Why Is Supply Chain Management Important? (+ Vital Facts)


SCM (Supply Chain Management) sounds like a complicated topic that could be hard to understand but almost any business deals with the supply chain daily.

An organization’s supply chain can affect nearly every facet of an business.

So if you want to learn exactly why supply chain management is important to today’s business, then this article is for you.

So without further ado, let’s do this!

What Is Supply Chain Management?

If you sell a product or service to customers, you have a supply of something that people want. It’s similar to and involves logistics, but logistics is only part of the equation.

SCM or Supply chain management is how you get a product (or service) and deliver it to consumers. But unlike logistics, it involves the creation, development, packing, and payment of goods. Basically, it’s a process.

But supply chain management, or SCM for short, is also a strategy for improving your customers’ experiences and cutting costs.

When you use SCM to handle the “flow” of goods and services, you have a better chance of saving money and time. But more on that later.

Ultimately, supply chain management is something you can learn and implement. But the specifics depend on things like:

  • The existing processes
  • The product or service
  • The team of people
  • The current costs and return on investment
  • The company size

And you need to know your business well enough to be able to make the changes thatsou can influence your success.

What Is Involved in Supply Chain Management?

One could say that everything is involved in supply chain management and to a certain extent, that’s true.

A better explanation would be that any product or service matters for SCM. But that means it influences your sales, purchasing, inventory, stock rotation, returns, shipping delays, and everything else related to getting goods where they need to go.

In general, experts agree that supply chain activities span things such as:

  • Farming
  • Refining
  • Design
  • Packaging
  • Manufacturing
  • Transportation

Supply chain management can also involve people. For example, most service roles involve a product.

Cashiers at supermarkets are moving a product, so they’re part of the supply chain. Customer service personnel at hotels are managing a product, so they’re part of the supply too.

Even physical services, like house cleaning and landscaping, involve both goods and people.

Clearly, the two are connected, but that’s like any other aspect of your business. The trick is seeing how it’s all connected and how to make the most of your investment in both.

Understand SCM VS. ERP & SCM vs. CRM & SCM vs. SRM & SCM VS. PLM

The business community has a serious love affair with acronyms.

Sometimes, it’s virtually impossible to wade through the industry speak to decide if your business needs to focus on ERP vs. CRM or CRM vs. SCM, SRM vs. PLM, or any other configuration of systems for that matter.

Whether you’re an IT professional, barebones startup, a small or midsize business, or a global corporation, it’s incredibly crucial that you can parse through all this industry speak in order to make the most informed decisions for your business and its customers.

This article helps you out and provides you with all you need to know about how SCM exactly differs to other important systems: complete guide to ERP vs. CRM vs. SRM vs. SCM vs. PLM.

How Supply Chain Management Works

When you’re managing huge inventory, talking about supply chain management sounds great. But is it really a “thing” that businesses do? How do you get started? Is SCM even relevant to your business?

We’ll answer those questions and more while covering all the facts you need about supply chain management in the real world.

SCM is Relevant in Every Industry

It might be the first time you’re hearing about SCM. It’s possible that you’re in an industry that doesn’t talk about it much.

After all, if you offer a service rather than a product you might not think managing a “supply” of anything is relevant to you.

But the truth is that supply can refer to any facet of your business that needs to reach customers. Even if you run a cleaning business that sends workers to customers’ homes, you’re still managing a supply of people.

If you manage customer service in a call center, you’re managing access to a service and the tools it takes to deliver said service.

And obviously, if you’re selling any type of physical product, you definitely need to manage inventory and the attached supply chain.

Industry Examples of Supply Chain Management

Maybe the arbitrary concept of SCM is beginning to sound far-fetched. After all, managing your inventory and processes better is just one part of the business, and often a tough part.

But there are plenty of real-life examples of supply chain management that are easy to understand (and even copy, when companies share specifics).

Healthcare and Supply Chain Management

Healthcare is a great example of how supply chain management works.

Medical organizations like hospitals and clinics have to get both products and services to their client base. That means moving goods from manufacturers and distributors to the medical facility.

But it also involves the right resources, human and otherwise, to successfully implement and use the goods.

Plus, healthcare is high stakes so the executives (or the guy who orders scalpels) have to get it right. Healthcare supply chains involve ordering products from a distributor, coordinating delivery, and reordering on the right schedule.

At the same time, healthcare organizations are balancing staff scheduling and arranging the right, often lifesaving, services for their patients.

But if a hospital can get their supply chain locked in to save lives, other businesses can definitely do the same.

Food Service and Supply Chain Management

In foodservice, the stakes aren’t as high when it comes to supply chain management. But reducing waste, getting the stock you need to sell menu items, and avoiding spoiled food (and the expense of it) are all crucial parts of delivering goods and services to your clients.

Imagine what would happen if your restaurant ran out of napkins. You’d have to halt service until you could get more, which would probably mean spending more and messing up your branding by buying some at your local retail store.

Keeping up with inventory and ordering isn’t just about getting deliveries on time. It’s also about cutting costs, increasing efficiency, and guaranteeing the best possible experience for customers so that you stay in business.

How Important Do Business Owners Think SCM Is?

Regardless of your niche, you’re probably wondering how important other business owners think SCM is.

It’s sometimes tough to pin down statistics on the subject since supply chain management is so variable across organizations.

But we can look at who uses SCM, who’s doing a good job of it, and what survey responses indicate.

Who Uses Supply Chain Management?

Essentially, every company uses supply chain management. Of course, some do a better job than others. The ones who are doing things well are the ones that survive. If your organization isn’t taking a closer look at supply chain management, you might see your profits tank and your company go under.

That said, if you work underneath executive management you might be at a disadvantage when it comes to getting the company to embrace supply chain management’s best practices.

In fact, many CEOs are called the weakest link in the supply chain.

You’ll find a ton of articles about how to convince CEOs that SCM is vital, and how to get them on board with streamlining the process.

On the flip side, most small business owners have a better idea of the necessity of SCM. Since they’re often on the front lines, they know how tough it is to scrape by without necessary deliveries or how frustrating it is to deal with low-quality products.

Who Does a Good Job with SCM?

If you’re interested in modeling your supply chain management strategy after a leader in the biz, you’ll want to know about companies who are doing it well.

Industry Week highlighted the top 25 performers in 2018. And though things change fast, we can still learn a thing or two from them.

BMW is Edging Closer to Tesla

As Industry Week explains, BMW might not be in the news as much as its electric car competitor Tesla. But, it does earn a top spot in the supply chain management rankings.

BMW is sustainable, but it’s also forward-thinking.

The German auto manufacturer even created a 3D replica of its factory to test changes and run calculations.

Production tech keeps it humming along too, a surefire sign that all businesses need to embrace the digital tools available for SCM and other aspects of the business.

Adidas Streamlined Its Production

Adidas makes millions of shoes along with other products. But when they decided to go with 3D printing to mass-produce shoe soles, it streamlined their operations.

Imagine cutting multiple steps and even factory square footage out of your production process.

With smart supply chain management, you could achieve some efficient and cost-effective results.

Home Depot Updated Distribution

With online demand growing for all manner of products, Home Depot realized it needed to diversify its delivery system.

Industry Week reports that the company is spending a ton of cash to add distribution facilities.

The goal? To satisfy customer demand for a one-day delivery. And Home Depot is willing to spend over $1.2 billion on making it happen.

Imagine the size of the potential payoff for their efforts.

Why Supply Chain Management is Important to Today’s Business

At this point, we’ve already discussed why supply chain management is important to today’s business.

But if you want a simple and clear answer, here it is.

Your “supply” is what your customers want.

Satisfying customers is the be-all-end-all in any industry. Therefore, supply chain management has the end goal of fulfilling customer needs.

From sourcing products to honing the manufacturing process to guarantee safe shipping and timely delivery, all these things are vital for a successful business that satisfies customers.

But let’s dive a little deeper and look at the hard facts surrounding SCM.

Statistics on Supply Chain Management

A lot of bigger companies understand why supply chain management is important, not just to fulfill customer needs but to pad their bottom line. If it saves money and keeps customers happy, it’s a win-win.

Which is why it’s worth looking at supply chain management stats (and successes).

Supply Chain Management Software Market Growth

SCM software is a billion-dollar industry, which shows just how essential and effective it is to businesses zeroing in on the practice.

The outlook is that the SCM software market will grow even more in the years to come:

As shown in the chart above, it is forecasted that by the year 2023, the global SCM software market would have a revenue of 8,650 million U.S. dollars.

Supply Chain Management Saves Money

Yup—even when you’re spending more on managing your business, you can see returns.

Businesses with “optimal supply chains” have 15% fewer costs than companies without a focus on SCM.

If implementing supply chain management can save you money, why not invest a bit in getting started?

Most (74%) of supply chain companies use four or five transportation methods.

It might seem like multiple transport methods mean more costs.

But if you use SCM to coordinate your deliveries and freight, using multiple modes can get you what you need, when you need it—and at good rates, too.

Adding transportation management tools to your SCM can save you 8% on freight costs.

It makes sense, since tracking performance results in small tweaks that improve the outcome.

Supply chain management needs to govern logistics, but the right tools can help you save even more.

SCM Can Equal Better Service and Better Odds

From satisfying customers more readily to blowing the competition out of the water, SCM can mean more than a better bottom line.

Top companies recognize that customer service improves with proactive supply chain management. It can happen in your company, too.

Higher efficiency is clearly a benefit to SCM, and that alone makes you more competitive.

If you’re cutting costs without cutting corners, nothing’s stopping you from pulling ahead.

Companies Care About fast Results

Seeing results is part of the payoff of implementing a (potentially pricey) SCM strategy. But not to worry, it could happen sooner than you think.

Daily performance metrics are the most common KPI (Key Performance Indicator) in supply chain monitoring.

This statistic means you don’t have to wait for months to see the results of your efforts.

Daily performance metrics will show you where improvements are, and where there’s room for further implementation.

The three top priorities for SCM in 2018 were:

  • Boosting service quality
  • Ensuring performance management
  • Investing in data analytics.

Times continue to change, but service quality will always be a front runner when it comes to company goals.

Performance management speaks for itself, but investing in data analytics might baffle some.

The thing is, you don’t know what’s working unless you’re tracking the results.

Investing in data analytics can shed light on what’s not working (or what is), so you can adjust accordingly.

How Supply Chain Management Can Help Your Business

No matter your industry or niche, you could see significant returns on investment when dealing with supply chain management.

The potential benefits include:

  • Savings: on everything from freight and bulk ordering costs to inventory loss
  • Higher efficiency: less money spent and more accomplished
  • A collaborative work environment: everyone, across all departments, has a common goal and the operation runs more smoothly
  • Increased customer satisfaction: whatever you’re selling, the faster you can get it to your customer, the happier they’ll be
  • Enhanced competitiveness: the lower your overhead and the more efficient your business model, the more likely you are to overtake your competitors
  • A greater understanding of your business model: especially if you’re a CEO who wasn’t in the know before

What Are Supply Chain Management Best Practices?

How can you start applying SCM concepts to your business?

There are a few best practices that experts recommend. In general, these are the top ten factors that influence your success—or not—with SCM, according to Supply Chain Quarterly:

  • Get all your people on board and give everyone specific jobs
  • Choose a way to align all your staff that works based on company structure and organization
  • Use technology that supports your efforts, rather than changing your processes to suit the tech
  • Make sure your key suppliers are your best friends
  • Get feedback from everyone involved in your supply chain
  • Don’t zero in on price per facets of SCM—look at the overall investment and benefits
  • Consult your contracts and know what’s in them
  • Review and keep reviewing inventory
  • Establish guidelines and procedures and keep them up to date
  • Make sure your company is socially responsible and incorporate those practices into your supply chain management

What’s nice about these best practices is that they can apply to any size business.

Part of SCM is tailoring your processes to suit your company, product, and people.

What Tools Do I Need for SCM?

Sure, SCM is sort of a mindset for business owners.

Recognizing that your inventory doesn’t magically arrive on store shelves is the first step.

But because supply chain management is more a strategy than an obscure concept, you might need some tools to implement it.

First, software can help you track everything, analyze data, and figure out where you’re making and wasting the most money. Things like:

  • Inventory tracking programs
  • Supply chain analytics software
  • Supply chain planning software

As seen in the graph below, many SCM (Supply Chain Management) and procurement vendors were already available in the market in the year 2009. In the year 2015, a number of software vendors such as SAP, Oracle and Manhattan Associates were leading the market. It is also important to note that around 50% of the market that year was comprised of other software vendors. Imagine the wide array of options for SCM tools!

SCM (Supply Chain Management) and Procurement Software Vendors' Global Market Share From 2009 to 2017

Overall, there are two main types of software for SCM: planning and execution. When it comes to filling orders, you do need a bit of both.

And while your team doesn’t fall under the “tools” category, you also need people.

A cohesive team that’s all on the same page is more likely to make smart decisions and keep focused on company goals.

Keep in mind that less than one-third of survey respondents said their collaborative processes were effective. That means your organization probably has plenty of room for improvement in that area, too.

SCM as a Career

If you’re wondering whether SCM (Supply Chain Management) as a profession might be a good fit for you, then you have come to the right place!

Supply chain managers are an integral part of small and large companies, and the career path you can take with a degree in SCM is full of opportunities.

Any business that sells goods or services needs a supply chain manager. There are tons of available jobs in the field.

Find out here whether a SCM career suits you: supply chain management as a profession.

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