In 2018 KFC experienced the calamitous chicken crisis: The fast-food giant closed hundreds of its eateries across the UK and Ireland because of a failure in the supply chain.
The brand tried to joke its way out of poultry shortage fiasco tweeting on the situation, “The chicken crossed the road. Just not to our restaurants…” But for millions of Brits, it was no laughing matter. The unhappiest and hungriest consumers even appealed to local police and members of parliament to do something about the closures.
The collapse lasted more than a week and cost KFC millions of pounds, not to mention customer loyalty. But it also had a positive effect, one that prompted many businesses to reconsider and innovate their supply chain management (SCM).
The major lesson extracted was to take SCM more seriously than ever. As Professor Richard Wilding, world-renowned expert on logistics and transport, put it, “It’s not a matter of competition between individual firms anymore, but between whole supply chains.” In other words, you can make a great product, but what really matters is how quickly and efficiently your customer gets it.
In this article, we’re going to highlight supply chain operations that can be dramatically improved and accelerated by using the right software tools. And if you need additional guidance — keep reading to find an overview of top SCM products and practical recommendations on choosing a software solution.
So, what is operations and supply chain management?
The term “supply chain management” was coined by Keith Oliver, a leading British logistician who first mentioned this concept in an interview with Financial Times in 1982.
According to Oliver, “Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of a supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point of consumption.”
Since then, multiple experts have offered their own definitions of SCM. But in a nutshell, it can be described as supervising the whole flow of goods and services, from raw materials to final products, “from farm to fork.”
SCM is tightly interwoven with operations management (OM), that focuses on coordinating and optimizing the internal processes, whether it be designing and manufacturing goods or developing services. To put it simply, both SCM and OM take care of the same product, but at different stages of its lifecycle.
There are several areas where SCM and OM functions can overlap. But basically, SCM is in charge of outside interactions — with suppliers, warehouses, distributors, and end-customers, while OM supervises everything that happens inside the company.
Small companies often don’t separate the external and internal parts of product flow, so that the same specialist or department controls all phases goods and services pass through en route to the end customer. Large organizations usually split responsibilities between two executives — a supply chain manager and an operations manager.
What are the roles of a supply chain manager and operations manager?
The top objective of both experts is to save expenses and boost efficiency of production without compromising on quality. But while a supply chain manager focuses on external processes, an operations manager solves pressing internal tasks. The former negotiates terms with third-party contractors (suppliers, logistics teams, distributors) and optimizes movement of materials and goods from one point to another outside the organization. The latter communicates with stakeholders and implements policies to boost manufacturing and get things working well inside the company.
Given that both pursue the same global goal and work on the same product, they have some overlapping responsibilities. For example, both are involved in:
- Forecasting prices, overseeing budgeting, planning and auditing.
- Cost management (estimating, controlling, optimizing, and reducing operating costs).
- Inventory control to ensure effective stock utilization and reduce warehousing costs.
- Demand forecasting, crucial for preventing overproduction and oversupply.
Supply chain and operations managers constantly exchange knowledge and information. Together, they reveal new opportunities for the company and address them. Within this ambitious aim, they take part in choosing innovative technologies that will reduce manual operations and automate stages of product flow.
Innovating supply chain management operations
An important question to ask about business process automation is “How many steps can be delegated to technologies?” In the case of a supply chain network, the answer will depend on its length and the number of operations involved.
The Institute for Supply Management (ISM), the world’s oldest and largest association in the field, differentiates 14 essential components of the supply chain that can vary depending on product complexity as well as business size and type (manufacturer, distributor, retailer). We’ll focus on the most common components and on how software solutions can transform and streamline crucial SCM processes.
Procurement, or obtaining materials, goods, and services you need to run your business is the very first element of a supply chain.
The procurement cycle involves multiple steps — analyzing and selecting vendors, negotiating terms, ordering, and invoicing, to name a few. The significant part of these procedures can be delegated to procurement management software. This will speed up the workflow, enhance transparency, save time, and, finally, reduce costs, a key priority for 78 percent of procurement leaders.
The core functionality of procurement software covers the following areas.
- E-sourcing. Before buying materials or goods to run your business, it’s vital to collect, check, and compare information about different vendors to choose the best one. E-sourcing automates several steps of the traditional sourcing routine.
- Preliminary data collection. The system sends a standard electronic pre-purchase questionnaire (PPQ) and request for quotation (RFQ) to each potential vendor. After filling in the forms, vendors upload their answers into software, giving procurement managers instant access to all the information.
- Automated evaluation. At all stages of procurement, e-sourcing solutions use analytical tools to sort through documents sent by suppliers, draw and process essential information, verify compliance of a vendor with business requirements, compare prices and other metrics, and highlight unsuitable proposals. The results can be displayed on the dashboard as informative data visualizations.
- Invitation to tender (ITT). Vendors sorted out for the next stage of sourcing automatically receive invitations to tender forms that specify requirements of organization and details of the evaluation process.
- E-auction. Vendors invited to tender and submit their bids to the shared platform. All parties involved have access to all bids and compare offers, which prompts suppliers to reduce prices.
Contract management. Among other things, the digital “administrator” helps you create and standardize contract templates, boosts approval processes, and captures electronic signatures.
Procure-to-pay (P2P) operations. P2P is a subdivision of procurement that covers financial transactions. The set of P2P features differs from product to product. But the core functionality usually boils down to managing a purchase requisition process, generating and tracking purchase orders (POs), and invoice matching. The system compares invoices to the corresponding POs to eliminate mistakes and duplications. If there are any deviations, the invoices are sent back to the supplier for corrections. Otherwise, payment is authorized.
Vendor (supplier) management. An app aggregates all data about your vendors, updates it, and alerts about expired qualifications and assessments. The performance of suppliers is measured against critical metrics such as speed, accuracy, quality, and price.
Spend analytics. The automated collecting, classifying, and analyzing of expenditure data brings visibility to the complex procurement process and allows businesses to discover savings opportunities.
Inventory can be defined as all goods and materials a company keeps on hand to meet customer demand. There are four major categories of inventory:
- raw materials.
- work-in-process (WIP), or components, assemblies, and partially finished goods waiting for completion.
- finished/packaged goods.
- maintenance, repair, and operating (MRO) items, necessary to support and maintain a production process. This category spans all goods that keep business operations running, from industrial equipment and computers to uniforms and office supplies.
In an ideal world, the first three categories of items would move through the supply chain without stops and bottlenecks, ensuring a rapid investment payback. In reality, supply is rarely (or rather never) equal to demand, with inventory expenses amounting to a substantial 45–90 percent of the company’s total budget. The costs of excess stock can be huge, tying up company funds and reducing cash flow.
Inventory control aims at finding and maintaining the perfect balance between holding too much stock and running out of it across all supply chain nodes. This complex task requires the coordinated effort of different departments. As the business grows, it becomes harder to manage multiple separate subdivisions manually.
The adoption of specialized systems can help you integrate numerous inventory points under one umbrella for more effective, centralized administration. While the choice of available solutions is wide, the common set of must-have features for inventory management software looks like this.
Multi-location inventory tracking. Software allows for organizing and tracking inventory items by suppliers, serial numbers, tags, barcodes, SKUs (stock keeping units, or a number assigned to a product to track inventory) or other IDs at different location levels (bins, shelves, racks, aisles) across multiple warehouses. You can easily find a specific part or product, monitor locations, trace item transitions, view overstocks and stockouts.
Low inventory alerts. They appear in your dashboard when the quantity of certain items reach the preset low limit.
Automated replenishment. In case of frequent reorders, a replenishment tool can automatically create purchase orders and send them to vendors.
Digital FIFO tools. FIFO stands for first-in, first-out and describes the principle that the oldest inventory should be used or sold first. This approach leads to timely identification of the obsolete or slow-moving stock.
Barcoding. It involves both software and hardware (scanners and label printers) for assigning, scanning, and managing barcodes. Barcoding solutions bring ease, speed, and accuracy to your inventory operations such as stock-taking and verification.
Inventory optimization and performance analysis. The system automatically analyzes inventory data (such as sales history) and makes suggestions on replenishment dates and quantities. It also identifies the best performing products as well as ones with low profitability indicating where you make the most profit and which products face zero demand.
Real-time reporting. High-end solutions constantly process different metrics and generate visual reports on current inventory levels and turnovers, strengths and weak points.
An inventory management analytical dashboard maximizes comprehension of the inventory data and trends. Source:
Logistics is a huge part of SCM that bridges production and marketing, supply and demand. It covers all processes that refer to the movement of products and information between a manufacturer and a customer — namely:
The primary goal for logistics efforts is to meet customer needs in the shortest time and at the lowest cost possible. And that’s where smart technologies play a crucial role. To learn more about digital transformations in the field, read our in-depth overview of Logistics Management Systems (LMS) and their main modules.
Demand planning and forecasting
Demand planning initiates and drives operations in all segments of a supply chain, from purchasing raw materials to product distribution. In many organizations, the forecasting process still relies on tricky and rigid spreadsheets, which are hard to adapt to demand volatility. Thus, the implementation of modern demand-sensing software can give you a huge competitive advantage, bringing transparency and reliability into predictions.
Accurate, timely forecasting of customer requirements helps businesses achieve the following goals:
- timely procurement planning and negotiating better purchase terms
- improved capacity utilization
- elimination of production delays
- enhanced customer satisfaction
- minimizing the so-called bullwhip effect — a situation when a small rise in product demand leads to excess inventory across the whole supply chain, with gradual enlargement as the information about sales growth travels back from a consumer to a raw materials vendor.
We’ve already discussed how retailers apply artificial intelligence. But what digital capabilities are particularly useful for improving demand forecasting? Here are some features worth considering.
Demand sensing. A demand planning system aggregates large volumes of real-time data from multiple sources to identify demand trends and generate accurate short-term forecasts. This enables you to react quickly when unexpected changes occur.
Demand segmentation and modeling. AI-powered software can optimize forecasts for different channels, products, customers, and more. Moreover, you can simulate multiple demand scenarios and analyze consumer buying patterns to make more informed decisions.
Resource planning. Based on demand forecasting, the software makes suggestions on the volumes of resources required to meet customer needs.
Collaborative forecasting. Suppliers, partners, and stakeholders can be brought into planning to develop forecasting in collaboration.
New product forecasting. The system analyzes sales history of similar products, considers different factors (like season, launch time, or region) and applies complex models to predict demand for new goods or services.
This list can be continued and extended as new technologies are emerging all the time, penetrating deeper into the complex processes and simplifying them. In our future posts we will keep you informed about innovations in the sector. And now, it’s time to move on to integrated SCM suites encompassing all mentioned-above solutions.
Supply Chain Management Systems: whether they fit your business needs
In contrast to SCM software products that focus on one particular task or niche, supply chain management systems (SCMS) are designed to coordinate the entire flow of products or, at least, a substantial part.
Sometimes SCM systems include functions of Enterprise Resource Planning (ERP) software that optimizes internal tasks and processes, relevant to the operations management field. Vice versa, ERP suites often contain SCM tools and their functionality can be expanded by implementing compatible SCM add-ons.
To be more specific, let’s take a quick look at offerings from top SCM software vendors that lead the pack in terms of revenue and market share.
SAP Digital Supply Chain
One of the world’s oldest and largest software companies, Germany-based SAP has been on the market since 1972. It holds a leading position as a developer of robust ERP systems, with 90 percent of Fortune 500 companies using SAP software for their business needs. The latest and most renowned SAP S/4HANA ERP suite offers components that efficiently solve SCM issues.
During the past few years, SAP has been placing more focus on its SCM solutions, which are now marketed under the name Digital Supply Chain. The innovative software products built on top of SAP Leonardo intelligent platform employ machine learning and IoT to bring visibility, forecasting, analytics, and collaboration to the next level.
Digital Supply Chain is split into two large groups of products.
Supply Chain Planning harnesses capabilities of several other SAP products, such as Analytics cloud, Qualtrics, the first experience management (XM) software to anticipate customer behavior, and the Ariba Supply Chain Collaboration tool to share real-time information with partners and suppliers.
Supply Chain Logistics incorporates:
- Extended Warehouse Management
- Transportation Management
- Logistics Business Network integrated with Uber Freight to provide effective on-demand shipping
- Yard Logistics monitors and optimizes processes in the yards of manufacturing facilities, warehouses, or distribution centers.
Who can benefit from it? SAP products fit exactly into the requirements of large enterprises with thousands of employees and multi-million-dollar budgets. For mid-size businesses and doubly so for small companies, their suites are too costly to acquire, implement, and maintain. With SAP SCM, you’ll need a dedicated team of tech-savvy experts to administer the system. And, that adds to the total cost of ownership.
Oracle SCM Cloud
Founded in 1977 in California, Oracle is known as a pioneer in database management system development and marketing. Currently, the company is also among the top vendors of enterprise software offering multiple lines of business solutions. Its SCM Cloud suite includes the following components:
- Supply Chain Planning — combining demand management, sales and operations planning, and supply and distribution planning.
- Procurement Cloud — with sourcing, contracting, procure-to-pay, and supplier management features.
- Inventory Management Cloud — providing end-to-end visibility into item flows and their costs.
- Order management — consolidating orders and invoices from all your channels and orchestrating order-to-cash operations.
- Logistics Cloud — integrating transportation, warehouse and global trade management systems. The module covers a wide range of tasks, from shipping optimization to regulatory compliance for a seamless international trade experience.
Who can benefit from it? While having among its clients multi-billion-dollar businesses Aurobindo Pharma and Symantec, Oracle also attracts small-to-medium businesses offering them affordable prices and flexible software solutions. Oracle SCM Cloud promises to boost business growth. But it’s worth noting that implementation of the system requires significant financial investments and time-consuming workforce upskilling.
JDA’s Supply Chain Platform
SCM is a key priority of JDA Software Group, headquartered in Arizona. The company has been invested in innovation since 1985, and currently, JDA is honored by Gartner as a leading provider of supply chain solutions, driving digital transformation.
The end-to-end technology harnesses advanced analytics, IoT, AI, and ML capabilities along with cross-platform integrations to predict disruptions, make forecasts and draw useful insights from real-time data. The portfolio of highly intelligent software products spans:
- Demand forecasting shared across an organization
- Supply planning on a flexible, collaborative platform that brings in partners, suppliers, and everyone concerned
- A fulfillment feature that leverages real-time demand insights and long-term market forecasts to reach maximum profitability
- Track and trace tools to manage inventory and raw materials
- Transportation management powered by predictive analytics
- Warehouse management facilitating automation and boosting labor productivity while minimizing manual work.
Who can benefit from it? The core focus of JDA is the retail sector. Besides common supply chain modules, the platform contains additional tailored solutions such as retail planning and merchandise management. Yet it also has offerings for manufacturers, distributors, and logistics companies. Complexity and high prices make this system a bad fit for small companies.
Logility Voyager Solutions
Logility, supply chain management software developer from Atlanta, offers customizable modules that easily integrate with each other and work together for a common goal. The list of AI- and ML-fueled Logility solutions is comprised of:
- Demand optimization, benefitting from an autonomous engine for continuous data sensing and analyzing.
- Supply planning, modeling different production scenarios to balance supply and demand. The tool also allows for automated replenishment.
- Sourcing management to automate processes of identifying global suppliers, evaluating bids, and performing a transparent, final selection.
- Inventory optimization, applying a multi-echelon inventory optimization (MEIO) method to ensure the right levels of stock.
- Merchandise and assortment planning, a helpful module for retailers, that focuses on reviewing, balancing, and updating plans at all levels.
Who can benefit from it? Logility Voyager Solutions can be customized for different business sizes, from Fortune 500 enterprises to mid-size companies. However, it will be somewhat cumbersome and pricey for small firms. The suite covers the needs of manufacturers, wholesalers and retailers, and is particularly suited for inventory management and demand planning solutions.
Smaller suites or less doesn’t mean worse
As you can see, all-inclusive SCM suites are rarely consonant with the requirements of both small businesses and large companies looking to improving one sector rather than reorganizing the entire supply chain. If your scope of SCM work is not that wide, look for the right technology among solutions tooled to solve narrower tasks.
For instance, procurement processes in a small or mid-to-small company can be enhanced by implementing e-sourcing software or a procurement management system (PMS) that covers the whole buying cycle. Here are a few available options.
- Promena — an electronic platform, providing e-sourcing, e-auction, and vendor management services.
- Precoro — a cloud-based procure-to-pay system automating bid comparing, purchase orders, and invoicing. It also tracks spending across the company, having an eye on everything from Internet expenses to office purchases.
- ProcurePort — combining spend analysis, e-sourcing, P2P operations, and contract management. The competitive advantages of the e-procurement platform are ease of integration with 3rd party ERPs and a responsive support team.
If your key priority is enhancing inventory, consider the following systems.
- Megaventory covers multi-location inventory management, order fulfillment, report creation, and manufacturing tracking.
- TradeGecko is a cloud-based platform with a convenient inventory controlling component, the ability to synchronize orders from multiple channels, and generate accurate real-time reports.
- Unleashed Software offers real-time inventory control and reporting. The solution is especially recommended for small e-commerce businesses.
An inventory plus shipping combo can be most helpful for small-to-medium e-commerce companies striving to grow. A good example of such an attractive market offer is Ordoro, a one-stop app for inventory control, barcode scanning, shipping order, and drop-shipping.
When it comes to transportation, small-to-medium companies may consider Magaya, a freight management solution, which covers warehousing and cargo operations. Among other useful features, the vendor offers its LiveTrack plug-in for real-time cargo control.
Another warehousing and transportation set tailored for small and medium businesses is Da Vinci, a cloud-based solution equipped with barcode scanning, a yard-management component, and other useful features.
How to choose SCM software for your business
Sure thing, there is no single SCM technology that fits everybody. A complex and pricey package can be a money pit for a small business as it pays for plenty of unnecessary features. By contrast, an enterprise adopting a software solution with limited capabilities will hardly reach ambitious business goals. Here are some practical tips to help you choose the right option and avoid costly mistakes.
Estimate the true total cost of ownership. Dive deeper into financial details and add up costs of support, customization, and upgrades. The final number can be impressively larger than the initial purchase price you are ready to pay.
Rather than investing in a large, stand-alone SCM system, you can start with implementing a few modules addressing major problems and bottlenecks across your supply chain.
Consider your existing software and learn how you can complement it with new SMC components and adds-on. Chances are developing a custom solution tailored for your unique case will be cheaper (at least in terms of time and effort) and bring more value than ready-to-use, but hard-to-integrate software with functionality that exceeds your needs.
Domain focus is something you shouldn’t ignore. If SCM software is initially designed for a different industry, modification can be a tricky and money-consuming task.
In the event that there is no proper solution for your niche, explore portfolios of software development teams with relevant expertise. If they launched business process management projects for a company similar to yours, you can count on them solving your task quickly and for less money.
Keep your supply chain well-oiled
Supply chain optimization is a demanding and time-consuming task, but it’s worth the effort. Amazon and Walmart, the world’s largest retailers, owe much of their success to tech-driven, customer-centric SCM. Innovative supply chains have been supporting the impressive growth of billion-dollar startups like mattress-maker Casper and eyewear retailer Warby Parker. The ability to deliver products just in time and satisfy your consumers before competitors seize the initiative becomes a game-changing factor you can’t ignore.
Your car engine needs oil and fuel to keep it operating smoothly. Likewise, your supply chain mechanism calls for care and improvements to drive your company’s growth. Oil it today — and your business won’t come to a sudden halt tomorrow.
To read more about supply chain, logistics, and transportation, check our other articles:
Originally published at AltexSoft tech blog: “Supply Chain Management Software, Operations, Processes, and Roles”