Supply chain management (SCM) is a sequence of processes in product distribution. It is a way of managing the flow of goods and services to and from your business in the most efficient and cost-effective way possible.

What is supply chain management?

The term 'supply chain management' describes overseeing all movement and storage of:

• raw materials needed to make a product or service
• work-in-process information and inventory
• finished goods from production, through distribution and to the customer

The main function of supply chain management is to optimise the flow of materials, information and financials in key areas of product distribution.

Key supply chain management processes

An effective supply chain management process involves five basic stages:

1. Planning

This involves creating strategic plans to manage all resources needed for getting your product or service to the customers. It also includes setting ways to monitor supply chain efficiency, including costs and delivery of goods or services.

2. Developing

During this stage, you choose suppliers of raw materials that you need for your product or service. You also develop your pricing, delivery and payment process, and build a strong relationship with your suppliers.

3. Making

This is the manufacturing stage of the process. It involves the production, testing and packaging of goods or services, and getting ready to deliver to customers. Monitoring is essential at this stage - including measuring product or service quality levels, production output and worker productivity.

4. Delivering

Delivery, or the logistics stage, covers all the steps from handling customer queries to choosing distribution and transport. For example, organising the receipt of orders from customers, developing a network of warehouses and carriers, and setting up invoicing systems for payments.

5. Returning

The final stage of the process involves receiving damaged products back from customers, including identifying product condition, authorising returns and giving refunds.

These processes can have a major impact on the success of your supply chain. You can use specialist supply chain management software to improve them and achieve efficiencies in your business.

Supply chain management software is a business tool that helps you manage your supply chain with greater efficiency. Most software systems have rich features that can streamline your supply chain operations from start to finish.

Types of supply chain management tools

Many different types of supply chain management software exist. Some come as a standalone application or program; others are a part of broader solutions, such as customer relationship and enterprise resource planning systems.

The most common features of supply chain management software include:

• Inventory management - for tracking and managing the availability of raw materials, stocked goods or spare parts. This feature can also help with asset management, barcode integration and future inventory and price forecasting.
• Order management - for automating purchase order processes. For example, generating and tracking purchase orders, scheduling supplier deliveries, and creating pricing and product configurations.
• Logistics and shipping status - for coordinating transportation channels, improving delivery performance and boosting customer satisfaction. Warehouse management features can help with storage optimisation, labelling, labour management and more.
• Forecasting - for anticipating customer demand and planning procurement and production processes accordingly. Efficient forecasting can help remove the need to buy unnecessary raw materials or store excess finished goods on warehouse shelves, hence reducing costs.
• Return management - for inspection and handling of damaged or faulty goods, and processing of refunds or insurance claims.

Many supply chain systems also include extra options or modules that can support other processes, such as contract management, product life cycle management and more.

Why is supply chain management software important?

With the right solution in place, you can maximise your business' cost-efficiency and productivity, and give your bottom line a boost. Read more about the benefits of supply chain management software.

It is important to remember that different businesses will have different needs and different reasons for using supply chain software.

Many businesses that rely on effective supply chain operations can gain major benefits from their software systems, including their supply chain management tools.

Advantages of using supply chain management software

A good supply chain management software can:

• help control and reduce costs
• alleviate risks, such as late shipments and logistical errors
• improve customer service and communication
• help with forecasting and decision-making

Supply chain software can also help:

• automate major processes, such as order processing, invoicing and shipment tracking, and therefore save time and reduce administrative costs
• identify excess materials or processes and possible cost savings in logistics, warehousing and manufacturing
• improve inventory management and lead to more effective demand planning
• improve on-time delivery by coordinating all activities across your supply chain
• improve responsiveness to unforeseen events, eg machine failures, staff absences, missing goods, urgent customer orders and human error
• provide management reporting and analysis to your fingertips
• provide visibility across the network (between suppliers, production plants, storage and distribution centres) to give you a better understanding of your processes
• support collaboration and communication between partners, suppliers, distributors

Read more about the key features of supply chain management software.

Disadvantages of supply chain software

Supply chain management software can be expensive, especially if you are upgrading or installing an enterprise system such as Oracle or SAP. You should consider the costs of the software, on-premise installation, as well as ongoing running and maintenance.

You can mitigate the costs somewhat by using, for example, open source supply chain management software, or Software as a Service (SaaS) solutions, which eliminate the need for in-house maintenance and expensive installations. Read more about cloud computing.

Software integration is another important consideration. It can often be difficult to integrate a new solution with existing systems. You may need to put in considerable time investment and training to set up and run the system.

As with any software purchase, the needs of your business should come first when choosing a solution. See how to choose supply chain software.

Not every business will get enough benefits from supply chain management software to justify the investment. You should consider your business requirements to see whether the investment would be worth your while.

Do you need supply chain software?

To determine if you need software to help you manage your supply chain, you need to:

• map your supply chain - ie identify the processes involved in the supply chain
• measure how well they perform
• compare this performance with best practices and market needs

When carrying out the mapping exercise, make sure that you consider the different process types. These include:

Planning

Planning is a process that's carried out for the long term. It balances combined demand - across all customers for all products - with resources, to ensure that appropriate resources are in place to fulfil requirements when they arise.

Execution

These are processes initiated by actual customer demand or, in some cases, planned forecasts. They include scheduling manufacturing and fulfilment processes, and the movement of products, materials and components.

Enabling

These processes prepare and manage the information and relationships upon which planning and execution rely. For example, agreeing on common terminology, ways of expressing size and quantity, and more.

Understanding these processes will help you evaluate the likely benefits to your business from the use of supply chain software.

Supply chain mapping

Mapping your supply chain is not only important for compliance and regulation, but it can also help you gain greater visibility, monitor potential threats and avoid possible disruption.

Begin mapping your supply chain by charting the flow of goods and information through your business. Identify:

• areas where you need to share information with partners
• bottlenecks in your supply chain

Work out costs associated with your supply chain, such as:

• transport
• distribution
• warehousing
• inventory costs

Use this information to identify where supply chain software will bring the greatest benefits, what business functions you want it to support, and if this justifies the cost of implementing the software. See also how to choose supply chain software for your business.

Software can play an important part in improving supply chain processes. However, taking on new technology generally brings with it some level of risk, especially if it challenges existing processes and business culture.

Common problems in the implementation of supply chain software

Challenges with the implementation of new software commonly include:

• suppliers and partners unwilling to compromise
• staff struggling to adjust to new processes and tools
• lack of practice and training before implementation
• difficulties with communication internally and externally
• customers' concerns, issues and poor experience

To avoid these risks, you should consult, negotiate and communicate with all members of the supply chain before the new system goes live.

Success factors for new software implementation

As a first step, consult with both your suppliers and your customers. Some businesses may not be used to sharing the volume of information that supply chain software is capable of transferring. Customers may also highlight existing problems with your current system, and suggest ways to improve it, removing the need to invest in new software.

Cultural change and better information sharing can address many common supply chain issues. For example, you can negotiate agreements with customers and suppliers. These make a general framework to cover multiple purchases, allowing for products to be ordered or cancelled as and when needed without needing individual purchase contracts. You may then identify changes to quantities, intervals and delivery patterns that benefit all parties.

You can share information between supply chain partners on:

• inventory levels
• demand forecasts
• customer orders
• delivery information

Cultural challenges

Within the organisation, changes to purchasing processes can transform supply chain performance. Keeping stock to a minimum, or the availability of material at an optimum level, can reduce costs and improve performance, avoiding the need to implement new software.

Before you decide to roll out new supply chain technology, make sure that you have valid reasons to use supply chain software.

Different businesses will have different needs when it comes to supply chain software. It may be that all you need is software to handle electronic document exchange, eg purchase orders conforming to a standard format such as eBIS-XML.

At the other end of the scale, software systems can integrate an entire supply network and automatically transmit customer orders throughout the entire supply chain.

Supply chain management planning software

Supply chain management planning software applications can:

• give a centralised view of the supply chain
• allow businesses to plan production and resourcing
• help businesses determine the right transportation mode, carriers and routes, and plan loading capacity

Supply chain management execution software

Supply chain management execution software applications can:

• combine information about inventory and purchase orders to ensure manufacturing materials are available on time
• help businesses generate production schedules, determine when products will be available for customers and their cost
• automatically determine and respond to changes to plans according to circumstances
• monitor every stage of the supply chain from price quotation to delivery

Before choosing a system, talk to your partners and suppliers about technical issues and compatibility. If you don't consult them, you may end up choosing a system that your partners can't connect to.

If you're not the biggest business in the supply chain, you may not have a choice in deciding which software package to buy. Supply chains are often controlled by the biggest companies, requiring your system to be compatible with theirs. Read more about the challenges in supply chain software implementation.

How to evaluate supply chain software options?

If you're not tied to one major customer, you have three options. You could:

• Use supply chain software tailored exactly to your needs. Keep in mind that bespoke solutions are generally more expensive and difficult to implement.
• Use the supply chain-related modules of larger software suites.
• Use an enterprise resource planning system - a fully integrated packaged software that helps businesses manage core activities, eg product planning, parts purchasing, inventory maintenance, customer service and order tracking.

Note that supply chain software packages are:

• often tailored to specific industries, so pick a supplier with industry experience
• a vital link with customers and suppliers, so make sure your supplier is financially sound and provides reliable support

Consider hiring a consultant to help you evaluate the packages on offer.

For effective supply chain automation, the system must be able to get information on what's happening within your company. Without this information, it can't keep customers accurately informed about their orders. Supply chain integration requires close alignment and coordination within a supply chain, often with the use of shared information systems.

Information on goods and capacity

For distribution, warehousing, logistics and transport companies, information should be up to date about what goods are in transit and where, and current and future capacity. Having this information enables the system to:

• respond to customer queries about delivery dates and times
• inform customers about delays or other mishaps
• quote rapidly and accurately for new work

This type of information may be shared with another business if you outsource some or all of these functions. For manufacturing companies, integration is needed with internal business systems and, in turn, with machines on the shop floor.

Tracking materials

It is essential to track material throughout the business in a way that provides information quickly, accurately and comprehensively. You can do this by using tracking technology such as barcodes or radio frequency identification (RFID).

Scheduling jobs

Ideally, job scheduling - eg on the shop floor - should operate automatically, and in real-time, in order to be flexible enough to respond to changes and unexpected events. For job planning and scheduling to work in a tightly run supply chain, it must take into account limitations such as staff numbers, machines or material.

To find out about common problems with the integration of new software, see challenges in supply chain software implementation.

Supply chain automation and the use of associated software can increase both the amount of data that you share and the number of other companies that you share it with.

If you don't take measures to protect your data and systems, including those you share with other businesses in the supply chain, it may be easy for:

• employees to give away sensitive information
• partners to steal information or commit fraud
• external parties to gain access to confidential data

Internal risks in the supply chain

Most security risks come from within the organisation. It is, therefore, necessary to control, limit, monitor and manage your employees' access to your internal systems. This control can be:

• physical, eg stopping a member of staff from accessing a computer system kept in a locked office
• logical, eg where the system software is password-protected

Your business' security policy should specify the various levels of control, and how you manage them. Procedures and processes should ensure you:

• give users the level of access appropriate to their role
• alter or terminate access rights if the user changes roles or leaves the business

Find out more about cyber security risk management.

Partner risks in the supply chain

Traditionally, people do business with companies that they know and trust. However, once supply chain automation is in place, it becomes easier to do business with new partners that you don't know, adding to existing security risks.

You need to ensure that transactions with your partners - eg payments and transfers of business-critical documents such as orders and invoices - are secure and authenticated to protect against theft and misuse.

Password-protect any commercially-sensitive information that you share, and use non-disclosure agreements to reduce the risk of partners passing on this information.

External risks in the supply chain

As a digital product, your supply chain management software will be vulnerable to cyber risks. A breach of security could lead to customers leaving you or refusing to use supply chain software. Anti-virus software, firewalls, intrusion detection devices and traffic pattern monitoring will help you create an online trading environment that is as secure as possible.

Further guidance on supply chain security

The National Cyber Security Centre (NCSC) proposes a series of 12 principles, designed to help you establish effective control and oversight of your supply chain. Implementing these principles may take time, but it will improve your overall resilience, reduce the number of business disruptions you suffer and the damage they cause. Read the NCSC's supply chain security guidance.

Supply chain management (SCM) is a sequence of processes in product distribution. It is a way of managing the flow of goods and services to and from your business in the most efficient and cost-effective way possible.

What is supply chain management?

The term 'supply chain management' describes overseeing all movement and storage of:

• raw materials needed to make a product or service
• work-in-process information and inventory
• finished goods from production, through distribution and to the customer

The main function of supply chain management is to optimise the flow of materials, information and financials in key areas of product distribution.

Key supply chain management processes

An effective supply chain management process involves five basic stages:

1. Planning

This involves creating strategic plans to manage all resources needed for getting your product or service to the customers. It also includes setting ways to monitor supply chain efficiency, including costs and delivery of goods or services.

2. Developing

During this stage, you choose suppliers of raw materials that you need for your product or service. You also develop your pricing, delivery and payment process, and build a strong relationship with your suppliers.

3. Making

This is the manufacturing stage of the process. It involves the production, testing and packaging of goods or services, and getting ready to deliver to customers. Monitoring is essential at this stage - including measuring product or service quality levels, production output and worker productivity.

4. Delivering

Delivery, or the logistics stage, covers all the steps from handling customer queries to choosing distribution and transport. For example, organising the receipt of orders from customers, developing a network of warehouses and carriers, and setting up invoicing systems for payments.

5. Returning

The final stage of the process involves receiving damaged products back from customers, including identifying product condition, authorising returns and giving refunds.

These processes can have a major impact on the success of your supply chain. You can use specialist supply chain management software to improve them and achieve efficiencies in your business.

Supply chain management software is a business tool that helps you manage your supply chain with greater efficiency. Most software systems have rich features that can streamline your supply chain operations from start to finish.

Types of supply chain management tools

Many different types of supply chain management software exist. Some come as a standalone application or program; others are a part of broader solutions, such as customer relationship and enterprise resource planning systems.

The most common features of supply chain management software include:

• Inventory management - for tracking and managing the availability of raw materials, stocked goods or spare parts. This feature can also help with asset management, barcode integration and future inventory and price forecasting.
• Order management - for automating purchase order processes. For example, generating and tracking purchase orders, scheduling supplier deliveries, and creating pricing and product configurations.
• Logistics and shipping status - for coordinating transportation channels, improving delivery performance and boosting customer satisfaction. Warehouse management features can help with storage optimisation, labelling, labour management and more.
• Forecasting - for anticipating customer demand and planning procurement and production processes accordingly. Efficient forecasting can help remove the need to buy unnecessary raw materials or store excess finished goods on warehouse shelves, hence reducing costs.
• Return management - for inspection and handling of damaged or faulty goods, and processing of refunds or insurance claims.

Many supply chain systems also include extra options or modules that can support other processes, such as contract management, product life cycle management and more.

Why is supply chain management software important?

With the right solution in place, you can maximise your business' cost-efficiency and productivity, and give your bottom line a boost. Read more about the benefits of supply chain management software.

It is important to remember that different businesses will have different needs and different reasons for using supply chain software.

Many businesses that rely on effective supply chain operations can gain major benefits from their software systems, including their supply chain management tools.

Advantages of using supply chain management software

A good supply chain management software can:

• help control and reduce costs
• alleviate risks, such as late shipments and logistical errors
• improve customer service and communication
• help with forecasting and decision-making

Supply chain software can also help:

• automate major processes, such as order processing, invoicing and shipment tracking, and therefore save time and reduce administrative costs
• identify excess materials or processes and possible cost savings in logistics, warehousing and manufacturing
• improve inventory management and lead to more effective demand planning
• improve on-time delivery by coordinating all activities across your supply chain
• improve responsiveness to unforeseen events, eg machine failures, staff absences, missing goods, urgent customer orders and human error
• provide management reporting and analysis to your fingertips
• provide visibility across the network (between suppliers, production plants, storage and distribution centres) to give you a better understanding of your processes
• support collaboration and communication between partners, suppliers, distributors

Read more about the key features of supply chain management software.

Disadvantages of supply chain software

Supply chain management software can be expensive, especially if you are upgrading or installing an enterprise system such as Oracle or SAP. You should consider the costs of the software, on-premise installation, as well as ongoing running and maintenance.

You can mitigate the costs somewhat by using, for example, open source supply chain management software, or Software as a Service (SaaS) solutions, which eliminate the need for in-house maintenance and expensive installations. Read more about cloud computing.

Software integration is another important consideration. It can often be difficult to integrate a new solution with existing systems. You may need to put in considerable time investment and training to set up and run the system.

As with any software purchase, the needs of your business should come first when choosing a solution. See how to choose supply chain software.

Not every business will get enough benefits from supply chain management software to justify the investment. You should consider your business requirements to see whether the investment would be worth your while.

Do you need supply chain software?

To determine if you need software to help you manage your supply chain, you need to:

• map your supply chain - ie identify the processes involved in the supply chain
• measure how well they perform
• compare this performance with best practices and market needs

When carrying out the mapping exercise, make sure that you consider the different process types. These include:

Planning

Planning is a process that's carried out for the long term. It balances combined demand - across all customers for all products - with resources, to ensure that appropriate resources are in place to fulfil requirements when they arise.

Execution

These are processes initiated by actual customer demand or, in some cases, planned forecasts. They include scheduling manufacturing and fulfilment processes, and the movement of products, materials and components.

Enabling

These processes prepare and manage the information and relationships upon which planning and execution rely. For example, agreeing on common terminology, ways of expressing size and quantity, and more.

Understanding these processes will help you evaluate the likely benefits to your business from the use of supply chain software.

Supply chain mapping

Mapping your supply chain is not only important for compliance and regulation, but it can also help you gain greater visibility, monitor potential threats and avoid possible disruption.

Begin mapping your supply chain by charting the flow of goods and information through your business. Identify:

• areas where you need to share information with partners
• bottlenecks in your supply chain

Work out costs associated with your supply chain, such as:

• transport
• distribution
• warehousing
• inventory costs

Use this information to identify where supply chain software will bring the greatest benefits, what business functions you want it to support, and if this justifies the cost of implementing the software. See also how to choose supply chain software for your business.

Software can play an important part in improving supply chain processes. However, taking on new technology generally brings with it some level of risk, especially if it challenges existing processes and business culture.

Common problems in the implementation of supply chain software

Challenges with the implementation of new software commonly include:

• suppliers and partners unwilling to compromise
• staff struggling to adjust to new processes and tools
• lack of practice and training before implementation
• difficulties with communication internally and externally
• customers' concerns, issues and poor experience

To avoid these risks, you should consult, negotiate and communicate with all members of the supply chain before the new system goes live.

Success factors for new software implementation

As a first step, consult with both your suppliers and your customers. Some businesses may not be used to sharing the volume of information that supply chain software is capable of transferring. Customers may also highlight existing problems with your current system, and suggest ways to improve it, removing the need to invest in new software.

Cultural change and better information sharing can address many common supply chain issues. For example, you can negotiate agreements with customers and suppliers. These make a general framework to cover multiple purchases, allowing for products to be ordered or cancelled as and when needed without needing individual purchase contracts. You may then identify changes to quantities, intervals and delivery patterns that benefit all parties.

You can share information between supply chain partners on:

• inventory levels
• demand forecasts
• customer orders
• delivery information

Cultural challenges

Within the organisation, changes to purchasing processes can transform supply chain performance. Keeping stock to a minimum, or the availability of material at an optimum level, can reduce costs and improve performance, avoiding the need to implement new software.

Before you decide to roll out new supply chain technology, make sure that you have valid reasons to use supply chain software.

Different businesses will have different needs when it comes to supply chain software. It may be that all you need is software to handle electronic document exchange, eg purchase orders conforming to a standard format such as eBIS-XML.

At the other end of the scale, software systems can integrate an entire supply network and automatically transmit customer orders throughout the entire supply chain.

Supply chain management planning software

Supply chain management planning software applications can:

• give a centralised view of the supply chain
• allow businesses to plan production and resourcing
• help businesses determine the right transportation mode, carriers and routes, and plan loading capacity

Supply chain management execution software

Supply chain management execution software applications can:

• combine information about inventory and purchase orders to ensure manufacturing materials are available on time
• help businesses generate production schedules, determine when products will be available for customers and their cost
• automatically determine and respond to changes to plans according to circumstances
• monitor every stage of the supply chain from price quotation to delivery

Before choosing a system, talk to your partners and suppliers about technical issues and compatibility. If you don't consult them, you may end up choosing a system that your partners can't connect to.

If you're not the biggest business in the supply chain, you may not have a choice in deciding which software package to buy. Supply chains are often controlled by the biggest companies, requiring your system to be compatible with theirs. Read more about the challenges in supply chain software implementation.

How to evaluate supply chain software options?

If you're not tied to one major customer, you have three options. You could:

• Use supply chain software tailored exactly to your needs. Keep in mind that bespoke solutions are generally more expensive and difficult to implement.
• Use the supply chain-related modules of larger software suites.
• Use an enterprise resource planning system - a fully integrated packaged software that helps businesses manage core activities, eg product planning, parts purchasing, inventory maintenance, customer service and order tracking.

Note that supply chain software packages are:

• often tailored to specific industries, so pick a supplier with industry experience
• a vital link with customers and suppliers, so make sure your supplier is financially sound and provides reliable support

Consider hiring a consultant to help you evaluate the packages on offer.

For effective supply chain automation, the system must be able to get information on what's happening within your company. Without this information, it can't keep customers accurately informed about their orders. Supply chain integration requires close alignment and coordination within a supply chain, often with the use of shared information systems.

Information on goods and capacity

For distribution, warehousing, logistics and transport companies, information should be up to date about what goods are in transit and where, and current and future capacity. Having this information enables the system to:

• respond to customer queries about delivery dates and times
• inform customers about delays or other mishaps
• quote rapidly and accurately for new work

This type of information may be shared with another business if you outsource some or all of these functions. For manufacturing companies, integration is needed with internal business systems and, in turn, with machines on the shop floor.

Tracking materials

It is essential to track material throughout the business in a way that provides information quickly, accurately and comprehensively. You can do this by using tracking technology such as barcodes or radio frequency identification (RFID).

Scheduling jobs

Ideally, job scheduling - eg on the shop floor - should operate automatically, and in real-time, in order to be flexible enough to respond to changes and unexpected events. For job planning and scheduling to work in a tightly run supply chain, it must take into account limitations such as staff numbers, machines or material.

To find out about common problems with the integration of new software, see challenges in supply chain software implementation.

Supply chain automation and the use of associated software can increase both the amount of data that you share and the number of other companies that you share it with.

If you don't take measures to protect your data and systems, including those you share with other businesses in the supply chain, it may be easy for:

• employees to give away sensitive information
• partners to steal information or commit fraud
• external parties to gain access to confidential data

Internal risks in the supply chain

Most security risks come from within the organisation. It is, therefore, necessary to control, limit, monitor and manage your employees' access to your internal systems. This control can be:

• physical, eg stopping a member of staff from accessing a computer system kept in a locked office
• logical, eg where the system software is password-protected

Your business' security policy should specify the various levels of control, and how you manage them. Procedures and processes should ensure you:

• give users the level of access appropriate to their role
• alter or terminate access rights if the user changes roles or leaves the business

Find out more about cyber security risk management.

Partner risks in the supply chain

Traditionally, people do business with companies that they know and trust. However, once supply chain automation is in place, it becomes easier to do business with new partners that you don't know, adding to existing security risks.

You need to ensure that transactions with your partners - eg payments and transfers of business-critical documents such as orders and invoices - are secure and authenticated to protect against theft and misuse.

Password-protect any commercially-sensitive information that you share, and use non-disclosure agreements to reduce the risk of partners passing on this information.

External risks in the supply chain

As a digital product, your supply chain management software will be vulnerable to cyber risks. A breach of security could lead to customers leaving you or refusing to use supply chain software. Anti-virus software, firewalls, intrusion detection devices and traffic pattern monitoring will help you create an online trading environment that is as secure as possible.

Further guidance on supply chain security

The National Cyber Security Centre (NCSC) proposes a series of 12 principles, designed to help you establish effective control and oversight of your supply chain. Implementing these principles may take time, but it will improve your overall resilience, reduce the number of business disruptions you suffer and the damage they cause. Read the NCSC's supply chain security guidance.