Supply Chain Management and Digital Transformation

There are several definitions of supply chain management (SCM). ‘The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer’ (Institute for Supply Management).

The planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities ... also includes coordination with channel partners, which can be suppliers, intermediaries, third party service providers, and customers (Council of Supply Chain Management Professionals).

The management of information flows between and among activities in a supply chain to maximize total supply chain effectiveness and profitability (Scott, 2021).

A typical supply chain (Scott 2021)

Key components of a supply chain management (SCM) system

There is no unified view on the key components of a SCM system, various sources have various views which will be briefly discussed.

According to Ingram (n.d) supply chain management systems include 3 components.

• Strategic: Considerations around the number, size and location of warehouses and the technological infrastructure required to manage them.
• Tactical: Considerations of how to execute strategy. This includes inventory management, industry benchmarks, cost management.
• Operational: Daily activities of running a supply chain including good in/out, storage and record keeping.

According to CIO (2020), there are 5 components of traditional SCM systems: planning, sourcing, manufacturing, delivery & logistics and returning.

Supply chains consists of several processes.

• Procurement: B2B purchase and sale of goods and services.
• Outsourcing & Partnerships: A company provides services to another.
• Manufacturing Flow Management: Supply products/services based on historical data.
• Order Fulfillment: Respond to customer demand by combining order management, storage, and logistics data.
• Customer Service Management Process: Provides customer with information about delivery and availability.
• Forecasting: Predict future performance and requirements.

There are 2 types of SCM systems used in organisations;Supply Chain Planning (SCP) Software, uses algorithms to improve supply chain efficiency and Supply Chain Execution (SCE) Software which automates the supply chain. These must be integrated with the organisations enterprise resource planning (ERP) and customer relationship management (CRM) systems. A third component in supply chain analytics which combines internal and external data to monitor the supply chain and predict possible concerns which can be avoided.

Integration between SCM, ERP and CRM (Scott 2021)

The Internet-Driven Supply Chain (Scott 2021)

According to Hindsman (2020), technologies in the supply chain allow organisations to identify and act on time and cost saving opportunities.

Professor Klaus Schwab, founder and executive chairman of the World Economic Forum, believes we’re well under way with the fourth industrial revolution. Key Industry 4.0 technologies used in supply chains include:

• Internet of Things (IoT): Internet connected sensors capturing real time data that can be processed and support automation of the supply chain.

• Big data and advanced analytics: The high volume, velocity and variety of IoT data can be analysed for decision making or automation.

• Robotics and automation: Robotics have been used in supply chains for many years however they have advanced in function and are internet connected. Combined with robotic process automation (RPA) organisations can now run smart factories with human oversight and less direct human input.
• 3D printing: 3D printing allows highly customized prototypes to be quickly manufactured and tested.

SCM Supports Strategic Advantage 

While many organisations pursue competitive advantage and many vendors say that they sell it, the ubiquity of technology means that installing a modern system does not automatically yield competitive advantage. However, organisations that adapt their people, processes and structures may be able to achieve it (Tabrizi et al 2019).

When effectively managed, SCM systems can deliver competitive advantage by minimizing cost, waste, time, impact of ecological disasters and improving organisational agility. The current industry operates a just-in-time (JIT) system of low stock and continuous replenishment according to IBM (n.d). Results vary based on organisations ability to capture and derive value from their internal data and work with external partners/vendors. 

Perkins & Wailgum (2017) say that effective SCM systems increases organisation value in 3 scenarios:

1. Identifying potential problems. Data analysis allows manufacturers to preempt materials/product shortages before they occur resulting in availability and customer satisfaction.
2. Optimizing price dynamically: SCM systems can adjust prices dynamically to meet demand, improve margins or sell perishable stock.
3. Inventory management: Analytical software internal and external data such as weather forecasts, economic events, customer demand, materials/product availability etc. 

SCM systems do not guarantee a competitive advantage however, organisations may be able to increase their chances of achieving it via SCM systems if they successfully manage the 5Cs by Ellis & Santagate (2020).

• Connected: Accessing unstructured,structured and traditional data from social media, IoT and enterprise systems..
• Collaborative: Using cloud-based commerce networks to collaborate with suppliers.
• Cyber-aware: Protect the organisation from cyber threats and data breaches.
• Cognitively enabled: Deploying AI to analyse data, reach decisions, implement certain actions and prescribe future actions to management.
• Comprehensive: Scaling analytics and combining with data in real time.

Mini Case Study

The impact of ecological disasters is having an increasingly devastating impact on organisations. From wild fires and droughts to snowstorms and pandemics, organisations need an agile SCM system to survive. SCM systems must balance both supply and demand but this is becoming increasingly difficult.

Ellis & Santagate (2020) argue that materials/supply shortages from Covid-19 are worrisome but the real challenge is if customer demand does not rebound. As the virus and vaccine roll-outs are sequential across nations, so to will the returning customer demand, requiring organisations to be flexible.  IDC analysts believe that supply will easily recover however they struggle to forecast demand in light of significant market uncertainty. The economic impact downstream can have devastating impact  upstream, for example US movie theatre chains are pessimistic about their survival. This can place demand issues on soft drink and snack suppliers such as Coca-Cola and Nestle, the demand is unlikely to be made up for in retail sales for home consumption by movie streamers.  

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