What Is Supply Chain Management, and Why Is It Important? An Introduction to SCM and Its Benefits

Have you ever stopped to really think about how that delicious latte and the insulated travel mug you drink it from came into your life? Part of the credit for delivering your morning coffee or tea goes to supply chain managers, behind-the-scenes heroes of modern commerce, for their role in bringing products and services to market. Continue reading for an introduction to supply chain management (SCM) and its importance to business in today's complex global economy.

A supply chain includes the businesses, individuals, and activities that go into creating and delivering a product or service to the end consumer. The supply chain encompasses everything from raw materials to the product's manufacturing, packaging, and final sale. Supply Chain Management (SCM) seeks to maximize value and competitive advantage through the systematic coordination and control of the elements and processes in the supply chain.

Supply chain professionals have adopted several SCM systems in their pursuit of lower operating costs, more accurate forecasting, and improved profitability and cash flow that lead to economic growth. They include:

This is a Japanese business philosophy that seeks to foster continuous improvement, reaping significant benefits from the cumulative effect of many small changes.¹

First introduced at Motorola in 1987, this quality management and improvement strategy can be used to develop new processes or improve existing ones.²

This strategy for production and inventory management seeks to reduce costs by delivering materials just as they're needed. It relies on accurate demand forecasting and reliable supplies and processes.³

Supply chain managers work to generate maximum customer value and competitive business advantage by optimizing all supply chain elements. Depending on the situation, there may be many logistics professionals working together, or one manager may have oversight of the entire product creation and delivery process. Supply chain managers seek to reduce costs, increase efficiency, and improve customer satisfaction by meticulously coordinating the entire process of creating and delivering products.

Good supply chain management orchestrates business operations by using modern technology and data analytics to identify bottlenecks, predict customer demand, and make informed decisions. Supply chain professionals help businesses create business value and a competitive marketplace edge by delivering goods and services that also deliver on customers' expectations.

The processes that a supply chain manager seeks to optimize are often divided into these five areas:

• Planning
• Sourcing
• Manufacturing
• Delivery
• Customer Support

In a blog on its website, the technology marketing and sales company Tech Target framed the supply chain process holistically: "The three main flows of the supply chain are the product flow, the information flow and the finances flow. These occur across three main stages: strategy, planning and operation. SCM involves coordinating and integrating these flows both within and among companies."⁴

Thinking of supply chain activities in terms of flows highlights the importance of collaboration throughout the supply chain network.

By definition, supply chain management processes rely on cross-functional teamwork and communication. In today's interconnected marketplace, the need for a common understanding of the resources and goals of a supply chain extends beyond the boundaries of the company to include its supply chain partners.

To meet this need, supply chain professionals have developed a framework of standard processes and metrics for planning, sales forecasting, and inventory management. Sometimes referred to as CPFR, which stands for collaborative planning, forecasting, and replenishment, the framework improves communication among supply chain partners, facilitating smooth supply chain operations.⁵

Technology plays a pivotal role in Supply Chain Management, acting as the backbone that connects the various elements of SCM. Today's technology enables real-time inventory tracking, monitors manufacturing and logistics equipment for preventive maintenance, and manages customer orders, shipping, and returns. It also facilitates the integration of systems for enhanced visibility across the entire supply chain. As IBM stated on its website, "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."⁶ Today, technology is not just an auxiliary element but central to the efficiency, effectiveness, and profitability that are the goals of SCM.

Global supply chains grew alongside transportation and communications advances over several decades. They offer businesses many potential benefits but also increase complexity and vulnerability. Potential advantages include cost reduction, increased flexibility, improved quality, enhanced efficiency, and expanded market reach.⁷

The complexities of global supply include the intricate nature of managing many stakeholders, regulatory risks tied to compliance with international laws, lack of visibility in tracking goods and services, language and cultural barriers, security threats like cyberattacks, and high shipping costs.

The extreme disruption caused by the COVID-19 pandemic highlighted the vulnerabilities and cross-border challenges that come with the advantages of global supply chains.

COVID-19 brought supply chain vulnerabilities across sectors into sharp focus. Many weaknesses that existed before the pandemic continue to expose organizations to risk as new threats develop.

The World Economic Forum identified current global supply chain challenges in a 2023 website post.⁸ Geopolitical tensions are among the key issues cited in the report. The conflict in Ukraine is disrupting supply chains, contributing to a surge in energy and food prices, and deepening a worldwide food crisis. Ongoing tensions between China and the U.S. are also impacting electronics and automobile supply chains.

Climate change presents another substantial challenge. Droughts are lowering cargo capacity and stretching delivery timelines on major river shipping routes around the globe. Extreme weather events like hurricanes pose threats to key Atlantic Ocean shipping routes. Changing climate patterns are also having a significant impact on global food production.

Around the world, workers whose budgets are strained by rising prices are demanding higher wages, with labor actions further complicating the supply chain management process.

What are key supply chain management considerations and strategies that support resilient operations? McKinsey & Company identified four significant sources of risk exposure to monitor and defend against, including:

• Force-majeure shocks such as natural disasters
• Macropolitical disruptions like economic shocks
• Malicious acts such as cyberattacks
• Fragile suppliers and trading partners⁹

To address these risks, McKinsey advised establishing supplier databases across different tiers, supply-chain risk-management teams that regularly review risk scenarios, and well-defined communication interfaces between these teams and other organizational functions.

Ethical considerations and sustainability are increasingly important for modern supply chain management. Research published by the business consultancy Deloitte in the summer of 2023 highlights the relationship between stakeholder perceptions of an organization's reliability, transparency, capability, and humanity with the organization's business performance.¹⁰ Two key report recommendations are that organizations invest in technology to improve visibility—especially concerning the environmental impact of operations—and adopt a human-centric approach to foster trust among supply chain partners and stakeholders.

These recommendations mirror the leadership approach of Seattle University's Albers School of Business and Economics, which seeks to drive purposeful, sustainable innovation through ethical, people-centric business practices. The Supply Chain Management course (OMBA 5300), a part of the Online MBA curriculum, offers a deep dive into aspects like supplier selection and development, ethics, negotiation, just-in-time methods, and legal concerns, thereby equipping students to navigate and make impactful decisions in the complex landscape of global supply chains.

Take the lead in meeting today's business challenges with an Online MBA from Seattle University's Albers School of Business and Economics. The comprehensive curriculum builds on conventional business knowledge and strategies, training you in the ethical, people-centric practices that drive successful, sustainable innovation. Gain the skills to navigate complex global supply chains and effectively manage business risk. Become a resilient business operations leader and help create a more ethical, sustainable global economy with the Albers Online MBA program. Talk with a member of the admissions outreach team or download a brochure for more information.