Supply Chain Management

Planning demand, managing production, monitoring supply chains, optimizing inventories, carrying out integrated company-wide planning and always keeping an eye on profitability with optimal service levels - these are all challenges of modern supply chain management.

The key topics for successful supply chain management will be highlighted on the following pages, including sales planning, sales & operations planning, inventory management, production and capacity planning and, in times of ever shorter innovation cycles, the management of new product introductions.

If you are interested in the practical implementation with the help of the latest software solutions for integrated business planning, go to our SCM solutions and read on under "SAP IBP".

For a more basic approach to the topic, however, we first want to answer the question:

There is no uniform definition of supply chain management (SCM). On the contrary, there are numerous definitions, some of them very theoretical [1], which invite academic disputes but are of little help in practice. 

For the implementations of supply chain management solutions, it has proven useful to follow a simple definitional approach focused on the supply chain network (Harland 1996 [2]):

"Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers."

For a purely "technical" implementation of supply chain management processes and systems, this simple pragmatic definition may suffice, but modern supply chain management also emphasizes the coordination and integration of all members along the supply chain and focuses on cross-functional as well as cross-company business processes in order to achieve value creation benefits for the entire supply chain [3].

Therefore, we like to base our implementation projects on the following definition of the Council of Supply Chain Management Professionals, which takes into account all those aspects that should be covered by state-of-the-art supply chain management solutions:

"Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement and production, as well as all logistics management activities. Of particular importance are the coordination and collaboration with business partners, which can be suppliers, intermediaries, third-party providers and customers. In essence, supply chain management integrates supply and demand management within and between companies." [4]

For examples of how this can be done in practice, see SCM Solutions on our website.

SCM and logistics are equally concerned with the management of material, information and value flows along the various sections of the supply chain, aiming at optimising customer benefits and improving economic efficiency system-wide, so that the two terms are often used synonymously.

But compared to classical logistics, modern supply chain management offers a qualitative difference: logistics primarily considers the material and value flows within the boundaries of the individual company and takes less account of the coordination of independently acting entrepreneurial units along the entire value chain. This is rather the domain of supply chain management. In addition, supply chain management takes into account other business functions such as marketing, production, accounting, controlling, even research and development and - last but not least - corporate management.

These differences can also be seen in a historical view of the development of software solutions for ERP and SCM systems: From the early 1980s to the late 1990s, ERP (Enterprise Resource Planning) systems with individual components for logistics within a company dominated the market. Taking SAP as an example, R/3 with modules for materials management and procurement (MM), sales and distribution (SD) and production planning (PP) can be mentioned. Cross-divisional planning functions (S&OP) or functions integrating across company boundaries (e.g. VMI via EDI) were only available in basic stages. Read more on our ERP page under "SCM with SAP ERP and IBP".

At the beginning of the 2000s, systems were added that expanded logistics to include true supply chain management across company boundaries, such as SAP APO with the components SNP (Supply Network Planning) and SNC (Supplier Network Collaboration). Details can be found on our page with the SCM solution "SAP APO".

Only recently, since the beginning of the last decade, have SCM solutions appeared on the market that cover the entire spectrum of modern supply chain management and go far beyond classic logistics with cross-business functions for integrated business planning.

These cover supply chain management in all its depth up to tactical and strategic management, which encompasses a time horizon of several months to years, whereas classic logistics concentrates preferably on operational management, which is typically characterised by corporate decisions in a time horizon of days or weeks and is therefore located more in the execution systems for procurement, inventory management, production and sales (in SAP, for example, in R/3, ECC or S/4 in the corresponding modules MM, PP, SD as well as WM or EWM).

Looking at supply chain management from the beginning to the end of the supply chain, it is divided into different sub-processes, starting with product development, through procurement and production to distribution.

Product development

From a supply chain management perspective, product development is not only about establishing a procurement process for the new product and selecting suppliers, but also about planning the product life cycle and predicting future sales. This is a particular challenge for innovative products, for which there is usually no history of comparable products, as explained in the section on product life cycle management.

Procurement

The primary task of supply chain management in procurement is to plan and manage the supply of all necessary resources to the company. This is usually a typical optimization problem, since the costs of procurement (transport costs, storage costs, etc.) always run counter to the demand for constant availability and high delivery capability.

Inventory management

The new approaches and advanced methods available to solve this problem are discussed under Inventory Management and the corresponding tools and solutions are presented at "IBP for Inventory".

Production and capacity planning

On the one hand, the planning and use of production resources (men, machines and materials) is important for the production area, where it is important to plan the available capacities as realistically as possible and to create economical batch sizes (for more on this, see Production and Capacity Planning and Economic Order Quantity). On the other hand, the threads from procurement and sales come together in production, so that supply (material availability, production capacities, inventory) and demand (sales plan, customer orders, distribution requirements) must be brought into balance for optimal production execution.

Sales & Operations Planning SOP

This is achieved through an orchestrated sales & operations planning process as part of supply chain management, which not only operates company-wide and across departments, but also integrates the perspectives of financial planning and controlling, so that management can always focus on the goal of highest possible profitability.

Demand planning

At the end of the supply chain is the sales department, which in the first step must focus on creating a sales plan that reflects the expected demand on the market as realistically as possible. This is the starting point of supply chain management and the quality of the entire supply chain management stands and falls with the quality of the demand plan.

More on the challenges of creating a sales plan and the benefits of product segmentation within this process are presented under Sales Forecasting and Product Segmentation.

Distribution, transport and route planning are also part of the SCM endpoint. However, since these typically take place within a short-term time horizon of a few days to weeks and are primarily concerned with operational processes, this area can also be assigned to classical logistics.

[1] Brian J. Gibson, John T. Mentzer, Robert L. Cook: Supply Chain Management: The Pursuit of a Consensus Definition. In: Journal of Business Logistics. Vol. 26, No. 2, 2005, S. 17–25.

[2] Im englischen Original: …the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers…. Harland (1996).

[3] Robert Frankel, Dag Näslund, Yemisi Bolumole: The ‘White Space’ of Logistics Research: A Look at the Role of Methods Usage. In: Journal of Business Logistics. Vol. 26, No. 2, 2005, S. 185–208.

[4] CSCMP Supply Chain Management Definitions (Memento vom 8. Dezember 2012 im Internet Archive), CSCMP, abgerufen am 30. November 2008.