Last Updated on March 25, 2023 by Ashish
In short, a supply chain is a system that produces and delivers a product or service. This usually begins with sourcing raw materials for the final product or service delivery to the final consumer.
What Is Supply Chain Industry?
A supply chain is a complete network of human resources, organizations, material resources, jobs, and technology involved in the making and sale of a product. The supply chain segment involved with getting the finished product from the manufacturer to the consumer is known as the distribution channel.
Supply Chain Steps
There are some general steps in the supply chain.
- Procuring raw materials
- Altering the materials into basic parts
- Combining the basic parts to create a product
- Marketing and selling final products
- Deliver final products to end users
- Providing customer support and return services
Activities in Supply Chain Management
In the steps outlined above, there are a plethora of activities being done to meet their end goal. These activities are:
- Contract writing and signing
- Logistics to move materials and products
- Product storage such as large warehouses
- Stock and inventory tracking and management
- Supply and demand management
- Tracking orders
- Constant and consistent customer support
- And more
Main Supply Chain Modes
There are many supply chain modes that an organization can choose from. They can choose the mode that best suits their organization’s needs and structure. Some of the main supply chain modes are:
- Continuous Flow Model: This model is best suited for organizations that produce products that have little variation, are in high demand and require little to no redesign. In this model, the company must have a regular and consistent flow of raw materials to prevent production and delivery bottlenecks.
- Fast Chain Model: This model is most suited to companies that sell products that change with the trends. Since trends come and go very quickly, this model helps them to rapidly proceed from idea to prototype, to production, and finally to the consumer. One industry that uses the fast chain model is the fast fashion industry.
- Flexible Model: This model is best suited to companies that manufacture products by season or holiday. During a special season or holiday, the products will be in high demand and these companies will experience a surge in sales. Then, once the season is over, the company experiences little to no demand for long periods of time. The flexible model allows them to begin production quickly during the on-season and shut down efficiently and cost-effectively during the off-season. To be profitable and avoid loss, the company must be very precise in forecasting demand, raw material needs, inventory, and labor.
- Efficient Model: This model is for companies that require end-to-end efficiency. This model is heavily dependent on production forecasts and raw material prices.
- Agile Model: This model is suited for manufacturers that produce specialty items. These specialty items are produced in small batches and require less automation and more expertise.
- Custom Configured Model: This model provides a customizable model, especially during assembly and production. It combines agile and continuous flow models.
Supply Chain Management (SCM)
SCM is a management method or system that manages the flow of products and services from raw materials to final products. The aim of the SCM is to ensure efficient and economical supply chains. There are five parts of SCM.
- Planning – Planning is important to match supply with customer and manufacturing demands. Companies must plan their future needs and act based on those planned needs. This includes raw materials needed, equipment capacity, equipment limitation, and labor.
- Sourcing – Sourcing is working with vendors to supply the company with raw materials that are needed. This step ensures that the materials meet the manufacturing specifications, ensure that the price of goods is within market expectations, and ensure the vendor has a proven record of delivering materials based on the planned date and time with good quality.
- Manufacturing – The raw materials are transformed into usable products by using machinery and labor. This process includes assembly, testing, quality inspections, packaging, and more.
- Delivery – This distribution process is focused on delivering the final products to customers. The company must have solid logistic capabilities to ensure safe, affordable, and timely delivery. This step must include backup plans in case of emergencies such as sudden natural disasters.
- Returning – The SCM process ends with product returns and customer support. The company must ensure that it has the quick and efficient capabilities to receive returned items and provide the correct refund.
Traditional Supply Chain Management
Traditional SCM is very dependent on on-premise environments. It is a linear and fairly rigid approach to planning, designing, sourcing, creating, and delivering products.
The team sources materials and then provides them to the manufacturer. After that, the product is sent to a retailer to deliver to customers. Any issues along the linear system are dealt with manually and at the moment the issue occurs. This makes the management process much more difficult especially if large volumes of products are involved.
The list below notes the characteristics of a traditional supply chain.
- Demanding interventions, modifications, and workarounds as requirements change
- Operates based on historical transactions
- Relies on standalone systems with little to no data-sharing.
- Focuses only on production and provision
- Uses intermediaries in the global supply chain
- The next supply chain step can proceed only after the previous step is complete.
- No tools to manage logistics and system
- Linear process: First, procure raw materials. Then, send the materials to the manufacturer. Next, manufacture the actual products. After that, products are shipped to distributors. Finally, products are sold to the end consumer.
- Fixed and not flexible
- Not adaptive to fast changes
Drawbacks Of Traditional SCM
Nowadays, customers expect an abundance of choices, fast delivery, and fast returns. Product life-cycle is also becoming much shorter than before. Hence, the traditional SCM model is not capable of handling the constantly-changing demands.
Traditional SCM is also not optimized. It does not have the intelligence to know if there is a problem along the supply chain. Without this capability, traditional SCM cannot solve problems on the spot which leads to bottlenecks that ultimately lead to wasting resources and time.
Even after the problem is found, it might be too late to fix it. This causes delays, increases error reduces customer satisfaction, and decreases profit. In this digital era, consumers expect fast delivery with minimal issues. Hence, sticking to a traditional system will cause problems for the organization. Below are other disadvantages of traditional supply chains.
- Limited visibility
- Lack of real-time data
- Reduces accountability
- Not flexible and cannot adapt to quick changes in demand
- Less responsive to changing markets
- Higher cost and lower profits
- Poor logistics efficiency
- Information not transparent or inaccurate
- Unreliable documents
- Slow access to data or information
Modern Supply Chain Management
With advancements in technology, SCM is entirely digital which leads to modern SCM. It consists of digital, collaborative, adaptive, and modular tools that guarantee flexibility in the supply chain and visibility of information to stakeholders.
The modern supply chain is not linear like the traditional supply chain. It is actually much more complex with interconnected networks between different stages of the supply chain. It is designed to be flexible and quick in delivering products as per demand.
Artificial intelligence, data analytics, advanced interfaces, Internet of Things are some of the modern technologies used as part of modern SCM. These technologies allow for quick information transfer between different parts of the supply chain. Advanced data analytics can also be performed on historical data to make an accurate forecast of future supply and demand trends. Information from data analytics can then be used to efficiently manage resources, time, and labor.
The list below notes the characteristics of a modern supply chain.
- Focuses on the customer’s needs rather than only on production
- Fast production and delivery
- Uses highly advanced and integrated systems and tools
- Uses logistics management systems to ensure efficient delivery and returns
- Able to do predictions and forecasts
- Scalable production
- More product visibility
- Ability to match the inventory with demands
- Rely on data and technology
Modern SCM Tools
Shopping for items online is normal now. Customers expect to receive products as quickly as possible, sometimes even next-day delivery. Hence, the supply chain system must be efficient, flexible, and able to resolve issues quickly to meet customer expectations. Hence, the modern SCM model is the model to choose to keep up with the fast-paced world.
There are many solutions available for organizations to adopt into their SCM system to keep up with the constantly evolving supply and demand. Modern SCM uses many tools at once to provide insight to the company in order to make more informed decisions that can increase profit, reduce cost and improve customer satisfaction. Some essential tools that can improve modern SCM are listed below.
- Shipping status alert – This tool is very popular among consumers as it provides real-time information on the status of shipping. Stakeholders and companies also benefit from shipping status alerts as it gives insight into shipping problems.
- Lean inventory tools – Lean production is a concept where companies only create what is needed based on forecasted customer demand. This is to optimize production, optimize warehouse space, and inventory. Lean inventory tools can provide forecasts, materials planning, and simulation tools to gain deeper insight into your current and future supply chain.
- Analytics and reports tools – These tools can analyze your entire supply chain. It provides full visibility on inventory as well as on the company’s health and performance. Many decisions that can be vital to the supply chain can be made by analyzing the insights provided by analytics and reports tools.
Advantages Of Modern SCM
Even after the problem is found, it might be too late to fix it. This causes delays, increases error reduces customer satisfaction, and decreases profit. In this digital era, consumers expect fast delivery with minimal issues. Hence, sticking to a traditional system will cause problems for the organization. Below are the benefits of modern supply chains.
- Allows extra time for creating partnerships
- Creates and provides value to the product
- Progresses faster and rapidly
- Better collaboration with vendors
- More transparent to stakeholders, partners, vendors, and customers
- Better quality control
- Optimizes processes
Efficient Supply Chain Management Systems
Efficient supply chain management can better protect an organization’s business, and reputation and ensure long-term sustainability.
Simon Ellis in The Path to a Thinking Supply Chain identified five “C’s” of an effective SCM of the future.
- Connected: An efficient SCM system must be able to access data from social media, Internet of Things interfaces, and physical and cloud databases. Once the data is accessed successfully, the SCM should have tools to manipulate that data to provide meaningful insight that can improve SCM.
- Collaborative: Collaboration between suppliers, vendors, manufacturers, logistics, and customers is high in an efficient SCM system. Cloud-based commercial networks are one technology that enables multi-enterprise collaboration.
- Cyber-aware: The SCM system must have the means to detect and defend against cyberattacks, hacks, and threats to protect it from data breaches and security issues.
- Comprehensive: A good SCM has analytic capabilities that can be scaled with data in real-time. Insights found from analytics are comprehensive.
- Cognitively enabled: Uses artificial intelligence as the main platform to control the supply chain. The AI is used to collate, coordinate and conduct decision-making across the chain. Ultimately, the SCM is automated and self-learning.
Importance Of SCM
Let’s break down the importance of modern SCM and how it affects industry and humankind.
- Boosts customer service – Modern SCM is more transparent than traditional SCM. Hence, customers are able to obtain more information on product assortments, quantities, delivery status, and more. The supply chain can thrive only when the customers are satisfied. Hence, customer service is a vital aspect of supply chain industries that need to monitor.
- Reduce operating costs and losses- SCM decreases operating costs such as purchasing costs, production costs, and total supply chain costs. Retailers depend on the quick and correct delivery of products to avoid costly inventory and bottlenecks. Wrong product delivery will increase the cost of returns and logistics. Manufacturers depend on the supply chain to supply materials without delay because delays can lead to profit loss or worse, plant shutdown.
- Improve cash flow – Efficient SCM can exponentially speed up product flow to customers and increase profit.
- Sustains human life – Human life heavily depends on supply chains to deliver basic needs such as food, water, medicine, and materials for building infrastructures. During a tragic natural disaster, the supply chain can also be affected, leaving millions deprived of clean food and water.
- Positive impact on the economy – Only an efficient supply chain system can deliver quality materials between businesses and consumers quickly and at a low cost.
Cloud Computing In Supply Chain
Since the supply chain is very important to businesses, the supply chain is constantly being improved by various methods. Just like in Education, Cloud computing is a prominent method applied to improve the supply chain system. Cloud computing improves the supply chain through cloud infrastructures, platforms, applications, and software solutions.
Some of the supply chain activities optimized by cloud technology are listed below.
- Forecasting and planning – Forecasting supply and demand is an important part of a supply chain as it helps companies to plan supply and production. In this activity, the cloud helps by allowing seamless data collection and centralization from customers, retailers, manufacturers, and wholesalers. These data can then be used as input to an artificially intelligent system that can create supply and demand predictions.
- Logistics – Poor logistics can greatly affect the supply chain. Even end consumers can feel the negative effects of poor logistic management such as product delivery delays. Cloud computing improves logistics management by providing a cloud platform for creating product tracking applications, tracking logistic operations, automatic inventory management, and transport route optimization.
- Sourcing and procurement – Cloud services can be used as a centralized database that stores all information on available supplies, supplies that are running low, information on vendors and status, and more. Cloud services can also automatically order repeating materials which saves time and reduce delay.
Cloud Services Offering Supply Chain Solutions
Major cloud providers have cloud services that can cater to improving and optimizing supply chains. They also offer training solutions for your team to become proficient in cloud computing technologies. Below are some of the major cloud providers and their recommended cloud services for the supply chain.
With Google’s digital supply chain solutions, it can make the supply chain resilient, sustainable, and transformative and at the same time, improve customer experience. Some supply chain companies that use Google Cloud are UPS, The Home Depot, and Renault Group. The solutions provided by Google Cloud for the supply chain are as below.
- Understand customer needs using Google Cloud’s marketing analytics and AI solutions such as BigQuery and Vertex AI
- Improve customer experience using Google’s Contact Center AI
- Innovate and optimize processes using Google Vertex AI
- Smart warehousing, asset tracking, and fleet routing using 5G and Google’s cloud networking products
- Predict and respond to risks using Google’s Streaming Analytics
- Become sustainable using Google’s Carbon Sense suite
- Create a control tower for full visibility using Google’s Supply Chain Twin and Pulse
- Automate procurement using Document AI
- Increase user productivity and anticipate issues using Google Looker
AWS services and their partners provide end-to-end visibility to meet modern-day supply chain needs with excellent efficiency. Their solutions aim to improve supply chain efficiency and resilience with purpose-built analytics, machine learning, and automation. The cloud solutions provided by AWS for the supply chain are:
- Automatically produce forecasts and generate visualization dashboards using AWS CloudFormation on Amazon Forecast
- Efficient data storage and informative data analytics using Data Lake on AWS. Data Lake on AWS automatically configures core AWS services to ease data manipulation within and across organizations.
- Amazon OpenSearch Service for robust search capabilities
- Amazon Cognito for authentication
- AWS Glue for data transformation
- Amazon Athena for analysis
Oracle Cloud Logistics
Oracle SCM and Manufacturing provide organizations the ability to quickly respond to changing supply, demand, and market conditions. It allows for seamless connections between supply chains to create a resilient network.
The benefits of Oracle cloud supply chain management are:
- Optimized business performance – Oracle cloud SCM improves forecast accuracy, collaboration, and visibility.
- Resilient supply chain planning, manufacturing, and execution.
- Adaptable to changing market conditions
- Use customer experience, operations, machine, and product data for trend prediction, modeling, and planning.
- Deliver exceptional customer experience.
Some of the many Cloud services provided by Oracle to improve the supply chain are:
- Oracle Fusion Cloud Supply Planning – provides robust planning features, manages order backlog, and effective collaboration across internal and external suppliers
- Oracle Fusion Cloud Demand Management – Use this service to sense demand to improve visibility, predict demand to generate forecasts and create robust plans, replenish to meet demand-driven inventory targets, and more.
- Oracle Fusion Cloud Sales and Operations Planning – Enable supply chain to integrate business plans and speed up decision-making, enable continuous planning using simulations, and improve profitability and customer service
- Oracle Supply Chain Collaboration – This service allows many partners to collaborate on a common platform, provides flexible infrastructure, simplifies communication, and has a powerful B2B platform to extend the supply chain.
- Oracle Fusion SCM Analytics – A prebuilt cloud-native solution that helps supply chain professionals uncover underlying drivers.
Now, let’s take a look at some case studies from a few major cloud service providers related to the supply chain.
Google Cloud: The Home Depot
The Home Depot (THD) is the world’s largest home-improvement chain with 700,000 products in 40 years. Much of its success was driven by data analysis which included sales forecasts and replenishing inventory through the supply chain network.
THD’s existing on-premise data warehouse was under stress as larger volumes of data were needed for analysis. This drove THD to expand its data warehouse which created new challenges in managing properties, performance, and cost.
In the end, THD chose Google Cloud’s BigQuery for its cloud enterprise data warehouse. When comparing performance, for the supply chain use case, on-premises data warehousing 8 hours to complete a task whereas BigQuery only took 5 minutes to complete the same workload. This reduced the time taken by 99%. Thanks to Google’s cloud services, THD was able to get more tasks done while improving performance and saving costs.
AWS: Carrier and AWS Collaboration To Improve The Cold Chain
On October 8, AWS and Carrier announced their collaboration to develop Lynx, a digital platform that unified fragmented cold chains. This platform aims to reduce food spoilage and provide end-to-end visibility through the various stages of refrigerated storage and transportation.
Large supply chains are networks that loosely connect providers. The technologies used also share little information with each other. Hence, gaps in the cold chain lead to spoilage and wastage. For example, if a food truck breaks down mid-route because of missed maintenance, food could spoil. There has to be a solution to prevent these issues from occurring.
The Lynx digital platform uses AWS IoT, machine learning, and analytics to produce an intelligent and connected cold chain. The intelligent cold chain can better match supply with nearby refrigerated trucks based on location, provide more efficient routes, improve fleet utilization, provide proactive alarms and deliver recommendations to reduce spoilage.
Oracle Cloud Logistics: Bissell
Bissell uses Oracle Cloud SCM to improve forecasting and product lifecycle management as well as adapt its business to global disruptions. Due to COVID-19, a larger percentage of its sales were through online means. The online orders surge needed improved forecasting and product lifecycle management systems. Before implementing cloud solutions, employees used disconnected offline systems which led to many issues.
Bissell moved to Oracle Cloud SCM and used applications to improve product lifecycle management. Then, it expanded usage by adopting Oracle Cloud Demand Management for more agile and accurate forecasting, stronger demand planning, global standardization, and data-driven decision-making. Now that they’re on the cloud, everyone is aligned and connected. Not only that, Bissell no longer needs to wait eight hours for IT to process data.
DataBricks: Revolutionizing Fashion With AI
H&M is a very big company in the fashion and retail industry. With the rapid stores opening everywhere, they needed to improve the supply chain, and forecast operations more accurately to streamline costs and maximize profit. Previously, H&M used an on-premise Hadoop system. However, this system was not able to analyze data generated by millions of customers. Hence, H&M moved to Databricks Unified Data Analytics Platform to simplify infrastructure management, enable scalable performant data pipelines and make more data-driven decisions.
Databricks Data Analytics Platform on Azure provided H&M with a scalable and collaborative environment, a fully managed platform with automated cluster management, and a collaborative notebook environment with support in multiple programming languages.
Databricks provided H&M with many improvements and some of them are improved operation efficiency, better cross-team collaboration, and huge business impact with faster time-to-insight. With Databricks, they were able to reduce operational costs by 70%.
IBM provides intelligent workflows to improve supply chain processes through AI and blockchain. Some of IBM’s supply chain products are IBM Sterling Order Management, IBM Sterling Supply Chain Business Network, IBM Blockchain Transparent Supply, and IBM Supply Chain Intelligence Suite.
JOANN stores used IBM supply chain services to navigate their large online business. Before the pandemic, customers can purchase fabric online and then collect their fabric at the physical store. However, during the pandemic, almost half of JOANN chains had to be closed. So naturally, their online channel experienced a sharp surge that they had never experienced before. Luckily for JOANN, they subscribed to IBM Sterling and IBM helped handle volume peaks.
With IBM Sterling Order Management, JOANN could see what inventory they had available, fulfill orders efficiently, and strengthen its mail delivery system. Sterling also gave JOANN near real-time visibility of existing inventory, both in-store and in warehouses. JOANN could also advise updates and delivery times to customers, even during supply chain disruption.
Bosch, an expert company in the Internet of Things developed a solution that provides supply chain transparency to all parties involved, called Track and Trace. It is a Java-based solution that provides real-time data on the location of transported items. Now with growing demands, Track and Trace have moved to Azure Spring Apps which is fully managed.
The switch to a managed platform provides Bosch engineers zero worries on infrastructure maintenance and they can focus on their own jobs and respond quickly to customers.
Azure Spring Apps has scalable features that make it simpler to run Java Spring applications and optimize cost at the same time. Azure provided support for comprehensive monitoring and diagnostics, configuration management, continuous integration and deployment, life cycle management, and more. Additionally, the Azure Spring Apps helped the small Track and Trace migration team meet deadlines. Philip Stussak from Bosch mentioned that the migration would not be finished by then if they had to deal with all the infrastructure that Azure Spring Apps handles for them.
We can see that online shopping is the new normal nowadays. And with millions of people purchasing products online every day, we know that the supply chain has to handle a lot of processes. A small hiccup along the chain creates a tidal wave of problems for the end consumers.
Thus, it is important for companies to ensure effectively, connected, robust and quick-responding supply chain management systems to mitigate issues in the chain. Cloud computing is a scalable, flexible, secure, adaptable, and effective method that companies should adopt in order to maintain and improve their supply chain system.