January 29th, 2021
What is supply chain management (SCM), exactly? And just to be clear, this isn’t a rhetorical question.
Definitions have changed significantly over the years. But don’t worry—you won’t find a list of lengthy, historical textbook descriptions here. Instead, think about what supply chain management means to you in the present, amid some of the most unpredictable months in corporate history.
It’s highly unlikely that any two professionals will come up with the same response. Aside from the three out of four businesses that have reported supply chain disruptions due to the COVID-19 pandemic, every business has its own history with supply chain management and has learned different things along the way. Hence, supply chain management is approached in countless ways and can’t be condensed into any single, correct definition.
Reactive vs. Strategic SCM
Even though supply chain management is a broad term, it can be narrowed down to two very different approaches: reactive and strategic.
Reactive supply chain management is unfortunately what many businesses have been tasked with when the COVID-19 pandemic began to initiate drastic changes in day-to-day operations. The name is as it sounds; when something goes wrong, a business attempts to fix it in response. In normal circumstances, it may be possible to keep your supply chain running with this approach. Today, it’s pretty much impossible. With an influx of supply chain disruptions to react to, it simply isn’t feasible.
On the other hand, strategic supply chain management is an ongoing, planned approach. It doesn’t occur in response to disruption but rather recognizes that disruption can happen at any time. With this approach, the goal is full transparency from start to finish. In other words, a business aims to be aware of everything that is happening with anything or anyone that could possibly affect the final product reaching the end customer as planned. As already stated, it’s more than challenging to define the in-between.
SCM and Supplier Management
There are benefits of supply chain management, of course. But it’s a little naïve to believe that a business will notice these benefits regardless of how they implement SCM. With that in mind, it’s important to take the right approach. Realizing how suppliers can influence a business is a good first step.
Depending on the size of your organization, you may have a supplier network that consists of hundreds of thousands of individual businesses—a much higher number than in the past. Thinking in terms of your end product, unexpected delays and other occurrences for any one of these business could impact your bottom line. That’s true no matter how many suppliers you have, and that’s why it’s so important to develop a foolproof supplier strategy from the very beginning.
Strategic Supplier Management
Just as there’s strategic supply chain management, there’s strategic supplier management. This goes hand-in-hand with the former and aims to develop and maintain a supplier strategy that, in short, minimizes risk. This involves vetting, qualifying, and ultimately choosing suppliers that align with your business strategy. Furthermore, it involves collaborating with these suppliers and building a solid, trusting relationship.
In today’s society, there’s a lot more that goes into choosing a supplier than meets the eye. Aside from determining if a supplier is able to meet your materialistic and financial business needs, it’s also increasingly important to understand if a supplier is able to live up to the ethical side of your organization. With a strategic approach to supplier management, you can avoid the majority of unpleasant situations that arise from insufficient supplier qualification. Additionally, it enables you to start building long-term relationships with suppliers so that you can improve your operational processes over time.
Supplier Management Best Practices
It’s certainly not fair to put all the pressure on your suppliers; responsibility goes both ways. Staying on top of what you can control is a critical component of successful supplier management. For starters, make sure to get off on the right foot by ensuring a smooth onboarding process. After that, make payments on time and keep your suppliers informed of anything that may impact their own operations.
If you know who you’re in business with, it becomes slightly easier to understand what you need to do to keep your supply chain operating efficiently. When both parties are on the same page and are likewise equally committed to meeting set expectations, prosperous collaboration will come naturally. If there’s transparency, that is.
Supply Chain Visibility
It’s one thing to keep your suppliers informed and vice versa. It’s something completely different (and much more complex) to achieve full transparency and visibility throughout your supply chain.
Most supply chain professionals primarily collaborate with Tier 1, or direct, suppliers. However, 40% of supply chain disruptions occur among Tier 2 to Tier 10 suppliers. This often causes supply chain visibility issues because businesses simply don’t have access to indirect supplier data—but this is changing.
More and more supply chain management strategies are emphasizing end-to-end, or start to finish, visibility. This involves extended collaboration to achieve smart connectivity and integration with suppliers beyond the first line. Along with establishing deeper relationships with suppliers, advancements in AI and machine learning and breaking down barriers to provide real time insight into supply chain operations.