Supply chain - definition, types and methods of SCM management.
In today's post, we'll focus on a key component of logistics - the supply chain. We'll discuss what exactly an effective supply chain is and outline the different types of supply chains. In addition, we'll look at SCM management methods to streamline and optimize supply chain operations. In today's increasingly competitive environment, an effective supply chain is becoming crucial to a company's success. Therefore, it is useful to understand how the process works and the benefits of optimizing it.
Table of Contents:
- Introduction
- What is a supply chain?
- Key supply chain initiatives and regulations
- Supply chain management (SCM) - what is it?
- Why is SCM so important?
- What are the elements of a supply chain? Supply chain management
- Supply chain processes
- How does supply chain relate to logistics?
- What are the types of supply chain?
- Responsible supply chain - what is it?
- What affects the global supply chain?
- The future and innovation in the supply chain
- Examples of supply chain in different industries
- What does supply chain management mean?
- Practical aspects of supply chain management
- What is the importance of transport in supply chains?
- Summary
From this article you will learn:
- What is supply chain management (SCM) and why is it important?
- What are the different types and components of a supply chain?
- Why is a responsible supply chain important for sustainable development?
- What are examples of supply chain in different industries?
What is a supply chain?
A supply chain is a sequence of processes and activities involved in the delivery of products or services from a supplier to an end customer, both in terms of international transport and domestic transport. The supply chain consists of many stages, such as planning, procurement, production, distribution and after-sales service. Practically speaking, the supply chain refers to the total path of a product until it is sold.
Supply chain concept - definition and basic assumptions
The supply chain concept is based on the idea of managing all elements of the production and distribution process in an integrated manner. This includes the planning, execution and control of all activities related to the flow of goods and information from suppliers to final customers. The main tenets of the supply chain concept are:
- Process integration: the supply chain combines various business processes, such as procurement, production, warehousing and distribution, into one cohesive system.
- Efficiency: seeking to minimize costs and lead times while ensuring high-quality products and services.
- Flexibility: the ability to adapt quickly to changing market conditions and customer needs.
- Sustainability: incorporating environmental and social aspects into supply chain processes.
Key supply chain security initiatives and regulations
Various initiatives have sprung up around the world that can be linked directly to the supply chain. The basic criterion for division has become mandatory initiatives (resulting from regulations) and voluntary initiatives. Below are the most recognizable initiatives and regulations related to the supply chain:
WCO SAFE Framework
A program created by the World Customs Organization (WCO), which became effective in June 2005. Its contents include rules for the security of cargo transport in global trade. These are referred to as the SAFE Framework. Based on this program, security standards have been created in Europe (AEO status), the US (C-TPAT) and Canada (PIP programe). Of the 185 members (as of 2023), 169 have signed letters of intent to implement SAFE Framework standards.
Source: wcoomd.org
ISPS Code
This regulation was created by the International Maritime Organization (IMO) in 2004. Since the date of the regulation's implementation, it has become part of the SOLAS Convention, which sets the rules for the maritime supply chain. The code is divided into two parts, A and B, of which Part A is required to be implemented by all member states, while Part B is in the form of recommendations. In addition, the ISPS Code defines different levels of cargo security risks on a 3-point scale.
AMS (Automated Manifest System)
AMS, also specified as AMR (Advanced Manifest Regulation) or 24-hour rule, was developed in 2002 with a focus on four modes of transport: sea, air, rail and road. The AMS system is linked directly to the US CBP (Custom & Border Protection), which applies to cargo imported into the US. In Poland, the AMS system applies primarily to the sea and air branches of transport, where container handling must undergo the appropriate avigation 24 hours before loading. In addition, a rule has emerged since 2008 that specifies the provision of seal numbers on cargo by shipowners (ISO PAS 17712).
CSI (Container Security Initiative)
The CSI initiative is based on maintaining the continuity of cargo transport between the world's largest ports. The basic premise of this initiative has become security in container traffic, based on an assessment of the risk level of selected containers. We are talking about the contents of a container, which may pose a potential threat during transport or as the use of cargo in a terrorist attack (mainly the transport of military equipment).
Source: link.springer.com
C-TPAT (Customs-Trade Partnership Against Terrorism)
This is a type of trade partnership whose affiliated entities focus on cargo security. C-TPAT brings together importers, exporters, customs brokers, port operators, shippers and landers. It is worth mentioning that the program's partners receive a certificate of priority treatment by customs during clearance at ports. The C-TPAT program is similar to the AEO concept, which is why the EU signed an agreement in 2004 that recognizes C-TPAT certificates on par with European certificates.
Supply chain management (SCM) - what is it?
Supply Chain Management (SCM) is a strategic approach by a logistics operator to optimize supply chain processes and activities in order to achieve the best business results.
Why is SCM so important?
SCM is extremely important for companies to improve efficiency and effectiveness in supply chain management, resulting in increased profits and competitiveness. With Supply Chain Management, companies can optimize production, procurement, distribution and after-sales processes, allowing them to serve customers faster and more efficiently.
What are the elements of a supply chain? Supply Chain Management
Supply chain elements are the various processes and departments involved in the delivery of products or services from the supplier to the end customer. The supply chain includes the following elements:
- Supply chain planning - includes specifying supply chain strategy and objectives, identifying suppliers and customers, and planning for material and raw material requirements.
-Procurement - includes the processes involved in ordering and obtaining goods and services from suppliers. This stage may include contracting with suppliers, setting delivery terms, negotiating prices and payment terms.
- Production - includes processes related to the processing and production of goods. In this stage you can plan production, manage inventory, control product quality and ensure timely production.
- Distribution - includes the processes involved in moving goods from the production site to warehouses or directly to customers. In this stage, you can plan the route of deliveries, choose the means of transport and control inventory.
- After-sales service - includes processes related to maintaining products or services after sale. In this stage, technical support, warranty and service can be provided, as well as collection and recycling of products.
The supply chain may also include other elements such as warehousing, inventory management, transport, production planning, quality management and reverse logistics.
All of these elements must be properly coordinated and managed to ensure an efficient and effective supply chain. Supply Chain Management (SCM) is a strategic approach that aims to optimize supply chain processes and activities to achieve the best business results.
Supply chain processes - from sourcing to delivery
Supply chain processes include all activities from the sourcing of raw materials to the delivery of the finished product to the customer. The first step is sourcing, which involves purchasing raw materials and components from suppliers. The raw materials are then transformed into finished products during production processes. The next stage is warehousing, which includes the storage of raw materials, semifinished and finished products. Distribution is the final stage, which involves transporting and delivering products to customers. Each of these stages is crucial to the effective functioning of the supply chain.
How does the supply chain relate to logistics?
Logistics plays a key role in the supply chain, as it is responsible for coordinating and managing the flow of goods and information between the various stages of the supply chain. Logistics is also responsible for ensuring quality service levels and minimizing costs.
What are the types of supply chain?
The types of supply chain can be divided according to various criteria.
Here are some basic types of supply chain:
- Traditional supply chain - includes the processes involved in sourcing raw materials, manufacturing, distributing and selling products. These processes are carried out by a single manufacturer or distributor.
- Global supply chain - includes the processes involved in sourcing raw materials and manufacturing in different countries, followed by transport and distribution to customers around the world.
- E-supply chain - includes processes related to sourcing online orders, manufacturing and distributing products to customers.
- Push supply chain - involves producing products based on forecasts of market demand.
- Pull supply chain - involves producing products based on current market demand.
- Lean supply chain - involves minimizing inventory to reduce warehousing and production costs.
- Agile supply chain - involves responding quickly and flexibly to changing market conditions and customer demand.
Supply chain types can also be defined on the basis of industry or products. In addition, supply chains can also be divided into short, medium and long supply chains, depending on the length of the route and the number of participants in the process. In each case, there are different strategies and approaches to optimize the supply chain and achieve better business results.
Responsible supply chain - what is it?
A responsible supply chain is an approach that aims to ensure sustainability and minimize the environmental and social impact of operations. A sustainable supply chain should focus on minimizing adverse environmental and social impacts during all logistics stages (production, storage, delivery). When organizing responsible transport in the supply chain, it is worth considering the use of Intermodal transport, which uses at least two modes of transport, e.g. road and rail, which has a positive impact on the environment by reducing emissions of harmful substances to Our health and the planet by up to 60%.
What is affecting the global supply chain?
Globalization, changes in international trade, government regulations, climate change and the associated need to pay attention to environmental protection. These are just some of the factors that have a significant impact on the operation of the global supply chain. Therefore, to successfully manage a global supply chain, companies must have strong analytical skills, flexibility and the ability to respond quickly to changing conditions.
Below, we discuss some of the factors affecting the supply chain:
- Globalization - the growth of the global economy has increased the demand for international transport and transport. The flow of goods and services between countries has become more widespread and complex, leading to greater complexity in supply chain management.
- Changes in international trade - Changes in trade and tariff policies between countries can affect the amount and types of goods that are transported between them. Companies must adapt to changing laws and regulations, which can affect the operation of the global supply chain.
- Government regulations - various government regulations such as customs, taxes and security requirements can affect the operation of the global supply chain. Companies must comply with different regulations in different countries, which can lead to higher costs and increased complexity.
- Climate change - Climate change can affect the operation of the global supply chain by increasing risks associated with adverse weather conditions such as floods, droughts and storms. Companies must consider these risks in their supply chain planning.
- Security - Terrorist threats, drug smuggling and illegal migration flows can affect the security and operation of the global supply chain. Companies must take appropriate precautions to minimize the risks associated with these threats.
- Sustainability - The growing interest in sustainability and environmental issues has influenced greater public awareness and the introduction of stricter environmental regulations. Companies must consider these issues in their supply chain and take appropriate steps to contribute to environmental protection.
The future and innovation in the supply chain
The future of supply chain management - trends and forecasts
The future of supply chain management will be shaped by several key trends. Digitization and automation of processes will continue to accelerate, enabling better control and coordination of operations. The rise of sustainability will lead companies to increasingly focus on reducing CO2 emissions and promoting green practices. Globalization of supply chains will continue, but at the same time companies will seek to increase localization and diversify supply to minimize the risk of disruption. The rise of data analytics and artificial intelligence will enable better forecasting and decision-making.
Digital technologies - the impact of digitization on the supply chain
Digitization is having a huge impact on supply chain management. Digital technologies such as IoT, AI, blockchain and robotics are revolutionizing the way goods and information flow is managed. IoT enables real-time monitoring of product status and location, allowing for better control and faster response to problems. AI automates data analysis and decision-making, increasing operational efficiency and reducing errors. Blockchain provides transparency and security in tracking the flow of goods and transactions. Robotics automates warehouse and manufacturing processes, increasing the speed and accuracy of operations. Digitization allows for more efficient supply chain management, cost reduction and improved customer service.
Resilient supply chain. How to build resilient logistics systems?
Building a resilient supply chain is about creating systems that are resilient to disruptions and capable of responding quickly to changing market conditions. Managing risk by identifying potential risks and developing contingency plans is key. Diversifying suppliers and production locations helps minimize the risks associated with supply disruptions. The introduction of technologies such as IoT and blockchain enables better monitoring and control of the flow of goods. Collaborating with supply chain partners and building trusted relationships allows for better coordination of activities and faster response to problems. Building a resilient supply chain allows for greater flexibility and stability, which is key to success in a changing market environment.
Examples of supply chain in various industries
A supply chain is a process that involves many different activities, from planning the need for raw materials to delivering finished products to customers. Below are supply chain examples for various industries:
- Food industry - in the food industry supply chain, the process starts with obtaining raw materials from farmers, dairy farmers or other suppliers. The raw materials are then transported to industrial plants, where they are processed and packaged. Finished products are then delivered to warehouses and stores where they can be sold to customers.
-Electronics industry - in the electronics industry's supply chain, the process begins with sourcing the raw materials needed to produce electronic devices. The components are then transported to factories, where they are processed and assembled into finished products. The finished products are then transported to warehouses and stores where they can be sold to customers.
-Pharmaceutical industry - in the pharmaceutical industry's supply chain, the process begins with the sourcing of raw materials, which are used to produce drugs and other pharmaceutical products. The raw materials are then processed and produced into finished products, which are transported to warehouses and pharmacies, where they are distributed to patients.
-Garment industry - in the garment industry supply chain, the process begins with the sourcing of raw materials, such as cotton or wool. The raw materials are then processed and produced into finished garments, which are transported to warehouses and stores where they can be sold to customers.
The supply chain may be different in each industry, but it always involves different stages, from the sourcing of raw materials to the distribution of finished products. Supply chain management in any industry is crucial to a company's success, as it allows it to optimize processes and achieve better business results.
What does supply chain management mean?
Supply chain management represents a kind of integration between the links in the chain. The integration includes both suppliers and customers - all based on the principle of beneficial cooperation. The concept of supply chain management arose when it became problematic to manage several modes of transport simultaneously in a single logistics network. Automation and coordination played a key role here, and are still based on the latest integral logistics systems today. Separation of the various processes can look as follows:
- Customer relationship management (as the foundation of good logistics)
- Management of logistics services
- Demand and supply control
- Continuous order fulfillment process
- Control of receipts and production
- Supplier relationship management
- Product and returns management (warehouse optimization, fulfillment and WMS warehouse systems integration).
Practical aspects of supply chain management
Information management in the supply chain - the role of data and analytics
Information management in the supply chain is crucial to the effective functioning of the entire system. Data and analytics play a fundamental role here, enabling accurate demand forecasting, inventory optimization, production planning and monitoring and control of the flow of goods. The use of advanced analytical tools, such as Big Data and artificial intelligence, allows huge amounts of data to be collected, analyzed and interpreted in real time. This enables supply chain managers to make more informed decisions, respond quickly to changing market conditions and minimize the risk of disruption.
Sourcing and production planning - key challenges and solutions
Sourcing and production planning is one of the most important elements of supply chain management. Key challenges in this area include demand forecasting, inventory management, synchronization of raw material deliveries and optimization of production schedules. Demand forecasting requires accurate analysis of historical data and current market trends to accurately predict future product demand. Inventory management involves maintaining adequate levels of raw materials and finished products to ensure continuous production and minimize storage costs. Synchronizing raw material deliveries with production schedules is key to avoiding downtime and optimizing the production process. The introduction of advanced planning tools, such as ERP systems, enables better coordination of all these activities and increases operational efficiency.
What is the importance of transport in supply chains?
As one of the key branches of logistics and a link between the production and consumption areas, transport primarily plays a role based on the exchange of goods. With regard to the supply chain, transport should ensure the flow of raw materials, semifinished goods, materials and finished goods. The permeability of all supply channels, both on the part of the supplier and the customer, also becomes important in this aspect.
Supply chain - Summary
In the article, we discussed the importance of an effective supply chain and the different types of supply chain. We also presented SCM management methods to optimize supply chain processes and achieve better business results. Nowadays, competition is increasing, so an effective supply chain is crucial to a company's success. As a transport company with years of experience in the TFL industry, Omida VLS offers logistics services that can help you optimize and streamline your supply chain. Use our services and achieve better results in your company's supply chain management.
