the processes that transform raw materials into finished goods.
Well-executed supply chain activities help retailers deliver products faster, more efficiently, and with less overhead costs. And that’s exactly why supply chain management is so essential to your brand’s ongoing success.
Why Is Supply Chain Management Important?
Supply chain management has numerous benefits for ecommerce retailers, regardless of what products you sell or how big your company is.
The most important perks of SCM are its ability to elevate the customer experience, reduce operating expenses, and boost your brand’s bottom line.
Elevates the Customer Experience
If you have a product-based business model, then your customers are at the heart of everything you do. And one of the best ways to elevate the customer experience—and increase brand loyalty—is to focus on improving your supply chain management. When your SCM is optimized and flowing smoothly, you can ensure order accuracy and faster delivery times.
By prioritizing supply chain management, you can better control your inventory levels and product availability so that you always have what customers are looking for. Plus, when your SKUs are fully stocked and awaiting shipment, it’ll speed up order fulfillment and reduce your order lead times (meaning shorter delivery windows for your entire customer base).
Reduces Operating Expenses
It’s never a bad time for your business to save money and reduce its overhead expenses. The great thing about supply chain management is that it can decrease your purchasing and production costs, in addition to your total supply chain costs, as well.
An effective supply chain network helps you stay on top of your stock so you can bypass issues with lost, stolen, or wasted inventory—all of which has a big impact on your cashflow.
With the help of supply chain management, retailers can also avoid holding inventory longer than is necessary. In other words, SCM makes sure you’re not overstocking on dead stock items and instead are selling through what’s available (before placing any replenishment orders).
Boosts Your Bottom Line
As you can imagine, whenever your business cuts down on expenses it’s going to have a positive impact on your bottom line. That is, when you control (and reduce) your overall supply chain costs, you’re bound to notice an increase in your profits as a result.
Similarly, when you speed up your supply chain workflows, you’ll recoup a lot of money you would’ve otherwise spent during longer production and fulfillment timelines. Think about it—the more days, weeks, or months it takes for your products to reach the end customer, the more money you’re spending in that interim period before you’re able to complete the sale.
Simply put, SCM is fundamental in protecting your profits and making sure your business maximizes its margins at every stage of your supply chain operations.
How to Build a Resilient Supply Chain Management Process
Now that you know what makes supply chain management so important, you might be curious about how to build a reliable SCM process for your own retail brand.
Generally speaking, there are five steps you can take to implement supply chain management and start reaping the rewards.
1. Clarify Your Supply Chain Models
In order to track all aspects of your supply chain, you’ll first need to clarify your supply chain models. Choosing the right supply chain model will depend on your business, your products, and the size of your company. With that said, there are a variety of different models you can choose from—some focus on speed, others on agility, and some on operational efficiency.
There are a total of five components that should be factored into your supply chain model:
- Manufacturing / Assembling
Your brand can choose to outsource some of these aspects to a 3PL, 4PL, or 5PL (depending on which core competency you need the most support with).
2. Build the Right Supply Chain Management Systems
The second step in setting up your supply chain is getting your SCM systems in place. Most modern ecommerce companies need state-of-the-art software to integrate all the necessary components of supply chain management together.
A great supply chain management system will connect and track all the places your products go, from warehousing to delivery. Ideally, this information system is your window to communicate with your suppliers and manufacturers—by sending forecasts and updates required to avoid disruptions and ensuring you have the exact amount of inventory you need.
Your system should also connect with retailers, whether those are DTC, B2B, dropshippers, or any online marketplaces you’re working with. You should also be able to track your inventory through the warehouse (whether it’s managed by a 3PL or by your own team). This means you know exactly when the inventory is picked up by a transportation provider or if it’s headed back to the distribution center because of a customer return.
3. Forecast Demand and Build a Supply Chain Plan
The next step in becoming a supply chain leader is focusing on demand planning. That’s because planning is a key player in achieving your supply chain management initiatives and in assessing your supply chain risk management.
There are important timing cues at every stage of the supply chain journey that require conscious preparation and strategic planning. More specifically, forecasting and demand management are the planning actions you’ll need to take to meet customer demand. While creating accurate forecasts can be difficult, it’s necessary to balance the supply and demand of your products so you can communicate your needs to suppliers.
To generate an accurate forecast (or one that’s as accurate as possible), you’ll want to combine your historical sales data with current consumer buying trends. Including this real-time data is imperative if you want to stay relevant in today’s fast-paced market.
The goal is to have enough products so you don’t sell out or cause backorders—but not too much inventory that you’re left with excess items and steep warehousing storage fees. Working with an enterprise resource planning (ERP) tool will make forecasting and inventory management much easier than trying to juggle a bunch of different spreadsheets.
By leveraging a quality ERP, you’ll have access to real-time updates and can connect your forecasts to your warehouse to match incoming shipments with what’s already in stock.
4. Get the Ball Rolling with Sourcing and Procurement
All supply chains start with sourcing, which is simply gathering the raw materials needed to make or assemble a specific product. Throughout the sourcing process, retailers have to vet potential suppliers and manufacturers to make sure they have the right parts for your products.
Whichever partners you choose, you’ll need to define your quality and quantity metrics as well as the standards you’d like them to follow. In that way, sourcing lays the groundwork for this crucial first part of your supply chain management.
Procurement, on the other hand, is about acquiring the products, goods, or services that will make your operations run smoothly. While sourcing has to do with hiring the suppliers that will actually make your goods, procurement focuses more on the supplies themselves—that is, gaining the materials needed to move products along the supply chain. Procurement is often emphasized when there’s a crisis like a component shortage or an issue with the manufacturer.
5. Forge Supply Chain Partnerships
Speaking of crises, when things do go wrong, you’ll want to make sure you have reputable partners who can lend their help. So much of supply chain management means building a resilient network of support for your business and your business strategy. While forging relationships with supply chain professionals can elevate your business and help you grow—ultimately, those relationships will help resolve issues when things don’t go as planned.
Partners who know your business well can advocate for your company when you need it the most. For instance, if the manufacturer is backed up and having issues allocating parts, a close working relationship is going to come in handy. That’s because the manufacturer will likely prioritize your business over another brand they don’t have a strong relationship with.
It’s the same way across the entire supply chain, from freight carriers, to 3PLs, and beyond. Having true partners you work with—not just random vendors you have a transactional relationship with—will make all the difference in your company’s success.
Your supply chain manager is the one who can really make all of this happen. This is the primary person in charge of your supply chain management, from parts to people and everything in between along the supply chain journey. Having a competent supply chain manager with deep experience/expertise will set you up to have a very efficient supply chain.
Working with Skubana to Automate Supply Chain Management
Your company’s operations must have impeccable supply chain management if you hope to maintain a competitive advantage within the greater market. Like it or not, finding the right partners to support product development and logistics management along the supply chain is the only way to excel in this area of ecommerce.
Working with a proficient and intuitive management software will be a huge boost to your supply chain sustainability. Modern software, like Skubana, can automate a range of retail operations and business processes (e.g., inventory and order management systems).
These automations have numerous benefits, though most notably they’ll save you tons of time as compared to relying on manual tasks to run your business. But more than that, automations can lower the percentage of human error, decrease overhead costs, and increase the speed and accuracy of your purchasing and replenishment cycles.
If you’re in search of a software solution to support your supply chain management, Skubana has you covered. Skubana’s full suite of inventory and fulfillment services allows brands to scale without sacrificing flexibility, quality, or customer satisfaction.
Contact the Skubana team today to schedule your free demo.
Frequently Asked Questions
Why is supply chain management important?
Supply chain management is important because it helps product-based brands achieve several key objectives. Well-executed supply chain management helps retailers deliver products faster, more efficiently, and with less overhead costs—making it essential to ecommerce success.
Does Skubana help with supply chain management?
Skubana can help with supply chain management by automating a number of retail operations and business processes (like inventory and order management systems, for example). The Skubana platform has automations that’ll not only save your brand tons of time, they’ll also lower the percentage of human error, decrease overhead costs, and increase the speed and accuracy of your purchasing and replenishment cycles.
What do I look for in supply chain management software?
The best supply chain management software should facilitate a smooth production process, assist with accurate forecasting, and eliminate the costs incurred from unproductive (or wasteful) ventures within the supply chain. Additionally, you’re wise to look for a software that has built-in automations to save your brand time and ramp up your operational efficiency.
Written By Brian Tu
Brian Tu is the Chief Revenue Officer at DCL Logistics. DCL Logistics is a full-service fulfillment and logistics company, providing everything from direct-to-consumer fulfillment, business-to-retail fulfillment, and other value-added services. DCL Logistics leverages its 30+ years of operational expertise and customer commitment, supporting industry pioneers ranging from startups to global brands in launching their products through a variety of sales channels.