As products become increasingly commoditized in many industries, proper inventory management and shortening the time from production to delivery to customers are essential to differentiate from competitors and increase profits. Reducing inventory loss compared to competitors and delivering products to customers properly even one day or even one hour earlier will be a major differentiating factor.
This is where SCM (supply chain management) becomes important. In this article, we will look at the overview of SCM, which streamlines the entire flow of the supply chain, the background to its popularity, and the benefits and challenges of using SCM. If you are a company representative who is concerned about the efficiency of supply chain management, please refer to this article.
What is SCM (Supply Chain Management)?
SCM is an abbreviation for supply chain management, and is a management method to manage and optimize the entire process from procurement of raw materials to manufacturing, sales, and delivery of the product to the customer. Traditionally, many processes such as procurement of raw materials, manufacturing, and sales were managed separately, and efficiency was promoted through partial optimization.
However, nowadays, SCM methods are often used that integrate the entire process by utilizing systems to link related departments within a company and integrate the entire process, aiming for overall optimization.
Specifically, the supply chain is managed not only within the company, but also by linking with all related companies, including parts and material manufacturers, retailers, wholesalers from which raw materials are sourced, logistics warehouses, and transportation companies.
For example, the supply chain for manufacturing LCD TVs is as follows:
- Parts Procurement
- We procure parts such as LCD panels and backlights from multiple different suppliers.
- Manufacturing
- We assemble parts procured from multiple suppliers to create finished products.
- Storage and management
- This is the process of storing and managing the finished products. Sometimes this is done in a company's own warehouse, but recently there has been an increase in the use of logistics real estate for the purpose of improving efficiency and reducing costs.
- This is the process of delivering products stored in logistics warehouses to retailers and wholesalers in various regions. Transportation companies, airlines, ocean freight companies, etc. are involved.
- Customers purchase products through physical stores, online stores, or agents.
The purpose of SCM is to manage these processes and all related companies in one place, and to efficiently control costs, inventory, delivery dates, etc.
Why SCM (supply chain management) is gaining attention
There are several reasons why SCM has been attracting attention in recent years. The main four points are as follows:
Increasing number of companies expanding globally
As more companies seek overseas markets, cross-border exports are also on the rise. According to a survey on the overseas business expansion of Japanese companies released by the Japan External Trade Organization (JETRO) on January 31, 2023, 49% of exporting companies responded that their export volume will increase compared to the previous year in 2022. In addition, despite many uncertainties in the business environment due to war and the COVID-19 pandemic, 72.5% of companies plan to expand exports in the three years from 2022.
When it comes to overseas exports, product quality control, ensuring high logistics quality, and consolidating logistics bases are more essential than domestic distribution, so SCM is emphasized.
Advances in IT and digital technology
Advances in IT and digital technology have created an environment for real-time information sharing and collaboration between suppliers, something that was previously difficult, which is another reason why SCM is gaining attention. By utilizing SCM, it becomes possible to respond to changes in customer needs in near real time, which is attracting attention as it leads to improved customer satisfaction and differentiation from competitors.
Changes in business models
Many companies have already started e-commerce businesses, but this trend has intensified in the past year or two due to the stay-at-home demand caused by the COVID-19 pandemic. For example, companies that previously focused on B2B are increasingly selling and delivering products directly to end users (consumers), making it necessary to build and manage new flows from the traditional supply chain management, and the demand for SCM is also increasing.
Recent rise in raw material costs
In recent years, many industries have been affected by rising raw material costs. For example, according to a survey released by the Japan Finance Corporation on March 16, 2022, about 80% of companies in the food industry responded that costs have increased due to rising raw material costs. In addition, in the "Survey on Trends in Price Pass-through for Companies (December 2021)" released by Teikoku Databank on January 26, 2022, 64.2% of companies responded that their purchase prices have increased compared to the same month last year. An even bigger problem is that many companies are unable to pass on 100% of the rise in raw material costs to sales prices.
Therefore, if costs are not reduced as much as possible in the sales and distribution processes and efficiency is not improved, it will lead to a significant decrease in profits. Therefore, SCM is attracting attention as a measure to streamline the flow of the supply chain and reduce costs.
SCM (Supply Chain Management) Business Areas
The three areas of work in SCM are "prediction and planning," "execution and implementation," and "evaluation and monitoring." The following is an overview of each of these.
Forecast Planning
"Forecast planning" refers to making a product sales forecast based on past performance and the most recent sales situation, and creating purchasing, production, and sales plans based on that forecast. It is mainly done to prevent inventory loss and excess inventory.
Execution/Implementation
"Execution" in SCM means proceeding with operations in accordance with the proposed purchasing, production, and sales plans. The goal is to improve distribution efficiency and deliver products to customers quickly and in the required quantities.
Evaluation and monitoring
In SCM, the aim is to improve flows and information sharing between suppliers by evaluating and monitoring whether there were any deviations from expectations when the project was carried out and whether it proceeded smoothly.
Benefits and challenges of SCM (supply chain management)
We will explain the benefits of SCM and the challenges involved in its implementation.
Benefits of implementing SCM using a system
- Proper inventory management is possible. By analyzing data such as past performance and recent sales, proper inventory management becomes possible. Proper inventory management will also lead to increased profits.
- Reduced lead times: By managing information on each supplier in one place, you can make decisions faster and respond quickly to changes in supply and demand, resulting in reduced lead times.
- Improved traceability: The entire history of the supply chain will be recorded as data, which is expected to improve traceability. This will also enable quicker investigation of the cause of any problems that may occur, which will also help to gain the trust of customers.
Issues in implementing SCM
- SCM requires the introduction of a system, which increases the time and costs involved in its introduction and operation. In addition, the review and improvement of business processes that accompanies the introduction of the system requires that each supplier work in unison, which creates a major issue of time and effort required for coordination.
- SCM requires management of the entire supply chain, and because all supply chains are managed collectively, if a problem occurs with even one supplier, it can affect the entire supply chain. In order to prevent problems, it is important to constantly cooperate and share information.
The key to successful SCM (supply chain management) is for each supply chain to share goals
SCM (supply chain management) is a management method to manage and optimize the entire process from procurement of raw materials to manufacturing and sales. In the past, it was difficult to manage companies other than one's own company at once, but the evolution of IT and digital technology has made it possible, and in recent years, many companies have been introducing
SCM.
The purpose of SCM is to provide customers with higher quality products by consolidating supplier information and analyzing it in real time to properly manage inventory and shorten lead times. However, the introduction of SCM itself requires time and cost, and at the same time, there are various hurdles such as reviewing and improving business processes and collaborating with each supplier.
To overcome these challenges and realize SCM, it is essential to share goals such as providing value to customers and maximizing profits within the company and with suppliers. It can be said that the key to success in SCM is to first set clear goals and promote collaboration.
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