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A Simpler Way to Modernize Your Supply Chain
- David Simchi-Levi
- Kris Timmermans
Conventional wisdom says it takes three to five years and tens of millions of dollars to digitize a corporation’s supply chain. However, a few companies have reaped major benefits—including higher revenue and customer retention—with a faster, cheaper approach. It involves assembling available data; using analytics to understand and predict customers’ and suppliers’ behavior and optimize inventory, production, and procurement; and adding automation to revamp or introduce processes. The transformation requires three main initiatives: replacing consensus forecasts with one unified view of demand, changing one-size-fits-all supply strategies to segmented ones, and creating a plan to continually balance supply and demand and manage deviations or disruptions.
How to spend less and accomplish more
Idea in Brief
The conventional wisdom.
Digitizing a company’s system for managing its supply chain is a megatransformation project that takes three to five years and costs tens of millions of dollars.
The Reality
There is an alternative: Substantial benefits can be reaped from a modernization effort that takes 12 to 24 months and costs a few million dollars.
What It Entails
Assembling readily available data; using advanced analytics to understand and predict customers’ and suppliers’ behavior and to optimize inventory, production, and procurement decision-making; and adding some automation to revamp existing processes and introduce new ones.
Most executives believe that digitizing a major corporation’s supply chain costs tens of millions of dollars. The assumption is that it will be a massive three- to five-year transformation effort—requiring major investments in cloud technology, the installation of RFID tags and readers on every product container and in every facility, the deployment of 3D-printing and robotics technologies, and new instruments on machines on the shop floor to monitor their performance and condition. All that is necessary, the thinking goes, to break down the walls between functional areas and create an integrated supply chain that provides a competitive advantage.
But in our consulting work for a number of companies, we’ve discovered an alternative. The experiences of these firms—which include a global fashion retailer, a large manufacturer of consumer packaged goods (CPG), a global appliance maker, and a high-tech company that produces PCs, tablets, and workstations—demonstrate that it’s possible to reap substantial benefits by spending a few million dollars on a supply chain modernization that takes 12 to 24 months. In these more moderate efforts firms assemble readily available data; use advanced analytics to understand and predict customers’ and suppliers’ behavior; optimize inventory, production, and procurement decision-making to cut costs and improve responsiveness; and add some automation to revamp existing processes and introduce new ones.
The secret to the success of this approach lies in three initiatives: In the first firms replace consensus forecasts with a unified view of demand. In the second they move away from a one-size-fits-all supply chain strategy to a segmented strategy. In the third they create a single plan to continually balance supply and demand and identify and respond to deviations or disruptions.
Executed well, these initiatives lead to lower supply chain costs—and higher revenue because of fewer stock-outs and improved service levels (the proportion of orders delivered on time and in full). Equally important, they enable companies to increase customer retention. At the fashion retailer, they helped to boost market share by more than 28% and double operating profit in just three years. The operating and financial gains from the CPG company’s initiative paid for its cost in just two years. The high-tech firm saw a 10% to 30% improvement in service levels. And the appliance maker realized a 20% increase in revenue, raised the proportion of customers to whom it could provide one-day delivery from 70% to 90%, and cut its operating costs by 3% to 4%.
More-accurate order forecasts clearly translate into a more effective supply plan, which reduces lost sales.
In this article we’ll focus on the CPG manufacturer’s implementation of the approach. It’s a particularly instructive case because of the extraordinary challenges the company faced in addressing the deficiencies of its existing system, which included multiple and time-consuming manual processes, excess inventory, and a large amount of expired and damaged products.
Building a Unified View of Demand
The journey starts by rethinking the demand-planning process. Traditional approaches employ consensus forecasting, in which each function—operations, finance, sales, and trade (which is responsible for marketing, promotions, discounts, and so on)—uses standard statistical techniques, historical sales data, and some external data to generate its own forecast. Then all the functions get together and hash out a compromise uniform forecast.
That process has two drawbacks. First, it takes a long time—typically four to five weeks—to generate the various forecasts and reach a consensus that satisfies all business requirements. By that time the sales data used is old. Second, rather than agreeing on the data and having the analytics produce a single forecast, the people involved typically focus on finding a balance between conflicting forecasts and rely on gut feelings about what drives sales, revenue, and margins.
A much better way to generate a unified view of demand is to start with the sets of data that all participants agree will yield the most accurate picture. The CPG manufacturer, for example, chose four kinds:
- internal data on shipments to retailers, prices, discounts, promotions, and various product characteristics
- data on consumer demand, which can be accessed through retailers’ point-of-sale technology or provided by companies such as IRI and Nielsen
- macroeconomic information—including quarterly GDP, the Purchasing Managers’ Index, the Consumer Price Index, and unemployment and inflation rates—that helps explain consumer behavior, seasonality, and trends
- external data on other factors that can indicate or affect demand, such as web searches, social media mentions of products, average temperature, precipitation, holidays, and competitors’ prices
Using such data and advanced analytics, firms can set up an automated five-step circular process that generates supply, financial, and trade plans for the next 50 to 80 weeks—the planning horizon for most companies. Here’s what that process looks like at the CPG manufacturer:
Five Steps to a Better, Cheaper Supply Chain
Using advanced analytics, firms can set up an automated five-step circular process that generates supply, financial, and trade plans for the next 50 to 80 weeks.
Step 1: The market demand forecast
Trade-planning information—about promotions, discounts, and marketing—is combined with consumer and macroeconomic data to forecast weekly market demand for each SKU and retailer.
Step 2: The retailer order forecast
The demand forecast for each retailer is combined with data on past shipments to it to generate a weekly forecast of the retailer’s orders of each SKU.
Step 3: The supply plan
The order forecasts are combined with information on available resources (including inventories of raw materials and finished goods), manufacturing capacity, and market targets to create a supply plan.
Step 4: The financial plan
The weekly supply plan is converted into monthly revenue and gross margin forecasts at the brand level.
Step 5: The alignment of plans and goals
The financial plan is compared with the firm’s business objectives. If gaps are identified, the firm may adjust the trade plan—by, for example, adding more discounts or increased investments in marketing—and start the cycle again.
First, trade-planning information—about future promotions, discounts, and marketing investments—is combined with consumer, macroeconomic, and external data to generate a market demand forecast by SKU and retailer for each week of the entire horizon. From what we’ve observed, most CPG companies have never tried to predict demand at such a granular level.
Second, the demand forecast for each retailer is combined with historical data on the company’s shipments to that retailer to generate a weekly forecast of the retailer’s orders of each SKU for the horizon.
Third, the company aggregates all the order forecasts and converts them into a feasible supply plan. The plan considers available resources, including inventories of raw materials and finished goods; manufacturing capacity constraints; and market targets (say, for increased sales of a product category at a given retailer-region combination). It also aims to achieve certain performance goals. The CPG firm focused on minimizing total supply chain costs, but the chosen objective will vary from firm to firm. At some companies, for instance, it may be to maximize revenue or the amount of supplies produced.
The fourth step is to use the weekly SKU supply plan for all retailers to generate revenue and gross margin forecasts at the brand level for every month of the planning horizon.
The fifth step is to compare that financial forecast with the firm’s business objectives. A gap between the two may trigger a change in the trade plan—for example, the addition of more-aggressive discounts or increased investments in marketing to stimulate sales.
When they were considering the adoption of this new process, the CPG firm’s managers raised a number of questions—which are representative of the kinds of concerns most executives express about our approach. Let’s examine them one by one.
What degree of forecast accuracy can the process achieve?
Research has proved that variability in customer demand is significantly lower than variability in retail orders—a reality that underlies the well-known bullwhip effect in supply chains. This implies that predicting consumption should be easier than predicting retail orders, and indeed, the accuracy of the CPG firm’s forecast for market demand is quite high. At any moment the demand forecasts at the SKU, week, and retailer level for five to eight weeks out have proved to be 85% accurate.
Combining the more exact consumption forecast with historical retail orders allowed the CPG company to improve its forecast of retailers’ future orders. The accuracy of the weekly order forecasts has been 15 to 20 percentage points higher than that of the standard, consensus-based forecasts the company previously used. And more-accurate order, or shipment, forecasts clearly translate into a more effective supply plan, which reduces lost sales—therefore boosting revenue—and improves service levels and the customer experience.
Finally, because the inputs into it are more accurate, so is the financial plan. In multiple implementations of this approach at several CPG companies, the accuracy of the financial forecast made at the beginning of a given month for the next month rose to 95% to 97%.
Will we be able to understand what drives the behavioral and other changes the plans predict?
This question is probably the most critical. Indeed, in our experience, virtually all executives are reluctant to blindly follow the recommendations of a black box developed by data scientists. They rightly want to be able to interpret and explain the output of the demand-forecasting process.
For instance, is an increase or decrease due to competitors’ behavior, cannibalization across products, promotions and discounts, or merely a special event or holiday? The good news is that the analytic technology today is mature enough to allow a single SKU weekly forecast to be decomposed into its basic components. This is done by explicitly modeling the data as a combination of key variables (competitors’ behavior and so on) and estimating the contribution of each one to the forecast.
Executives also want to know the reasons why, say, the forecast generated last week is different from the one generated this week. This, too, is information that today’s analytic technology can provide, by comparing the input data used to generate each of the forecasts.
Last, executives want to understand why forecasts and actual sales sometimes deviate. At the CPG firm the answer is that sales are affected by the way pricing, promotion, discounts, and inventory decisions are executed by retailers—a dimension that the manufacturer’s planning team can’t see. For instance, the forecast might be off when a retailer experiences operational challenges in moving inventory onto the shelf or in implementing promotions or discounts according to plan. Information about the retailer’s inventory and prices paid by consumers at the cash register can reveal these problems, but in our experience most retailers don’t provide it to their CPG suppliers. Thus, at the CPG firm any significant gap between the forecast and actual sales triggers an investigation of the reason for the difference.
How can we ensure that all the functions follow the new approach?
The answer is to establish a forecast center of excellence that brings together people from the various functions, information technologists, and data scientists. Their role will be to agree on the data to be used and let the analytics generate the forecasts and the supply plan according to the five-step process.
How frequently should we run this process?
Here, the answer depends on the market cycles of the various businesses and brands. For most businesses the demand forecast, retailer order forecast, and supply plan should be updated weekly or biweekly, while the financial forecast and the comparison with the firm’s objectives should be done monthly. But there are clear exceptions. Some of the CPG manufacturer’s products have short life cycles of only six or seven weeks. In such cases companies need to update the demand forecast, retailer order forecast, and supply plan twice a week. (The same is true for makers of fashion products, whose selling seasons last no more than 10 or 11 weeks.)
Redefining the Supply Chain Strategy
Traditional supply chain strategies have often focused on either operational efficiency or responsiveness. When operational efficiency is the priority, a firm strives to squeeze as much cost out of the supply chain as possible, and that goal drives supplier selection, manufacturing strategies, product design and distribution, and logistics. Typically, production and distribution decisions are based on long-term forecasts, inventories of finished goods are located close to customer demand, and components are often sourced from low-cost countries.
The objective of a responsive strategy is to compete on time to market, satisfy demand quickly, and eliminate stock-outs. Manufacturing or product assembly is based on actual orders rather than forecasts; products may be customized; inventories of components are maximized but inventories of finished goods are minimized; and speed is prioritized over cost in decisions about sourcing and transportation.
Although seasoned operations and supply chain executives understand the difference between efficiency and responsiveness, many are nonetheless confused about when to apply each strategy. That’s because different products have different characteristics, with some requiring a strategy focused on efficiency, some a strategy focused on responsiveness, and some a hybrid approach. Until recently, executives didn’t have the tools to segment products and decide which strategy was appropriate for a particular segment. But that has changed, thanks to digitization and analytics.
Companies need key performance predictors: metrics that indicate what the state of the supply chain will be in the next three to six weeks. These are central to smart execution.
The CPG manufacturer began by exploring variations in sales data, focusing on products’ sales volatility, volume, and profit margin, because each is directly related to risks associated with stock-outs, service levels, inventory, and transportation. The higher sales volatility is, the lower the forecast accuracy, and the riskier the product. That in turn translates into frequent stock-outs and lower service levels. Similarly, the higher a product’s profit margin is, the higher the risk is, since missing an order will have a bigger impact on the bottom line. Volume, in contrast, is inversely proportional to risk—that is, the higher the volume, the lower the impact of missing an order, and the lower the risk. These relationships are consistent with those we’ve seen at other CPG and retail companies, though sometimes other companies focus on price or product cost rather than product margin, depending on which one is more stable and as a result easier to apply.
The analysis revealed that the CPG company had four product segments, although other companies may have more segments given their products’ characteristics. Each segment required a different supply chain strategy. The first segment comprises products characterized by high volatility. Because their stock-out, service-level, and inventory risks are high, they require a responsive supply chain strategy. Finished-goods inventories for them should be located in central distribution centers. Each center will be responsible for many retail outlets, which allows a company to aggregate demand, improve forecast accuracy, and reduce the inventories needed to supply the retailers collectively while maintaining high service levels. Because fast delivery is critical, these products are often shipped through cross-dock regional facilities—at which items from incoming large trucks are reloaded onto outbound smaller trucks with no storage in between.
The second segment comprises products with high volume and low volatility, which require an efficiency strategy. In their case, forecasts are reliable, and managing transportation costs is important. Because of this, the products are stored in regional warehouses close to customers, and inventory is replenished on a fixed schedule. That allows a company to fully load trucks taking products from manufacturing facilities to regional warehouses, which keeps transportation expenses down.
The remaining two segments are both characterized by conflicting drivers: low demand volatility (which suggests that an efficiency strategy would be best) and low product volume (which alone would call for a responsive strategy). What distinguishes these two segments are product margins.
Let’s look at the high-margin ones first. Because these products are riskier, many of them are stored at both centralized locations and regional warehouses and are replenished on the basis of actual store sales. That strategy allows a firm to strike a balance between efficiency and responsiveness, though it leans toward responsiveness.
Low-volatility, low-volume, low-margin products, in contrast, call for a hybrid strategy that leans toward efficiency. Indeed, because the risks and cost of holding inventory are low while demand is predictable, a firm can ship these products on fully loaded trucks to regional warehouses close to its customers, supply them from those locations, and minimize transportation costs.
Once a company has done the segmentation, it needs to develop detailed sourcing, manufacturing, and logistics strategies. One objective should be to identify synergies across the segments that will allow the firm to benefit from economies of scale. They can be achieved by leveraging volume across segments to reduce procurement costs; sharing capacity and infrastructure in manufacturing and logistics; and consolidating demand and supply information for better planning and execution. We’ll now look in more detail at that last activity.
Balancing Supply and Demand
An important supply chain management process that has been applied since the mid-1980s is sales and operations planning (S&OP). It continually balances supply and demand, and historically it has called for managers launching new products and leaders from manufacturing and distribution to come together and agree to a single plan. Typically, it involves analysis at the business unit level or the product family level, not the individual product level.
Traditionally, S&OP is simply an extension of the consensus forecast, and because of that it suffers from similar limitations: It doesn’t start with a unified view of demand, doesn’t create a plan at the SKU level, doesn’t distinguish between supply chain segments, and is driven mostly by common sense, experience, and intuition, not data and analytics. Because it’s a manual process, it generally takes a month.
A better approach to S&OP replaces the manual process with an automated one that can be performed weekly, and ensures that the engineering, finance, sales, supply chain, manufacturing, sourcing, and trade functions are all working to achieve the same business goals. The new process begins when an analytics-driven optimization system generates the SKU-by-SKU supply plan we described earlier. This plan will inform everything from master production schedules to materials planning to logistics, including inventory and transportation decisions.
While not every company or business unit needs to produce a plan weekly, such frequency is critical for products whose demand is highly volatile and whose marketing and promotion strategies often change.
The new S&OP process also calls for monitoring activities. Firms should collect information throughout the supply chain about key performance indicators (KPIs) such as supply lead times, raw-material and finished-goods inventories, and service levels, looking for any problem or deviation that could undermine the sales and operations plan. Firms can then work to address those issues and, if they turn out to be significant, adjust the plan itself.
Companies also need to keep an eye on data and events that portend what may happen in the near future. For example, while inventory and service levels may suggest that everything is going smoothly, shipment-tracking data may indicate that lead times are likely to increase and that as a result service levels could go down in the next few weeks, signaling a need to build inventories or expedite shipments. Similarly, if a disaster causes the shutdown of a supplier’s manufacturing facility in Asia, it could affect available supply down the road—perhaps forcing a firm’s manufacturing and assembly plants on the U.S. West Coast to lower or stop operations in five weeks. But traditional KPIs alone might not provide any warning.
For this reason, companies need key performance predictors (KPPs): metrics that indicate what the state of the supply chain will be in the next three to six weeks. KPPs are central to what we call smart execution, a new business process that complements smart S&OP. While S&OP focuses on the next 50 to 80 weeks, smart execution homes in on the short term (no more than six weeks) and tries to identify and quickly respond to disruptions and deviations from the plan.
Smart execution involves three automated capabilities: (1) the real-time capture of internal and external data that reveals potential deviations from the plan, supply disruptions, or changes in demand; (2) artificial intelligence that identifies the potential impact of those developments on supply chain performance; and (3) analytics-driven optimization that determines the best response, considering various trade-offs and objectives.
Here’s an illustration. By gathering financial information on suppliers that are public companies and internal data on supplier performance (for instance, on lead times, service levels, or product quality), firms may be able to identify distressed suppliers. An AI system can then project the likelihood and impact of a supplier default on future commitments to on-time delivery and product quality. Finally, the automated optimization system can identify an alternative supplier for sourcing the material.
For most of its history, the CPG manufacturing company had used a one-size-fits-all strategy. Its forecasts were achieved by consensus, S&OP was a monthlong process, the supply chain strategy didn’t distinguish between different products, and deviations from the plan and supply disruptions were managed ad hoc. The company had excelled at operational efficiency by embracing continuous improvement in its production, packaging, distribution, and order fulfillment processes, but it hadn’t fundamentally changed any of them. Our approach to supply chain digitization allowed the firm to transform the organization in less than half the time and at less than a quarter of the expense that such efforts take most corporations.
Other firms can do the same. A comprehensive, automated approach can allow them to redefine their supply chain strategies and respond quickly to deviations from the plan. And because it’s driven by AI, it will free up executives to devote more time to value-added activities, such as identifying the best opportunities for growing the business.
- David Simchi-Levi is a professor of engineering systems at Massachusetts Institute of Technology and the head of the MIT Data Science Lab.
- Kris Timmermans is a senior managing director at Accenture and the head of its supply chain and operations practice. Connect with him on LinkedIn .
Partner Center
Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer. A company creates a network of suppliers (“links” in the chain) that move the product along from the suppliers of raw materials to those organizations that deal directly with users.
According to CIO , there are five components of traditional supply chain management systems:
Plan and manage all resources required to meet customer demand for a company’s product or service. When the supply chain is established, determine metrics to measure whether the supply chain is efficient, effective, delivers value to customers and meets company goals.
Choose suppliers to provide the goods and services needed to create the product. Then, establish processes to monitor and manage supplier relationships. Key processes include: ordering, receiving, managing inventory and authorizing supplier payments.
Organize the activities required to accept raw materials, manufacture the product, test for quality, package for shipping and schedule for delivery.
Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and receive payments.
Create a network or process to take back defective, excess or unwanted products.
Effective supply chain management systems minimize cost, waste and time in the production cycle. The industry standard has become a just-in-time supply chain where retail sales automatically signal replenishment orders to manufacturers. Retail shelves can then be restocked almost as quickly as product is sold. One way to further improve on this process is to analyze the data from supply chain partners to see where further improvements can be made.
By analyzing partner data, the CIO.com post identifies three scenarios where effective supply chain management increases value to the supply chain cycle:
- Identifying potential problems. When a customer orders more product than the manufacturer can deliver, the buyer can complain of poor service. Through data analysis, manufacturers may be able to anticipate the shortage before the buyer is disappointed.
- Optimizing price dynamically. Seasonal products have a limited shelf life. At the end of the season, these products are typically scrapped or sold at deep discounts. Airlines, hotels and others with perishable “products” typically adjust prices dynamically to meet demand. By using analytic software, similar forecasting techniques can improve margins, even for hard goods.
- Improving the allocation of “available to promise” inventory. Analytical software tools help to dynamically allocate resources and schedule work based on the sales forecast, actual orders and promised delivery of raw materials. Manufacturers can confirm a product delivery date when the order is placed — significantly reducing incorrectly-filled orders.
The supply chain is the most obvious “face” of the business for customers and consumers. The better and more effective a company’s supply chain management is, the better it protects its business reputation and long-term sustainability.
IDC’s Simon Ellis in The Path to a Thinking Supply Chain ¹ defines what is supply chain management by identifying the five “Cs” of the effective supply chain management of the future:
- Connected: Being able to access unstructured data from social media, structured data from the Internet of Things (IoT) and more traditional data sets available through traditional ERP and B2B integration tools.
- Collaborative: Improving collaboration with suppliers increasingly means the use of cloud-based commerce networks to enable multi-enterprise collaboration and engagement.
- Cyber-aware: The supply chain must harden its systems and protect them from cyber-intrusions and hacks, which should be an enterprise-wide concern.
- Cognitively enabled: The AI platform becomes the modern supply chain's control tower by collating, coordinating and conducting decisions and actions across the chain. Most of the supply chain is automated and self-learning.
- Comprehensive: Analytics capabilities must be scaled with data in real time. Insights will be comprehensive and fast. Latency is unacceptable in the supply chain of the future.
Many supply chains have begun this process, with participation in cloud-based commerce networks at an all-time high and major efforts underway to bolster analytics capabilities.
While yesterday’s supply chains were focused on the availability, movement and cost of physical assets, today’s supply chains are about the management of data, services and products bundled into solutions. Modern supply chain management systems are about much more than just where and when. Supply chain management affects product and service quality, delivery, costs, customer experience and ultimately, profitability.
As recently as 2017, a typical supply chain accessed 50 times more data than just five years earlier. However, less than a quarter of this data is being analyzed. That means the value of critical, time-sensitive data — such as information about weather, sudden labor shortages, political unrest and microbursts in demand — can be lost.
Modern supply chains take advantage of massive amounts of data generated by the chain process and are curated by analytical experts and data scientists. Future supply chain leaders and the Enterprise Resource Planning (ERP) systems they manage will likely focus on optimizing the usefulness of this data — analyzing it in real time with minimal latency.
With IBM Services, you can evolve your supply chain processes into intelligent workflows, to reach new levels of responsiveness and innovation. Challenge siloed processes to uncover efficiencies, enable your teams to execute and deliver, and use emerging technologies like AI and blockchain to unlock opportunities in every step of the value chain — from demand planning to order orchestration and fulfilment.
Chemonics and IBM co-created a first-of-its-kind platform called Automatic Requisition Tracking Management Information System (ARTMIS). The ARTMIS platform helps track shipments at every step of the supply chain. This has allowed Chemonics to manage orders up to 24 months out.
BASF wanted to make digitalization an integral part of its business to create additional value for customers, grow the business and improve efficiency. Working with IBM, the company’s Nutrition and Health division conducted a proof of concept (PoC) with IBM® Watson™ technology to explore how AI and machine learning can support smarter inventory decisions, helping to ensure that products arrive in the right place at the right time.
Learn how Farmer Connect and IBM Food Trust™ are connecting coffee growers and consumers with blockchain.
A supply chain control tower should provide end-to-end visibility across the supply chain — particularly into unforeseen external events.
The tracking of orders from inception to fulfillment and managing the people, processes and data connected to the order as it moves through its lifecycle.
Clear visibility into inventory transactions can positively impact the entire process of ordering, storing and using inventory — from raw materials to finished product.
EDI is a standard format to exchange business information between two organizations electronically instead of using paper documents.
Analytics that can affect quality, delivery, the customer experience — and ultimately, profitability.
Supply chain optimization makes the best use of technology and resources like blockchain, AI and IoT to improve efficiency and performance in a supply network.
Enhance trust across your supply chain network with the business and technical expertise of IBM Blockchain.
Business-to-business (B2B) integration is the automation of business processes and communication between two or more organizations.
Managed file transfer (MFT) is a technology platform that allows organizations to reliably exchange electronic data between systems and people in a secure way to meet compliance needs.
Order management software lets you orchestrate your entire fulfillment network with powerful core capabilities and next-level options.
Find out why 800,000 trading partners trust IBM for partner network connectivity with market-leading AI and blockchain capabilities.
IBM Sterling Supply Chain Insights is an AI-enabled solution that delivers real-time intelligence to optimize supply chain performance by quickly correlating data from siloed systems, capturing organizational knowledge and creating digital playbooks.
Join an ecosystem of producers, suppliers, manufacturers, retailers and others creating a smarter, safer and more sustainable food system for all.
Optimize your retail supply chain with the ability to respond to trends at any scale.
Transform your container logistics by freeing it from traditional data systems, manual document handling and poor visibility.
Insights on building an intelligent, self-correcting supply chain.
Insights on building an intelligent, self-correcting blockchain supply chain.
Built to be resilient, smarter supply chains adapt when facing disruptions. Smarter supply chains can scale to meet new demands as customer needs change. Smarter supply chains are more reliable and designed to build trust between you and your customers.
5 essential supply chain management strategies can help CSCOs distinguish themselves from the competition.
1 The Path to a Thinking Supply Chain (PDF, 1.5 MB) , Simon Ellis & John Santagate, IDC Technology Spotlight, August 2018
Supply Chain Management 101: Principles, Examples, and Templates
By Andy Marker | June 25, 2017 (updated February 22, 2022)
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Globalization has become an undeniable part of commerce over the last few decades, as large companies have grown first to source labor and parts from developing regions, and then to start selling in those same areas as they grew in wealth and buying power. Supply chains have had to keep in step, passing through numerous countries to obtain goods most efficiently and cost effectively, and growing more complex as a result. And on the other end, the supply chain grows more frayed in order to deliver to countless countries for consumption. For the largest companies, managing a supply chain can require dedicated teams in every area the chain touches. It’s safe to say that supply chain management is both an art and a science. This article will cover what a supply chain is, with examples; discuss how supply chain management works and its principles; and vital concepts in the field. Then we’ll move on to current issues and where the field is going. Finally, you’ll find useful resources, templates, and education programs. Ready? Let’s get started.
What Is a Supply Chain?
A supply chain is a collection of suppliers required to create one specific product for a company. The chain is made up of nodes or “links,” which can include multiple manufacturers for parts, then the completed product, then the warehouse where it is stored, then its distribution centers, and finally, the store where a consumer can purchase it. The concept of the chain is important, because each link is connected in a specific direction and order, and the next link cannot be reached without going through the previous one. Each link adds time and costs, and can involve labor, parts, and transportation. Every product a company carries may have its own supply chain, though they may use certain suppliers for multiple products. You can see why this gets so complicated, especially for international supply chains.
The process described above was that of a typical retail supply chain. However, there are many different types in practice. Here are three examples from well-known masters of supply chains: Example: Walmart and “Big Box” Retailers The “Big Box” store, which represents one of the major disruptions of the retail model from the last century, thrives on size, ubiquity, and well-planned supply chains to drive out the competition. How else would a company like Walmart make a profit on a t-shirt made overseas that retails for $5.00? Walmart succeeds by having fewer links in its supply chain, and buying more generic goods directly from manufacturers, rather than from suppliers with brand names and markup. It uses “Vendor Managed Inventory” to mandate that manufacturers are responsible for managing products in warehouses owned by Walmart. The company is also is particularly choosy with suppliers, partnering only with those who can meet the quantity and frequency it demands with low prices, and with locations that limit transportation needs. They manage their supply chain like one firm, with all partners operating on the same communication network. By buying at large enough quantities to take advantage of economies of scale, moving products directly from manufacturers to warehouses, and then delivering to stores which are large enough to be distribution centers, it reduces links in the supply chain and cost per item, translating to low prices for consumers.
Example: Amazon and “Ecommerce Platforms” Having overtaken Walmart as the world’s largest retailer in the last decade, Amazon’s “online big box” concept is a perfect example of unique supply chains. As an e-commerce shop, obviously they cut the retail store out and ship from distribution center to consumer’s homes directly. Where Amazon innovates is both in its supplier-side and its final supply chain link - delivery. Just about anyone can sell things on Amazon because it’s a platform, not just a shop. As a result, Amazon has more things than any other online store, so when people shop online, they think of Amazon. Then, it produces everyday goods cheaply, and underbids suppliers. Next, their warehouses make serious use of automation to store items going to like destinations together, ready for immediate transport. Finally, its investments in delivery staff and technology make 2-day shipping a basic expectation, and even same-day delivery a possibility. Amazon ditches third-party logistics (3PL) and fulfills orders itself.
Example: Tesla and Specialized, Owned Chains Automotive manufacturing has come a long way since Henry Ford used assembly line manufacturing to speed up the production of a single car model in a single color. Now, in a time when even American carmakers are opening factories abroad, Tesla is making innovative, incredibly popular, and luxurious cars right in California, a location with incredibly costly real estate. Rather than having a long supply chain of cheap part makers, they have a vertically integrated supply chain, with a full-service auto plant near its corporate headquarters and plans for a supplier park and a massive battery factory, and Tesla owns it all. Even more interesting is the digital supply chain the company promotes - new firmware and algorithm updates are pushed out to existing car owners over the cloud.
What Is Supply Chain Management?
As the name implies, supply chain management (SCM) is handling and optimizing all the many complicated facets of a supply chain, involving goods and services. Even ensuring timely handoff from manufacturer to shipper to supplier to shipper to buyer is a massive task, but to do it cost effectively and build net value is truly a challenge. Supply chain management is so important because modern commerce exists in a networked global economy. Most businesses are specialized - even department and big box stores are only really equipped to sell to customers, despite their wide variety of products. The value of vertical integration is hard to justify when communication costs and SCM tools are so inexpensive - it almost always makes more sense to outsource for price efficiency.
The concept of supply chain management was in effect long before the term was created in 1982. In the colonial era, international trade by ship was already making for complicated transportation issues and the need for efficiency. During the Industrial Revolution, the ability to quickly produce goods with machine assistance led to the need to manage significant inventory and constant consumption. By the time history arrives at Henry Ford’s famous assembly line for the world’s first car production in 1913, supply chain management had become an art. As the century wore on, more companies were producing more goods and looking for ways to reduce costs. They vertically integrated into owned supply chains to try reducing costs at each stage. In the 1980s and on, globalization became a realistic dream for many companies, because of computer systems, easier communication, and commerce-friendly trade laws. Around the 1990s, it became a common practice for firms to specialize, and focus on core competencies and outsourcing the rest, abandoning the vertical integration of the previous era. At this point, supply chains became truly complex, in order to coordinate hundreds of otherwise unrelated and geographically-distant manufacturers, suppliers, shippers, warehousers, and retailers. Now, in the “SCM 2.0” era, the Internet and new methodologies have led to collaborative platforms and democratized processes. This is allowing smaller competitors to use some of the same manufacturers as major players, and reducing inefficiencies for those manufacturers as a result. Better communication and planning tools are providing a way for small and large companies alike to manage even more complex supply chains.
Variants of SCM
Global SCM: The combination of global manufacturing with supply chain management, which must account for tariffs and local taxes as goods and services travel internationally to ultimately provide greater value at the end of the chain. SAP SCM: Systems, Applications, and Products (SAP) is a software company that revolutionized logistics and enterprise resource planning. It provides an automated way to manage supply chain networking, supply chain planning, and supply chain execution, along with production planning, business forecasting, and demand planning. Logistics and SCM: The art of coordinating efforts between every member of the supply chain to get products from their source to the consumer. Purchasing and SCM: The focus on the monetary aspect of SCM, from costs to value added at each link in the supply chain.
Principles of Good Supply Chain Strategy
Download Supply Chain Management Checklist
The Basics of Supply Chain Management Processes
There are key supply chain processes that you must take into consideration to effectively understand and manage them. These processes are all at play regardless of the type of supply chain you’re using. Customer relationship management (CRM) comes first, because as the principles of SCM state, you must adapt everything in the supply chain to the customer. If no one is buying, there’s no need to produce anything. At the front of your supply chain, where a store’s staff interacts with its consumers, they must have plans in place for ongoing relationships. They need CRM tools to gather customer information for marketing and market research, all to determine the products and services to offer in the future. Customer service management is another process that ties in, as it is where you gather negative and positive feedback to determine future needs. Demand management is closely linked with the previous two, as it takes customer interactions and orders into account to determine the workload all the way up the supply chain. At its core, customers buying more means make more, and customers buying less means make less. Customer forecasting is an important task that analysts must perform well to determine the current demand and what it will be in the future, to prevent waste in the supply chain. Product development is an important part of the supply chain that is informed by consumer demand. You must work with CRM and customer service data to determine what they want, which influences new products, product line extensions, and also what to stop making. You must integrate suppliers in this process because it affects cost, quality, and delivery time. Supplier relationship management goes without saying - if you want to produce your products on time and on budget, you need a solid rapport with everyone you’re outsourcing to in the chain. This impacts manufacturing flow management , which ensures everything gets where it needs to go without delay, and at the correct spec. Order fulfilment involves coordinating with distribution centers and either retail locations or 3PL to get the product direct to consumers. You’ve now made it all the way back to the beginning of the cycle, and need to pay attention to new CRM and customer service data. Returns management , also known as the “reverse supply chain,” is a vital part of the flow of products that doesn’t fit perfectly into the clean supply chain cycle. It involves picking up online orders from 3PL locations or from consumers’ addresses and accepting returns at retail locations. Once these items are put back into inventory, they must be ready to get to a different customer while the product run is still live.
What Supply Chain Managers Look for When Managing Supplier Relationships
One of the most complex parts of SCM is handling all the other people in the supply chain. They have their own needs and motivations, and to keep them all happy and working together with partners they are only loosely affiliated with is a challenge - especially when trying to meet deadlines and turn a profit. The following are what managers should focus on most in such relationships: Org Chart and Leadership Style: How is the supplier’s organization set up? Is it a vertical or horizontal structure? Is the leadership strong and long lasting, or fickle and prone to change? You need to know who you’ll be interfacing with, and who will be the next one in line should some shakeup occur. Business relationships are always between people, and don’t always survive a reorg. Management Style: How do the leaders at this supplier run their shop? Make sure it works with your crew. A micromanager at a relatively replaceable link in your supply chain will waste inordinate time, just as a hands-off manager at a vital link could result in sloppy delivery or substandard product quality. Company Culture: Always important for working with suppliers, determine what kinds of people rise to the top, and how everyone acts when nobody's watching. If, for example, middle managers are constantly in fear for their jobs because of ruthless quarterly performance reviews, they may over-promise, make excuses, or otherwise be unstable work partners. Product Flows: Once you know that you can work with the people, make sure their facilities are in order. Are they equipped for orders of the size and frequency you plan to make? How do they handle emergency, fast-turn around orders? What about other customers - are they only able to use their facilities for your product flows at certain portions of the month due to full inventory? Leave no stone unturned. Information Flows: Just as vital is the ability to control information about the day-to-day flow of materials, and to communicate and coordinate long-term plans. Is the supplier up on their product details, inventory, and SKU organization? Is their security and encryption up to the standards of your company, and your industry? Big data is useless if the right people don’t see it in time. Rewards and Risks: Take into account opportunities and threats of working with this supplier. Maybe they’re well-equipped to handle your exact product because they also work with your competitors. Perhaps they are new and establishing themselves, so offer a substantial discount, but may not be able to deliver on time? Do what’s best for the company, and use risk assessment to keep your whole supply chain operable.
Vital Supply Chain Management Concepts to Know
Having a passing familiarity with the following terms will help you see just what kind of skillset and abilities will be required when working in supply chain management: Border Adjustment Tax: Also known as a destination-based cash flow tax (DBCFT), it is a tax levied on imported goods which is important to know in global supply chains. Customer Relationship Management: Also known as CRM, this concept refers to providing ongoing service to customers and collecting data about their likes and purchases. There are also CRM tools that help automate and record interactions with customers. Cumulative Mean: A figure for knowing how much or how little to produce in advance, involving mean orders with all previous data treated as equally useful. Demand Management: Understanding customer behavior and patterns to control how much is ordered and produced at each link in the supply chain, with the goal of eliminating wasted production. Financial Flows: Credit terms, payment schedules, accounts payable and receivable, and other factors that you must monitor to determine if a supply chain is profitable or not. Information Flows: Transmission of orders, delivery status, and other data that influence the supply chain’s responsiveness to demand. Integrated SCM: This is a method of SCM wherein all of the links are tightly integrated, operating almost as one company rather than a loose association of buyers and sellers. Inventory Management: Monitoring and controlling orders, storage, and use of owned components to create the products your company sells. Lean Six Sigma: A data-backed philosophy of continuous improvement that focuses on preventing defects and mistakes rather than discovering them later, which reduces waste and production time via standardization. Read Everything You Need to Know About Lean Six Sigma to learn more about this methodology. Logistics: The physical movement of products from one link in the supply chain to the next, and the practice of improving their efficiency. Make vs. Buy: A simple evaluation of whether it is more cost-effective and time-efficient to produce a required product with your company’s existing resources, or to outsource the need. New Product Development: The creation of new products both in response to and in anticipation of customer demand, using data gleaned from CRM and the whole supply chain. Read Innovation for Everyone: Everything You Need to Know About New Product Development to learn more about this process. Operational Accounting: Accounting for a company that focuses on planning, directing, and controlling of daily activities by their costs and eliminating waste. Physical Flows: The actual movement of parts and products throughout the supply chain, which the Logistics team must manage and analyze to keep going without pause. Project Management: The process and tools involved in ensuring that a codified piece of work (project or product) gets done on time while keeping all contributors aware of their next step. Reverse Supply Chain: Aftermarket customer service, which may involve accepting returns, refurbishing and discounting, or otherwise finding use for the reacquired inventory. Risk Management: Identifying, evaluating, and then choosing which risks to address first, with the goal of reducing overall risk in a supply chain. S&OP: Sales and Operations Planning is a management process that aligns its constituent parts to ensure that the organization is only focused on operations that improve sales. Learn more about S&OP here . Strategic Sourcing: Formalizing a company’s information gathering in order to use its purchasing power to take advantage of the best values in the marketplace of suppliers. Theory of Constraints: A methodology that identifies the largest limiting factor in production, then finding a way to remove it to improve the efficiency of the entire production.
Current Issues in SCM
In addition to the major terms, it’s important to keep aware of legal, political, and social events which affect supply chain management when seeking a career in the field. Here are some of the bigger issues of the day: Dodd-Frank Decision: This was a 2010 law which included a clause on “Conflict Minerals.” It requires companies to audit their supply chains in order to determine whether gold, tungsten, tantalum, and tin came from the Democratic Republic of the Congo, and report on their due diligence. It adds an extra layer of complexity and costs to SCM for those involved in chains with those minerals. NGO Actions: Activist groups of all kinds work to end common practices within major companies’ supply chains, such as sweatshop labor, or push consumers towards less complicated supply chains by encouraging them to support local businesses and farms. SEC Regulations: Whereas NGO actions can force a company’s hand for PR reasons or changing the marketplace of ideas, the Securities and Exchange Commission can slap that same company with fines, making company’s quick to comply. Third-party audits of supply chains are an important part of keeping in step with these regulations. SECH Ratings: This is a rating that involves economic, social, and environmental judgements to gauge a company’s overall sustainability. Transparency: Though protecting data is important, certain measures of transparency can improve company performance. Among consumer products, many younger, disruptive brands make their supply chain a selling point in marketing by being upfront about how and where they get their components, and where they make their products. The reasoning goes, if a company is hiding something, there must be an unethical component to it. Sustainability Measures: As major companies and countries around the globe move towards sustainable production, all supply chains become impacted. Whether due to changing regulations or seeking good PR, many companies are working to reduce pollution and other issues in their chain.
The Future of Supply Chain Management
Aside from the issues of the day, it’s also vital to see where the field is going. The future of SCM is bright, but certainly evolving. We asked a group of experts and innovators in supply chain management to discuss what they believe the future of SCM holds:
Jake Rheude , Director of Business Development and Marketing for Red Stag Fulfilment
Over the next decade, we will see massive and disruptive forms of innovation both in terms of technology that expedites the speed at which customers receive their products ( drone delivery ) as well as technologies that drastically enhances the online shopping experience for customers, ( virtual reality ).
While these and other technologies no doubt have the opportunity to significantly change the landscape of online shopping and the supply chain, I expect we will see firms diverge on two different strategies. Some will rush to implement these costly new technologies in order to drive down the total time between an order being placed and last mile delivery, while other firms will stand by the current landscape (for most B2C online sellers) of product delivery in approximately two-days, acting cautiously, particularly in regards to the cost of these new technologies versus their impact on the overall value chain for consumers.
Certainly, there are niche industries where significant investments in drone delivery technology will provide a distinct competitive advantage, but I predict that for many B2C online sellers, the impact on the overall value chain of these new technologies will be misaligned with a consumer's perception of value, and therefore make the initial cost of these new technologies unjustified.
Lauren Stafford , Digital Publishing Specialist for Explore WMS
Embracing big data is an essential principle of modern SCM, specifically real-time data which has the potential to improve the efficiency of a supply chain and negate potential risks to strategy. We know that logistics optimization through technological innovations and data integration can make supply chains more efficient and more financially sound.
The future of the multi-modal SCM depends on successful integration with data and systems to achieve synchromodality. To achieve this, there needs to be a connection to all available transport modalities in the form of a real-time data flow. Once any issues with connectivity are addressed, a ranking system is required to consider a variety of variables such as dock schedules and material restrictions. Pricing data is another integral component.
The great advantage of a synchromodal platform is that it’s informed by every available option and makes a selection based on key factors like speed requirements. There is still significant work to be done in terms of how best to access and integrate a supply chain partner’s real-time data but, as these platforms are developed, we’re likely to see faster order processing times for large shipments and systems which can help generate a better ROI. The way we understand it, SCM is changing because now an efficient supply chain can be a competitive asset as opposed to a cost center.
John Boyd , founder of The Boyd Company, Inc
Probably the most dynamic link in the supply chain in recent years has been the "last mile": that movement of goods from a DC to a final destination in the home. E-commerce king Amazon has done much to challenge and ultimately rewrite the rules of last mile delivery. Last mile delivery has also produced a new warehousing subsector: the locker. Studies show that online shoppers not only want their packages now, they also want their packages delivered to places other than their homes. These lockers can be viewed as "micro warehouses" and will come with additional costs. We expect many to be operated by an emerging sector of third-party logistics (3PL) providers specializing in this particular segment of the supply chain.
Lockers are now common in Europe, where densely populated and congested urban centers make them a natural fit. We anticipate that lockers will also become the next boom sector within logistics/distribution site selection in the United States. Amazon already has automated lockers in six states, while the U.S. Postal Service has lockers located within post offices in the Washington, D.C., area.
Upstart third-party logistics providers will be looking for sites where they can locate lockers, such as in transit centers, apartment buildings, convenience stores, or any establishment that provides off-hours access for picking up packages. Also, the growing online meals industry is expected to fuel the need for temperature-controlled lockers for the delivery of perishables.
Careers in Supply Chain Management
With a bright future filled with unique challenges, a career in SCM is a strong choice. It might be surprising to hear about an industry that’s all about outsourcing and automation, but new experts are more vital than ever for global organizations and even local ones to grow. Look at these industry stats:
Career Paths
What kind of positions can you take on in supply chain management? Supply Chain Business Analyst: Examine your company’s workflow and come up with creative ways to streamline its business processes. Live and breathe efficiency. Inventory Control Administrator: Ensure that inventory systems’ data is accurate with physical inventory, troubleshoot discrepancies, discover root causes and interact with everyone related to this inventory. Purchasing Specialist: Work out deals with suppliers and compare bids to minimize cost across the supply chain. Procurement Manager: Research, evaluate, and purchase large quantities of products for companies to resell or use in operations. Determine what is in your company’s store, ecommerce shops, and more. Operations Analyst: Evaluate, report on, and improve the management of activities that generate recurring revenue for your organization, i.e. its core competencies. Material Planning Manager: Plan, monitor, and manage products and the materials required to make them in your organization’s manufacturing operations. You ensure the constant flow of materials so the factory never runs out.
Logistics Analyst: Evaluate and report on transportation of goods and services up and down your organization’s supply chain, ensuring that everything gets where it needs to go and when it needs to get there.
Top Higher Education Programs
Supply chain management is a game with global stakes, as such major universities and academies around the world offer Bachelor’s and Master’s degrees in the subject. If you want to secure a job in the sector with a Fortune 500, becoming accredited in SCM is vital. Look at some of the top schools on this list for more details on breaking into the industry:
- Cambridge University
- Copenhagen Business School
- Cranfield School of Management
- Eindhoven University of Technology
- London Business School
- Vlerick Business School
Certifications in Supply Chain Management
If a full Master’s program seems like too big a commitment, explore some of the short-term certifications available below. They give you a shot at entry level jobs if you’re inexperienced, and are a nice brush-up on current SCM standards for seasoned professionals.
- Chartered Institute of Supply Chain Management (CISCM) Chartered Supply Chain Management Professionals (CSCMP)
- Institute for Supply Management (ISM) Certified Professional in Supply Management (CPSM)
- Institute of Supply Chain Management (IOSCM)
- International Institute for Procurement and Market Research (IIPMR) Certified Supply Chain Specialist (CSCS) , Certified Procurement Professional (CPP) and Certified Supply Chain Associate (CSCA)
- International Supply Chain Education Alliance (ISCEA) Certified Demand Driven Planner (CDDP) and Certified Supply Chain Manager (CSCM)
- Association (SCMA) Supply Chain Management Professional (SCMP)
- The Association for Operations Management (APICS) Certified Supply Chain Professional (CSCP) and Certified Production and Inventory Management (CPIM)
Supply Chain Management Templates
Outside of the physical work of checking inventory, or the personal work of communicating with different members of the supply chain’s links, much of your work as a supply chain manager is using systems and dashboards to get an understanding of logistics, operations, and flows. What follows are some templates that can help manage and streamline workflow, while understanding and sharing inventory reports and more.
Download Risk Management Matrix Template
Excel | Word | PDF | Smartsheet
Download Stock Inventory Control Template
Excel | Smartsheet
Download Supply Chain Dashboard Template
Download Microsoft Excel Template for Choosing MRP Software
Download RFP Vendor Template
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Supply Chain Management Business Plan Sample
NOV.28, 2014
Do you want to start Supply Chain Management Business?
Do you want to start a supply chain management business? Well that can be an amazing idea if you want to quickly start a business. One of the main reasons is that this supply chain business plan will not need you to have any specific technical knowledge or degree. You can start this business with just a few contacts and grit.
Even though it is relatively easier to start a career in supply chain management, it still doesn’t mean you should go in unprepared. The best thing you can do is go through a business plan for supply chain management. You can get a business chain management plan supply from anywhere on the internet. And if you want, this document is also a great place to look for help supply chain business plan .
Executive Summary
2.1 the business.
Clark’s Management will be a supply chain management startup owned by Clark Bridgers. The main objective of the supply chain business plan is to guide and assist companies in streamlining their supply chains in Oakland. It will offer versatile resources and services for the best supply chains.
2.2 Management of Supply Chain Management Company
To ensure that your company is well managed, you need to develop a supply chain management business plan as the first step.
In this supply chain strategy model, we will including all the important aspects of a business for buy side due diligence .
In order to make your supply chain business plan , you can study a sample pdf of supply chain management like this one. You can also use the internet to go through a plan for supply chain management filetype pdf. These will give you a good idea of what you should include in your supply chain business plan . And this will apply even if you are developing a business plan for video production .
2.3 Customers of Supply Chain Management
Our clients will be from all industrial and professional domains since supply chain is a part of the lifecycle of any product or service. Keeping that in mind, our recurring customers will include:
- Product Businesses
- Service Businesses
- Hybrid Large/Small Businesses
- Manufacturing Units
2.4 Business Target
The primary goal of our supply chain business plan is to become the most reliable and trusted option for our clients whenever they want to improve their supply chains.
The financial targets that we aim to achieve in the first two years are shown below:
Company Summary of Supply Chain Management
3.1 company owner.
Clark Bridgers will own Clark’s Management. Clark completed his Bachelor’s in Management about 3 years back. After his studies, he pursued a job in a corporation as a business management consultant. But he left job in pursuit of starting his own supply chain business plan .
3.2 Why the Supply Chain Management Company is being started
Clark observed that a lot of businesses are looking for ways to reduce their production costs. But there are very few businesses that offer any help in the area. He quickly realized that he could use his innovative ideas and knowledge to improve supply chain management for these companies.
3.3 How the Supply Chain Management company will be started
Step1: Plan Everything
Before you look into things like what is supply chain strategy definition, you need to consult supply chain business plan experts. They will guide you in development of supply chain organization models.
Clark decided to offer his services to both service and product based companies. So, you can use this or any related supply chain management project report pdf to get started with your own supply chain business plan . These documents will help you understand the role of supply chain management in business plan.
Step2: Define the Brand
A crucial step in starting a new supply chain business plan is to get noticed. You will have to identify and highlight your core values and market those to your potential customers to gain attention.
Step3: Establish a Web Presence
The most important part of any business in the digital age is online promotion. For this, Clark decided to establish social media presences for his supply chain business plan . He also decided to outsource a simple website through which people can book appointments and reach out.
Step4: Promote and Market
As the final step, you need to create and follow a marketing plan to promote your supply chain business plan .
Services of Supply Chain Management
When you are starting supply chain business , one of the major things you need to figure out the services you will be providing to your customer base. You can refer to a sample business plan supply chain management for an idea.
The requirements of supply chain management in a business plan is different as compared to other plans such as aerial tourism business plan .
But since Clark decided to provide a whole array of services so this example of supply chain strategy can also be used for other ventures like internet radio business plan . You can gain a lot of insight from this plan for operations and supply strategy.
- Identifying and Dealing with Logistics Problems
Our company will offer solutions to all basic problems that may occur in the supply chain. If, for instance, a customer complains about service quality, it can reflect poorly on the supply chain business plan . But our company ensures that most problems are identified beforehand through data analysis.
- Price Optimization
Many businesses offer products or services that are seasonal. Since seasonal offers are not needed throughout the year, businesses have to find a way to reduce their prices and sell them. Our company will help businesses set these marketable prices through analytical software. This will ensure that:
- Products are sold, and
- Business is still profitable
- Dynamic Resource Management
Businesses have limited resources. Our company will help businesses organize and allocate their resources such as equipment and workforce in a way that optimizes performance.
- Supply Chain Consultation
Our company will also provide consultation experts that can help businesses with supply chains reduce their costs and improve their performance.
Marketing Analysis of Supply Chain Management Company
When you are describing your company for supply chain management in a business plan, you will need to describe your customer base. Identifying your customers is one of the essential steps of starting a supply chain business plan . And you have to include this information in your plan even it is a business plan template for summer camp .
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You should have detailed information about your customer. And the best way to get these details is through a market analysis. The market analysis included in your supply chain development strategy, should have all information regarding past, present and future market trends.
The supply chain strategic management is used to analyze the market prices and to figure out the financial goals of your own supply chain reporting structure. You can use a supply chain management project pdf sample like this to see how the market analysis is presented.
5.1 Market Trends
According to ExploreWMS, the number of warehouse in US have grown by 6.8% in the last five years. This means that more and more companies need better supply chain management techniques and services. And due to the shift for efficiency, supply chain management positions are increasing faster than economic averages. So, there is no deficiency of demand in the market for a supply chain management or services.
5.2 Marketing Segmentation
The potential customers of Clark’s Management are divided into the following categories:
5.2.1 Product Businesses
Our main customers will be the product based businesses that rely on the sale of their products. Since the sale of a product is affected by a lot of factors in the supply chain so these businesses are more likely to regularly use our services.
5.2.2 Service Businesses
Our second target customers will be service providing businesses much like ours. Services are also provided as a result of a supply chain that involves ideation, planning and development as some of its parts. So service businesses are also expected to utilize our services quite often.
5.2.3 Hybrid Small/Large Businesses
Every supply chain business works for an endpoint through a series of pre-defined steps. These steps form a supply chain even in hybrid (product and service) businesses. Since these businesses are usually big corporations with their own management departments so they are likely to use our services every so often.
5.2.4 Manufacturing Units
Manufacturing units on their own also require management tips to work more smoothly. They are expected to avail our services often to streamline their operations.
5.3 Business Target
- To become the best supply chain management company throughout Oakland
- To increase the range of our offered services over time
- To earn a net profit of around $30k per month by the end of the second year
- To achieve and maintain customer satisfaction above 90%.
5.4 Product Pricing
Our prices will be a little bit higher than the market average. But we will offer more services over a longer period of time as a compensation. This will help our customers more in the long run as compared to our competitors.
Marketing Strategy of Supply Chain Management
To gain attraction in a huge industry, you need to find areas where you have competitive advantage. For this, you need a solid marketing strategy and branding so that people can recognize your offers.
In the present supply chain management report template, we are describing the marketing strategy for Clark’s Management. You can also refer to an example such as business plan supply chain management to improve your business proposal. This is helpful even if you are just starting a paintball business .
6.1 Competitive Analysis
- We have amazing customer support available. We will deal with all customers patiently and also gain feedback for future improvement.
- Through our physical shops, website and social media, customers have different ways to contact us. And we will respond to them at the earliest.
- We will provide consultations and services in accordance with all the standard practices so that our customers can focus on their work without worry.
6.2 Sales Strategy
- We will advertise through word of mouth, Google Ads, Social Media, and billboards.
- We will provide long-term services in reasonable and market-competitive prices.
- We will also provide special discounts to first-time and long term customers.
6.3 Sales Monthly
6.4 Sales Yearly
6.5 Sales Forecast
Personnel plan of Supply Chain Management
No business can run without the diligence of its workers. The success of any business actually depends a lot on the behavior of employees. Clark knew the importance of hardworking and patience workforce and so he developed a selection criterion for employees. This criterion will be a part of business plan for supply chain management. You can also find examples of this in a sample business continuity plan supply chain management on the internet.
7.1 Company Staff
- 1 Co-Manager for overall assistance
- 2 Purchasing Agents
- 3 Logistics Analysts
- 1 Operations Manager
- 3 Planning and Expediting Clerks
- 2 Storage and Distribution Managers
- 3 Operations Consultants
7.2 Average Salary of Employees
Financial plan.
You can’t become successful by just selling products or services. To be profitable, you need to carry out a detailed financial analysis. Usually, like in this supply chain business plan sample, financial analysis is included. Every good supply chain management business plan has a thorough financial plan included.
In your financial plan, you need to show how you will cover your expenses with your sales and profits. You also need to identify ways to reduce your expenses and increase your efficiency.
We have provided a comprehensive financial plan for supply chain management business. But you can also refer it for business plan movie selection .
8.1 Important Assumptions
8.2 break-even analysis.
8.3 Projected Profit and Loss
8.3.1 profit monthly.
8.3.2 Profit Yearly
8.3.3 Gross Margin Monthly
8.3.4 Gross Margin Yearly
8.4 Projected Cash Flow
8.5 Projected Balance Sheet
8.6 business ratios.
- How do I write a business plan for supply chain management?
You can write a business plan for supply chain management by reading business plans like the one here or by consulting a business plan expert.
- What is supply chain in business plan?
Supply chain consists of processes that are involved in the production of a product or the provision of a service. And in reference to a supply chain business plan , it includes all the details needed to start a business in supply chain management.
- What are the examples of supply chain management?
Supply chain management is involved in all kinds of supply chains including product design, manufacturing, farming, packaging, and transportation etc.
Download Supply Chain Management Business Plan Sample in pdf
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What Is Supply Chain Planning, And What Are the Business Benefits?
Supply chain planning (scp) is the process of optimizing the delivery of goods, services and information from supplier to customer, which balances supply and demand. scp provides planning, what-if scenario analysis and real-time demand commitments..
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A vital component to supply chain planning success
A mature sales and operations planning (S&OP) process brings significant returns like increased revenue and profitability, making it critical to supply chain planning. Despite its importance to the business, many overlook diagnosing their S&OP maturity, perhaps because it requires cross-functional inputs.
Use this roadmap to:
- Drive business value from the S&OP process.
- Determine the maturity level of your S&OP process.
- Identify steps to improve and advance your S&OP maturity.
The key components to supply chain planning
Especially in times of disruption, it’s critical to make improvements in the supply chain planning process to enhance decision making and refine processes, organization, metrics and technology.
- Performance Optimization
- Change Management
- Process Excellence
- Org Design and Talent
- Tech and Digitalization
Engage cross-functional leaders for sales and operations planning.
Best-in-class sales and operations planning (S&OP) is a large component of supply chain planning and brings clear business and organizational benefits. Think: improved profit, revenue, cash flow and customer service. Yet most organizations don’t fully reap these benefits due to siloed thinking and an immature S&OP process. Plus, there’s a lack of understanding from functions outside of supply chain. You must demonstrate the value of S&OP to different stakeholders and align to major business performance optimization programs to build a best-in-class S&OP process and gain commitment on supply chain planning improvement projects.
Starting and advancing the S&OP process requires extensive collaboration across supply chain and other functions, including sales, marketing and finance. To implement or transform your planning, build a strong business case for change. To start out, consider the four elements of the S&OP process:
- Product portfolio planning. Do we have the right product portfolio to meet our targets?
- Demand review and gap reconciliation. How much are we planning to sell and does this match our ambition?
- Supply review and gap reconciliation. Do we have the right inventory, capacity and capabilities to meet demand?
- Executive S&OP. What are the financial consequences of the choices we make and how to adjust?
From there, take these three actions to secure business buy-in for your supply chain planning transformation:
- Create a business case for change. Highlight how improvements in the process will enable the organization to achieve strategic goals.
- Calculate improvement potential. Use quantifiable business and supply chain metrics.
- Guarantee cross-functional engagement. Target the business case to specific stakeholder groups and including expected benefits.
Additional resources:
- Supply Chain Strategic Planning
- How to Assess Risks and Opportunities Through S&OP
- Supply Chain Leaders Should Reassess Their Sales & Operations Planning Approach
- Supply Chain Scenario Planning
- 14 Tactics to Counteract Supply Instability
- What's Ahead for Semiconductor Shortages
Manage change and influence stakeholders to improve business results.
Seventy-five percent of supply chain leaders expect an increase in high-impact disruptions compared to the rate of disruption over the past five years. Yet resistance to change from decision stakeholders remains the top challenge supply chain planning leaders anticipate as they attempt to execute their supply chain transformations over the next three years.
As supply chain planning leaders, you must be more effective in managing change with key stakeholders and driving multiple priorities across complex transformation projects. To do this, assess the current landscape, build a vision for supply chain planning, and create a roadmap to grow maturity, influence stakeholders and improve business results through the transformation journey.
- Key Supply Chain Planning Activities
- Enabling Supply Chain Transformation at Infineum
- The 5 Stages of S&OP Maturity
- 5 Ways to Mature Sales and Operations Planning (S&OP) in Supply Chain
Maturing your supply chain planning process is the foundation for future improvements.
Three in five companies are dissatisfied with the fit between their supply planning objectives and their supply planning capabilities. To ensure future supply chain planning improvements, build a supply chain planning process that aligns to business objectives and outcomes. This includes product portfolio planning, demand planning, supply and inventory planning, and the S&OP and sales and operations execution (S&OE) processes.
Process maturity is also important for future investment, and yet 72% of companies with a physical supply chain are at Stage 3 or below in terms of their supply chain planning maturity. To grow your supply chain planning maturity, integrate supply chain planning processes with other internal processes such as order-to-cash, procure-to-pay, financial budgeting, and customer and supplier relationship management.
Also, establishing key performance indicators (KPIs) enables the supply chain organization to justify, monitor and drive individual processes, as well as accelerate overall supply chain performance by balancing local and global performance improvements.
Checklist of Supply Chain Metrics
3 Principles for Inventory Excellence
3 Actions to Improve Demand Planning
Supply Chain Strategy for Optimal Inventory
Increasing the Agility of the S&OP Process at Milliken
Align a talent strategy with your overall supply chain planning strategy.
Your supply chain planning organizational design and talent strategy is critical to achieve higher performance in both the short and long term, considering the talent gap is a top internal constraint to growth. What unique skills are needed to support digital supply chain planning?
Six elements of talent strategy are key to success:
Design and implement the most appropriate organizational structure for supply chain planning that’s aligned with the broader supply chain strategy. This includes attracting talent and stepping up capabilities within the supply chain planning organization to ensure long-term continuity and the ability to overcome business challenges.
Collaborate across HR and supply chain on talent management: Consider dedicating resources from the supply chain planning organization to develop and implement a talent strategy. Use HR as a strategic partner and leverage its systems for scalability and analytics.
Understand current and emerging competency requirements: Refresh your supply chain planning competency model (or create one) based on triggers, such as shifting business priorities, emerging tech trends or changes in the competitive landscape.
Use an integrated approach to talent management: Most supply chain planning organizations continue to approach talent development from either a performance management or training-led mindset. Instead, incorporate all five talent pillars in your talent strategy — competency models, career paths, recruiting and onboarding, training and development, and performance management.
Use unconventional strategies to close talent gaps: Expand your recruiting profile beyond the typical supply chain planning profiles.
Establish a well-rounded team: Gather a mix of multitalented people to achieve supply chain planning objectives. Think: data science, data engineering and domain expertise.
9 Skills That Fuel Digital Supply Chain Planning
Develop a supply chain planning technology roadmap.
Supply chain planning technology projects often exceed budget, and software tools are often underused. Why? Many failures stem from how projects are initially scoped: Organizations often mistakenly view supply chain planning technology implementations as IT projects. Plus, supply chain planning and technology leaders sometimes speak different “languages” when it comes to supply chain planning solutions and priorities. Technology leaders apply software development life cycle frameworks to their projects, which may lead them to underestimate or totally neglect the impact of the new software on the supply chain planning process, organization, behaviors, etc.
Embarking on a software implementation without a clear strategy, use case, resourcing or stakeholder support can be costly. Supply chain planning technology is intended to be a long-term investment, so make the effort to prime the enterprise and develop a supply chain planning technology roadmap to embrace the new software. It’s also a good way to avoid even costlier mistakes, missed business outcomes, overall dissatisfaction, or even project suspension or termination.
7 Steps to Implement Supply Chain Planning Technology
Supply Chain Technology Pilot
Aligning Digital Business and the Digital Supply Chain
10 Must-Have Supply Chain Planning Capabilities for Pharmaceutical Companies
Optimizing Supply Chain Planning Technology Investments
Five-Step Plan for Supply Chain Technology Pilots
Experience Supply Chain conferences
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Frequently asked questions
What is supply chain planning.
Supply chain planning improves profit, revenue, cash flow and customer service through multiple processes that span product portfolio planning, demand planning, supply and inventory planning, financial alignment through S&OP and short-term execution through S&OE.
What are the key elements of supply chain planning?
Supply chain planning leaders should build a comprehensive vision and roadmap to improve business performance. To do this, supply chain planning must address five key elements: performance optimization, change management, process excellence, organizational design and technology enablement.
Why is supply chain planning important?
Seventy-five percent of supply chain leaders expect an increase in high-impact disruptions compared to the rate of disruption over the past five years, specifically around three issues: risk management , future of work and digital transformation . Supply chain planning leaders will need to be at the forefront of working on these priorities and will be required to reinvent supply chain planning processes to be more agile and accommodate different categories and market needs.
How do we design a supply chain planning system?
Supply chain planning systems refer to the tools used to document the supply chain plan. Gartner urges organizations not to focus on strategy in terms of the document they’re creating, but instead focus on turning strategy into an easily communicated action plan.
What are examples of supply chain planning?
The Gartner Power of the Profession™ Supply Chain Awards is an annual community-driven recognition program that inspires supply chain transformation around the globe. Download details of the latest award winners to read examples of supply chain planning excellence in action.
What is the supply chain planning process?
Key elements of the supply chain planning process capture:
- Supply chain current state
- Future-state capabilities
- Gaps between current and future state
- Priority activities and initiatives
Drive stronger performance on your mission-critical priorities.
6 Steps to Write a Supply Chain Management Plan
The Value behind Writing a Supply Chain Management Plan
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By Daniela McVicker, 29 July, 2020
Supply chain standardization is a challenging yet beneficial process for all businesses regardless of their scale or target markets. With COVID-19 crisis underway, writing a reliable supply chain management plan for your company has become more than a welcome addition to its business model.
However, drafting such a document without insight into typical supply management practices can be tricky. Businesses which deal with import/export, as well as those who require raw materials for processing, know what such documents should and shouldn’t contain. With that in mind, let’s discuss the steps to write a supply chain management plan in 2020 in order to better streamline your procurement pipeline.
Why should you pay attention to strategic supply chain management in your company? After all, you’ve handled procurement without such documents before, what is different now? As we’ve briefly mentioned, the current global crisis has put a wrench in the proverbial machine for numerous industries, physical shipping included.
Whether you operate as a redistribution or packaging company for your local market or work in manufacture and require raw substances, proper supply management matters. Businesses in the B2B sector tend to work with long-time and reputable brands far more than they do with new players on the market.
Here are some relevant facts in regards to supply chain management as published by Finances Online recently:
- 57% of companies believe that proper supply chain management gives them a competitive edge
- 62% of companies have limited visibility of their supply chain management
- 74% of companies utilize 4-5 transportation methods based on current situation
- 46% of businesses don’t track their inventory and have no automated method to track it
Despite the potential loss of revenue, industry reputation and public trust, many businesses still fail to use a supply chain management plan to their benefit. This opens the doors for your own and other companies who are willing to go forward and write such a plan to maximize future productivity. Doing so will also bring several crucial advantages into your corner, including:
- Increased net revenue
- Better B2B networking potential
- Improved in-house productivity
- Lowered margin for supply management errors
- Better analytics possibilities due to standardization
Steps to Write a Supply Management Plan
1.Assess your Current Supply Pipeline
The best place to start writing your supply chain management plan is through an internal audit of your company. More specifically, analyze the ways in which you have procured goods or services up to this point. What worked well and what caused you problems? Which companies were willing to work with you long-term and which ones turned out to be less than ideal for cooperation?
Go through the available documentation and try to separate your current supply management pipeline into “good” and “bad”. Whatever is good, you can carry over into standardized procurement going forward, and vice versa. Don’t write a supply chain management plan without a clear idea of where your company currently stands on.
2.Define the Supply Management Outline
A supply chain management plan is a written document which serves to standardize your procurement processes. As such, you should start writing it with the goal of creating a long-term template which your sales department can use for the foreseeable future. Start by outlining your company’s basic information on the front page. You can use a thesis writing company in order to write or edit your supply management documentation in a reliable manner.
Data related to your legal and contact information should find their place on the aforementioned front page. Leave an empty table on the first page just below the legal information as you will copy the data in regards to your order here afterward. The purpose of the outline page is to give your recipient a clear idea of the procurement request without having to read through multiple pages.
3.Quality Assurance (QA) Overview
Depending on your warehousing units and available technology, your QA details should find their way into the supply chain management plan. This will give both your employees and procurement companies you work with ample information on what can and cannot be stored on your property.
Certain items might require refrigeration or special storage due to their chemical properties, unlike electronics or paper products which are more durable. The information on your QA requirements in regards to transport and storage will let the supplier know exactly what logistical resources you have available. It will also proactively ensure that no goods arrive at your company without explicitly following the QA standards.
4.Break down your Supply Needs
The list of goods you require from a supplier should be highlighted in the supply chain management plan to allow for quick and easy access. Depending on the industry you operate in, this list can take the form of a spreadsheet, a bulleted list or a chart with visualized supply elements.
You should account for any special requests you may have and clearly outline what those refer to in a separate section. If you require pipes of a specific diameter, length and material which is otherwise not standard for your supplier, make sure to annunciate that point. Make sure that there are no typos or spelling mistakes in this section as they can severely hinder your efforts at supply standardization. Proofread both your supply chain management plan’s template and any future supply procurement requests you file using said template.
5.Develop a Supply Timeline
Once you assemble a list of goods you require, you should proceed to outline the delivery timeline for your supplier’s benefit. Do you simply require these items to be packaged and ready for pickup by your company? Or, do you require different amounts of items to go to different warehouses or retail storefronts under your brand?
The supply timeline is just as important as the breakdown of your required goods as short deadlines or wide distribution requirements may not be viable. The timeline will give your supplier enough information to make an objective decision on whether or not to proceed with your order. As such, this section should include contact information for your sales department representative which can be used to confirm or further discuss the procurement request.
6.Government Laws & Regulations
Lastly, international shipping will require you to list laws and regulations in regards to your government’s import standards. Whether you transport goods by international roads, water or air, government regulations should be made available to your supplier. The same can be said for state-to-state shipping in the US, as different states will have drastically different shipping standards.
Including this section in your supply chain management plan will significantly speed up customs processes on both ends. Likewise, it will ensure that your supply arrives as was intended, which is important for goods which require special storage and handling (see QA standards).
Follow Up and Reinvent (Conclusion)
While the goal of writing a supply chain management plan is to standardize your procurement process, you can build on the foundation through supplier feedback. Inquire about how legible, organized and informative your supply documentation is with companies.
Ask for feedback on what works and doesn’t work, as well as what they would do differently in your place. The role of the supply chain management plan template is to help you, not hinder your productivity – be on the lookout for more development opportunities. Adopting such a mindset will ensure that your documentation becomes of higher quality and easier to manage over time.
Image source : https://unsplash.com/photos/oh0DITWoHi4
Author’s bio. Daniela McVicker is a passionate digital marketer. Daniela is interested in everything related to SEO and blogging. She collaborates with Essayguard and other websites where she shares her experience and helps marketers make their names in the online world.
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What Is Procurement? Types, Processes & Technology
Procurement has been a vital, transactional part of conducting business for almost as long as commerce has existed. Although the days of scribes tracking purchases on papyrus scrolls are long past, the process of carefully selecting and purchasing the goods and services needed for day-to-day business operations remains as important as ever. By enabling the company to reliably get the supplies it needs at the lowest cost, procurement can directly impact the bottom line.
What Is Procurement?
Procurement encompasses a range of activities involved in obtaining goods or services. What is the purpose of procurement? In general, procurement teams work to obtain competitively priced supplies that deliver the most value. However, not all companies define procurement in the same way. Many companies consider that procurement encompasses all the stages, from gathering business requirements and sourcing suppliers to tracking the receipt of goods and updating payment terms, while others define procurement as a narrower range of activities, such as issuing purchase orders and making payments.
Key Takeaways
- Procurement is a vital business function. When managed efficiently and done well, it can help increase your business’s profitability.
- It includes a range of activities involved in obtaining goods and services, including sourcing, negotiating terms, making purchases, tracking when supplies are received and maintaining records.
- It’s important to continuously monitor and assess the procurement process to improve any weak spots or inefficiencies.
- Technology can reduce procurement cost and administrative overhead by automating and tracking procurement processes.
Procurement Explained
Traditionally, some businesses have used the term procurement synonymously with purchasing. But now, purchasing is often seen as just one stage in a larger, more strategic procurement process. So, what exactly is procurement?
Procurement involves every activity involved in obtaining the goods and services a company needs to support its daily operations, including sourcing, negotiating terms, purchasing items, receiving and inspecting goods as necessary and keeping records of all the steps in the process.
Why Is Procurement Important in Business?
Procurement is an important step in understanding supply chains , because it helps a company find reliable suppliers that can provide competitively priced goods and services that match the company’s needs. That’s the case whether the company is seeking raw materials for manufacturing, a marketing services provider or new office supplies.
For example, if a company needs a new supplier to provide an ongoing service for an indefinite period of time — such as an email security solution — the procurement process helps the company choose the supplier that best meets all of the business’s requirements at a reasonable price. It enables the business to avoid wasting time, money and valuable resources dealing with an inadequate supplier.
Minimizing cost is one important aspect of improving your procurement processes . But it’s also vital to identify suppliers that provide the quality of goods and services that the company needs and have the capacity to deliver reliably and a track record of doing so.
Types of Procurement
Procurement can be categorized in several ways. It can be classified as direct or indirect procurement, depending on how the company will use the items being procured. It can also be categorized as goods or services procurement depending on the items that are being procured.
- Direct procurement refers to obtaining anything that’s required to produce an end-product. For a manufacturing company, this includes raw materials and components. For a retailer, it includes any items purchased from a wholesaler for resale to customers.
- Indirect procurement typically involves purchases of items that are essential for day-to-day operations but don’t directly contribute to the company’s bottom line. This can include anything from office supplies and furniture to advertising campaigns, consulting services and equipment maintenance.
- Goods procurement largely refers to the procurement of physical items, but it can also include items like software subscriptions. Effective goods procurement generally relies on good supply chain management practices. It may include both direct and indirect procurement.
- Services procurement focuses on procuring people-based services. Depending on the company, this may include hiring individual contractors, contingent labor, law firms or on-site security services. It may include both direct and indirect procurement.
How Procurement Works
The procurement process generally involves a number of steps. The business identifies particular goods and/or services that it needs, sources the suppliers that will help the company reach its business objectives, negotiates terms and costs and then purchases and receives the relevant items.
A small company may have just one person handling procurement of all goods and services. Larger companies may have a team of people specialized in dealing with different suppliers or supporting specific internal business groups. For some items, the team may need to gather input from several different business groups in order to determine the company’s overall requirements.
It’s important to remember that procurement doesn’t consist of a series of isolated acts — it’s an ongoing process. For example, businesses generally aim to establish relationships with key suppliers to help obtain the best service and lowest possible costs, which ultimately translate into higher profit margins. Companies may also need to conduct regular quality assurance checks and performance analysis to make sure suppliers consistently meet expectations.
9 Steps in the Procurement Process
Procurement processes vary greatly depending on each company’s structure and needs, but generally include the following nine core steps:
1. Identify which goods and services the company needs. First, a business must identify its requirements for a specific item or a service. This may be a new item that the company hasn’t previously purchased, a restock of existing goods or a subscription renewal. This step typically involves delving into the nitty-gritty details of what the business needs, such as the precise technical specifications, materials, part numbers or service characteristics. At this stage, it’s a good idea to consult all business departments affected by the purchasing decision to ensure the procured items accurately reflect the needs of each department.
2. Submit purchase request. When an employee or business group needs to procure a significant quantity of new supplies or services, they make a formal purchase request (also known as a purchase requisition ). A purchase request notifies the company that a need exists, usually via department managers, purchasing staff or the financial team, as well as specifications such as price, time frame needed, quantity and other important things for the purchasing team to keep in mind. The department overseeing the purchase can then approve or deny the purchase request. If approved, the procurement team can proceed with selecting a vendor and making the purchase.
3. Assess and select vendors. With a clear list of requirements and an approved purchase request, now is the time to find the best vendor and submit a request for quote (RFQ) – this is what the purchasing team sends to potential suppliers in order to receive a quote – it is important to be as detailed as possible so you can compare apples to apples. Vendor assessment should focus not only on cost but also on reputation, speed, quality and reliability. Many companies consider ethics and social responsibility as well, since procurement is often intertwined with corporate identity. A retailer that prides itself on sustainability would stand to benefit from partnering with environmentally responsible suppliers, for instance.
4. Negotiate price and terms. A common best practice is to get at least three quotes from suppliers before making a decision. Examine each quote carefully and negotiate where possible. If you need to walk away from a deal, be sure that you have concrete alternative options. Once you’ve agreed on final terms, be sure to get them in writing.
5. Create a purchase order. Fill out a purchase order (PO) and send it to the supplier. The PO should be sufficiently detailed to identify the exact services or goods needed and to enable the supplier to fill the order.
6. Receive and inspect the delivered goods. Carefully examine deliveries for any errors or damage. Make sure everything is delivered as specified in the PO and that the quality meets or exceeds expectations.
7. Conduct three-way matching. Accounts payable should conduct three-way matching by comparing the purchase order, order receipt or packing list and invoice. The goal is to ensure the goods or services received match the purchase order and to prevent payment for unauthorized or inaccurate invoices. Highlight any discrepancies between the three documents and resolve issues before arranging payment.
8. Approve the invoice and arrange payment. If the three-way match is accurate, approve and pay the invoice. Businesses should strive to have a consistent invoice payment process through accounts payable that checks that payments match the invoice amount and due date. A standardized process can help make sure invoices are always paid on time, which can prevent late fees and build good relationships with suppliers.
9. Recordkeeping. It’s important to maintain records for the entire procurement process, from purchase requests to price negotiations, invoices, receipts and everything in between. These records may be useful for multiple reasons. They help the company reorder goods at the right price in the future, as well as assist with auditing processes and calculating taxes. Clear, accurate records can also help resolve any potential disputes.
Stages of Procurement
The nine major steps of the procurement process can also be thought of in three distinct stages: the sourcing stage, the purchasing stage and the receiving stage.
- Sourcing stage: This covers the initial steps in which the business identifies its needs, creates a purchase request and assesses vendors. Even after the initial sourcing steps are complete, it’s a good practice to build a strong relationships with suppliers. They can establish grounds for suppliers to learn from partners, improve products and processes and develop trust.
- Purchasing stage: This stage includes negotiating terms, creating orders and receiving and inspecting goods and services.
- Payment stage: Accounts payable conducts three-way matching to ensure order and invoice accuracy. The invoice can then be approved and the payment is arranged. Records of all invoices, orders and payments should be kept and carefully maintained.
Procurement Life Cycle
Organizations commonly think of steps in the procurement process as a life cycle. This perspective provides a reminder that all the tasks and stages in the procurement process overlap and rely on each other and that the process is continuous. A carefully thought-out procurement life cycle also recognizes the integration between the process and the business as a whole, including the need to align with existing company rules and procedures covering areas such as budgeting. The process is not always linear, and sometimes adjustments need to be made to account for a dynamic digital supply chain with shifting suppliers, availabilities and costs.
Three Components of Procurement
Three key components work together to make the procurement process happen: people, process and paperwork.
- People: People generally are responsible for initiating or authorizing every step of the procurement process. In addition to procurement specialists, the people involved include other stakeholders, such as accounts payable and the business groups that request the goods and services. The number of people involved often depends on the value of the goods and services; more stakeholders may be involved in specifying and approving high-value purchases.
- Process: An effective procurement process can help a company succeed by keeping costs down and ensuring supplies arrive when the business needs them. A well-designed and methodical process helps to promote accuracy and timeliness because every person involved knows exactly what they need to accomplish and how long they have to complete the tasks. In contrast, a disorganized procurement process results in inefficiencies and potentially costly errors. Overpayments, for example, can impact the bottom line, while late payments negatively affect relationships with suppliers.
- Paperwork: It’s important to maintain records for every stage of the procurement process and ensure they are easily accessible. These records act as a store of organizational knowledge about payment terms and supplier performance, helping the business maintain an efficient procurement process — even if the procurement staff changes over time. In the case of an audit or a dispute, a business must be easily able to follow the paper or electronic trail through each stage of the procurement process.
Procurement, Purchasing and Supply Chain: What’s the Difference?
The terms procurement, purchasing, sourcing and supply chain are often used interchangeably. However, there are important distinctions between them.
- Procurement vs. purchasing: If procurement involves purchasing, you might be wondering: What’s the difference between purchasing and procurement? The answer is that purchasing is essentially transactional, focusing on managing specific orders to meet company needs. Procurement is a much broader and more complex set of processes, including establishing and maintaining supplier relationships. Another way to think about the difference between purchasing and procurement is that procurement takes a proactive approach that starts with analyzing the company’s needs, whereas purchasing is a reactive approach — simply focusing on obtaining what the company has already decided it needs.
- Procurement vs. sourcing: Sourcing, like purchasing, is only part of the overall procurement process. Sourcing is an early stage of the procurement cycle. It encompasses activities such as identifying and assessing potential suppliers of goods or services, negotiating terms and selecting the vendors that best meet the company’s needs.
- Procurement vs. s upply chain : Procurement covers one aspect of supply chain management. Procurement includes sourcing, obtaining and paying for goods and services. Supply chain management also covers the logistics involved in obtaining goods, such as shipping and warehouse management, as well as transforming the procured goods into products and distributing them to customers.
Principles of Procurement
In public-sector organizations, the procurement process is generally similar to the process in private-sector organizations — but with a few important differences. Because the people involved handle public funds, they generally must follow rigorous principles during the procurement process. These principles can be regarded as an ethical code of conduct that holds public servants accountable for their purchases. Some of the principles may also be beneficial to private-sector organizations.
The principles vary somewhat depending on the organization. Here are seven of the most common procurement principles:
- Value for money: The organization must manage funds efficiently and economically when procuring goods and services. This may include conducting cost-benefit analyses and risk assessments. It’s worth noting that low cost does not necessarily equate to greater value; characteristics such as quality and durability also factor into determining whether the purchase represents value for money.
- Fairness: Procurement should not provide preferential treatment to individuals or suppliers. All bids should be assessed objectively, based on how well they meet the organization’s needs.
- Competition: Organizations should seek competitive bids from multiple suppliers, unless there are specific reasons not to do so, such as a sole-source provider where the good or service is only available from a single vendor.
- Efficiency: Procurement processes must be carried out efficiently to help maximize value and avoid delays.
- Transparency: Organizations should make relevant procurement information available to everyone, including the public as well as suppliers. Information should be kept confidential only when there are legal or other valid reasons to do so.
- Integrity: Those who practice public procurement should always strive to be perceived as trustworthy, reliable, honest and responsible. Funds must be used for their intended purpose and in the public interest.
- Accountability: People involved in the procurement process are accountable for their actions and decisions. They are required to report procurement activities accurately, including any errors.
Procurement & Finance
In many companies, procurement and finance teams operate as separate departments. Historically, they have sometimes been at odds for one major reason: Procurement spends money, while finance focuses on profitability, which sometimes means finding ways to spend less.
However, a strategic partnership between the two groups can benefit the business as a whole, partly because each group can provide unique insights into the business’s operations. For example, a well-run procurement team may have a deep understanding of how carefully sourced goods and services can help business groups maximize profitability. This helps the finance group get a better overall picture of company spending and how it affects the bottom line. Integrated supply chain management software that can connect information from across the business, including finance, is an important tool to bridge the traditional divide and help teams work together to advance business objectives. Supply chain management software can also help you track progress toward goals by providing the information you need for key performance indicators (KPIs) in a simple-to-understand format for your procurement team.
Procurement KPIs
By monitoring procurement KPIs, businesses can boost the efficiency of their procurement process, track progress toward business objectives and identify areas for improvement. Here are some commonly measured procurement KPIs:
Purchase order cycle time: Monitor the average number of hours or days it takes to process requisitions and send purchase orders to suppliers.
Purchase order cycle time = # of hours or days it takes to process requisitions and send purchase orders to suppliers / # of purchase orders sent to suppliers
Supplier lead time: The average number of days it takes for suppliers to send items after they receive a purchase order.
Supplier lead time = # of days it takes for item(s) to arrive after supplier receives purchase order / total # of purchase orders sent to supplier
Number of suppliers: Having more suppliers gives the company more options but also increases administrative work. Many procurement groups monitor the number of vendors in their supplier networks and periodically remove little-used suppliers to increase efficiency.
Supplier defect rate: An important measure of supplier quality, this is usually measured as the number of defective parts divided by the total number of parts supplied.
Supplier defect rate = # of defective parts from vendor / total # of parts from same vendor
Supplier availability: This measures each supplier’s ability to respond to last-minute or emergency demands.
Supplier availability = # of times supplier fulfilled business orders / # of orders sent to supplier
Fulfillment accuracy: This measures the percentage of orders that suppliers fill accurately and match the purchase order exactly.
Fulfillment accuracy = # of accurate orders from supplier / total # of orders from same supplier
Total ROI of procurement process: This measures the value a business’s procurement strategy delivers to the organization. It’s the ratio of the annual savings generated by the procurement group to the total annual amount spent on procurement.
Video: What Is Procurement Software?
How Technology Can Help Manage Procurement
As with almost any other area of the business, technology can increase the productivity of procurement groups, while reducing process costs by as much as 30% . You can also simplify steps such as soliciting bids, creating orders and paying for supplies using ERP solutions with procurement software . It can also enable teams to better analyze savings and track supplier performance.
Procurement dashboards show selected procurement KPIs and metrics on a single screen so companies can easily monitor important trends and spot problems. You can track metrics such as vendor performance, total spend, outstanding transactions. Leading solutions include dashboards preconfigured for different roles within the company, with the ability to customize the dashboards based on each user’s needs.
Procurement can play a key role in a business’s profitability and overall success. It includes a broad range of related activities, each of which requires attention to detail to ensure the business gets the most value. Supply chain management software solutions can help accelerate, simplify, analyze and reduce the cost of the entire procurement process.
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Business Process Management in Supply Chains
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Develop a Supply Chain Strategic Plan You Can Use Explore the key elements of strategic planning with a one-page supply chain strategy template. Download Your Supply Chain Strategic Plan Template Use the Gartner supply chain strategic planning template to execute business goals. Work Email
SUPPLY CHAIN STRATEGY REPORT MAKE THE MOST OF SUPPLY CHAIN STRATEGY APICS INSIGHTS AND INNOVATIONS ABOUT THIS REPORT This APICS report is your guide to understanding, developing and advancing supply chain strategy.
the supply chain. Any companies with footprints in the United Kingdom must evaluate and adapt their supply management function based on the realities of Brexit. More generally, any company with a global footprint must evaluate and adapt its supply management function based on the global uncertainties to which it is exposed.
A Simpler Way to Modernize Your Supply Chain. How to spend less and accomplish more. by. David Simchi-Levi. and. Kris Timmermans. From the Magazine (September-October 2021) Bernhard Lang. Summary.
Strategic Plan Strategic Sourcing Group . 8 . 3.2 Improve internal and external marketing of Strategic Sourcing services Without mandatory use of our strategically sourced contracts, marketing of our Strategic Sourcing services is imperative to our success. A detailed marketing plan has been developed and some of the specific items
Planning Plan and manage all resources required to meet customer demand for a company's product or service. When the supply chain is established, determine metrics to measure whether the supply chain is efficient, effective, delivers value to customers and meets company goals. Sourcing
June 25, 2017 (updated February 22, 2022) Try Smartsheet for Free Globalization has become an undeniable part of commerce over the last few decades, as large companies have grown first to source labor and parts from developing regions, and then to start selling in those same areas as they grew in wealth and buying power.
The Corporate Procurement and Supply Services Branch (CPSS) is the centralized supply chain management and tendering authority for the City of Edmonton, and is responsible for setting corporate policy and delivering a full range of business services including procurement, inventory management and distribution, mail processing and digital print s...
In order to make your supply chain business plan, you can study a sample pdf of supply chain management like this one. You can also use the internet to go through a plan for supply chain management filetype pdf. These will give you a good idea of what you should include in your supply chain business plan.
Supply chain management definitions •'Supply Chain Management (SCM) is the integration of key business processes from the end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders.' (Lambert and Cooper 2000)
The key elements of supply chain management Supply chains comprise the flow of prod-ucts, information, and money. How they are managed greatly affects an organization's competitiveness and profitability. Proper alignment with the business strategy is essential to ensure strong overall perfor - mance. Supply chain performance management is
Strategic Supply Chain Management (SSCM) creates competitive advantage for firms by balancing downward cost pressures and the need for efficiency, with effective means to manage the demands...
A business model approach to supply chain management DOI: Authors: Peter Trkman Marko Budler University of Ljubljana Aleš Groznik Abstract and Figures Purpose - This paper aims to extend the...
SCM 4390 Supply Chain Strategy 3 Adv Elec 3000-4000 level course 3 ... Gen Elec 1000-4000 level course 3 Semester Hours 15 Semester Hours 15 30 120 *Core Curriculum **Business Administration and Management Field of Study (SCM majors are required to make a C+ or higher in SCM 3301, and a grade of C ... Students should meet with their academic ...
What Is Supply Chain Planning, And What Are the Business Benefits? Supply chain planning (SCP) is the process of optimizing the delivery of goods, services and information from supplier to customer, which balances supply and demand. SCP provides planning, what-if scenario analysis and real-time demand commitments. Download Your S&OP Roadmap
Overview There is a great deal of confusion regarding what supply chain management involves. 1 In fact, many people using the name supply chain management treat it as a synonym for...
1.Assess your Current Supply Pipeline The best place to start writing your supply chain management plan is through an internal audit of your company. More specifically, analyze the ways in which you have procured goods or services up to this point. What worked well and what caused you problems?
Integrated supply chain management software that can connect information from across the business, including finance, is an important tool to bridge the traditional divide and help teams work together to advance business objectives. Supply chain management software can also help you track progress toward goals by providing the information you ...
Supply Chain Requirements • HIPAA - Business Associate (aka Chain of Trust) The business associate must--(1) implement safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic protected health information that it creates, receives, maintains, or transmits on behalf of the covered
The purpose of this paper is to develop the architecture of a cloud-based supply chain management (C-SCM) ecosystem and explore how it enhances supply chain responsiveness (SCR).
1. Supply Management Plan Overview In order to get the most out of your supply management plan, it's important to note that it doesn't require a set length or complexity. Drafting a supply management plan for long-term use is all about auditing your current operations and understanding the pain points of your company.