SUPPLY CHAIN MANAGEMENT
What is Supply Chain Management
and How To Optimize Processes, Performance and Technology?
Table of Contents
Introduction to Supply Chain Management
- Supply chain management (SCM), which comprises all procedures that convert raw materials into finished commodities, is also the central administration of the movement of goods and services.
- Companies may reduce unnecessary expenditures and deliver goods to customers more quickly and effectively by optimizing the supply chain.
- Effective supply chain management keeps businesses from the news, costly recalls, and legal actions.
- Developing a plan, locating raw materials, production, distribution, and returns are the five SCM components that are most important.
- Controlling and lowering expenses while preventing supply shortages are the duties of a supply chain manager.
How Supply Chain Management (SCM) Works?
Supply chain management (SCM) reflects an endeavor by suppliers to build and implement supply chains that are as efficient and economical as possible. Production, product development, and the information systems required to manage these activities are all covered by supply chains.
- SCM often aims to centrally coordinate or link a product’s manufacturing, shipment, and distribution.
- Organizations may eliminate extra expenses and get products to the consumer faster by optimizing the supply chain.
- This is done through retaining tighter control over internal inventory, internal manufacturing, distribution, sales, and the stocks of firm vendors.
SCM is founded on the premise that practically every product that indeed comes to market results from the activities of multiple companies that make up a supply chain. Although supply chains have existed for eons, most organizations have only recently paid attention to them as a value-add to their operations.
Components of SCM
The supply chain manager makes an effort to reduce shortages and control expenses. The work is not only about logistics and procuring inventory. Supply chain managers “oversee and manage the entire supply chain and logistic operations to maximize productivity and decrease the cost of an organization’s supply chain,” according to Salary.com.
Productivity and amazing efficiency improvements can go straight to a corporation’s bottom line. Effective supply chain management keeps businesses from the news, costly recalls, and legal actions. In SCM, the supply chain manager coordinates all aspects of the supply chain, comprising the following five parts.
SCM often starts with planning to align supply with customer and manufacturing demands to achieve the best results. Businesses must anticipate their future directions and take appropriate action. This pertains to raw materials needed for each manufacturing stage, equipment capacity and constraints, and staffing needs along the SCM process. Large organizations frequently use ERP system components to gather data and create plans.
Effective SCM operations rely very significantly on good relationships with suppliers. Sourcing involves engaging with vendors to source the raw materials needed throughout manufacturing. A business can plan and collaborate with a supplier to obtain products in advance. Yet the sourcing needs may vary depending on the industry. SCM sourcing often entails making sure that:
- The raw materials indeed meet the manufacturing specification needed for the creation of items.
- The prices paid for the items are in line with market expectations.
- In the event of unforeseeable catastrophes, the vendor can send emergency supplies.
- The vendor has an established reputation for delivering goods on schedule and in good quality.
Supply chain management is highly crucial when producers are working with perishable items. When sourcing items, organizations should be mindful of lead time and how effectively a supplier can comply with those criteria.
The corporation converts raw materials by using equipment, labour, or other external factors to create something new, which is at the core of the supply chain management process. Despite not being the last step in the supply chain management process, this result is what the manufacturing process ultimately aims to produce.
Sub-processes within the manufacturing process, such as assembly, testing, inspection, or packaging, may be further broken down. During manufacturing, a corporation must be conscious of waste or other controllable elements that may create variations from initial plans. For instance, a corporation must address the problem or return to the early stages of SCM if it utilizes more raw materials than anticipated and sourced.
A business must put its goods in the hands of its customers after manufacturing and closing sales. The distribution process is generally considered as an incredible brand image contributor, as up until this point, the customer has yet to interact with the product. A corporation with effective SCM procedures has strong logistical skills and delivery channels to guarantee the timely, secure, and affordable delivery of products.
If one mode of transportation becomes temporarily inoperable, this includes having a backup plan or varied distribution channels. For instance, how can recording snowfall in areas around distribution centers affect a company’s delivery procedure?
The supply chain management process culminates with product and customer returns support. It’s bad enough when a consumer needs to return a product, and it’s even worse if it’s due to an error on the company’s behalf. The company must ensure it can collect returned goods and correctly assign refunds for returns received. This return procedure is frequently referred to as reverse logistics. The business transaction with the client needs to be resolved, whether a company is carrying out a product recall or a customer is just dissatisfied with the goods.
Many view customer returns as communication between the client and the business. But, a significant aspect of customer returns is inter-company communication to discover defective, expired, or non-conforming products. The supply chain management process will have succeeded by addressing the underlying reason for a customer return, and indeed future returns will likely persist.
SCM vs. Supply Chains
A supply chain is also the network of individuals, firms, resources, activities, and technologies needed to create and sell a product or service. A supply chain begins when raw materials are delivered from a supplier to a manufacturer, and the final good or service is provided to the customer.
SCM monitors each touch point of a company’s product or service, from initial creation to ultimate sale. With many points throughout the supply chain that can add value through efficiency or lose weight through increasing expenses, proper SCM can boost revenues, decrease costs, and improve a company’s bottom line.
Supply Chain Model Types
The way supply chain management is implemented in the company. Each firm has unique goals, limits, and strengths that influence its SCM process. A corporation can use one of six significant models to direct its supply chain management procedures.
Continuous Flow Model
One of the more conventional supply chain strategies, this model is frequently best for mature enterprises. The continuous flow model is predicated on the assumption that the producer consistently produces the same good and that customer demand will be relatively stable.
This strategy works best for businesses that provide products that customers order or have unexpected demand. This approach emphasizes adaptability because a company may have a particular requirement at any given time and must be ready to change course accordingly.
This model highlights the quick turnover of a product with a short life cycle. A corporation uses the rapid chain model to take advantage of a trend, produce products quickly, and ensure the product is ultimately sold before the trend ends.
Businesses that are touched by seasonality do well using the flexible approach. Certain companies may have substantially higher demand requirements during peak season and also low volume requirements in others. A flexible supply chain management model ensures that, indeed, ramping up or shutting down production is simple.
For organizations operating in industries with very tight profit margins, a corporation may attempt to acquire an advantage by making its supply chain management process the most efficient. This includes employing equipment and machinery optimally, managing inventories, and processing orders most efficiently.
A company can always turn to a custom model if the one mentioned above doesn’t meet its requirements. This is often the case for highly specialized industries with indeed high technical requirements, such as automobile manufacturers.
Importance of Supply Chain Management
Supply chain management is crucial since it can aid in achieving several corporate goals. Controlling production procedures, for example, can enhance product quality while also lowering the likelihood of recalls and legal action and assisting in developing a powerful consumer brand. Control over shipping processes can also improve customer service by preventing expensive shortages or periods of inventory overproduction. Overall, supply chain management gives businesses several chances to increase their profit margins, and it is especially crucial for big, global companies.
How Do Ethics And Supply Chain Management Related?
A set of guidelines known as supply chain ethics was created due to the growing importance of ethics in supply chain management. Investors and customers care about how businesses operate, respect employees, and preserve the environment. As a result, enterprises implement initiatives to save waste, enhance working conditions, and limit their adverse effects on the environment.
5 Elements of Supply Chain Management
Supply chain management indeed has five key elements—planning, sourcing raw materials, manufacturing, delivery, and returns. The planning phase entails creating a comprehensive supply chain strategy, whereas the other four components focus on the essential conditions for implementing that strategy. Businesses must build knowledge in all five elements to have an efficient supply chain and also avoid expensive bottlenecks.
The Information Flow of The Supply Chain
It is indeed the brain that will make the physical flow work. It is like a vast database that the following questions could summaries:
- What? (all procedures and accompanying information)
- Where? (in which country, in which warehouse, or also in which store, but also in which I.T. systems)
- How? (through what means and under what pre-established conditions)
- When? (Throughout the entire product life cycle). For instance, it contains all of the product’s documented attributes, all of the sales data, all of your performance indicators, as well as all of the supplier data that may have an impact on your procurement strategy.
The difficulty with this information flow is figuring out how to use it to foresee and prepare for the future. If you can indeed establish what will happen in the future, the task of the supply chain teams is simplified.
In addition, logistics also contain information flows; therefore, in the end, the physical movement and the information flow are tightly related. To optimize logistics movements also within a warehouse, for example, a significant flow of information is required to increase procedure and productivity.
Financial Activity in The Supply Chain
It can also be seen as information and is identical to all money flows to partners, suppliers, subcontractors, and within your organization. Money flow is a procurement tactic unto itself. This movement occurs in multiple currencies in significant corporations. And the approach adopted to shift these currencies between suppliers and the organization is crucial and a cause of failure or success. Numerous personnel within the company are involved in the supply chain. They control all procurement, inventory, I.T. management, and financial forecasting.
Lastly, the purpose of the supply chain is to make its products accessible at the appropriate time, in the right place, and also at the best price. This is indeed achieved by having the most efficient supply chain feasible.
To do this, it will be vital to find a balance between your clients’ satisfaction and your firm’s profitability. To achieve this, it will be essential to be as accurate as possible in inventory management. For example (having an endless supply is not viable) (and owning an infinite stock is not possible)
Supply Chain Difficulties
Supply Chain specialists oversee the flow of supplies and goods to ensure the organization’s smooth operation.
- One of the first obstacles you may face in the Supply Chain is the varied internal human resources that must be handled to get the most out of each position. And let’s remember that external resources include suppliers, warehouses, shippers, and warehouse staff. A healthy relationship must be maintained with the players of each entity since good teamwork is necessary.
- Challenge number 2 involves the different services essential to the supply chain’s effective functioning, such as planning, packaging, handling, warehousing, export, transport, also customs, invoicing, and disputes.
The elements indeed necessary for these services must be managed: storage facilities, warehouses, tools, machinery, vehicles, etc., must be considered.
The costs also associated with the supply chain can indeed also quickly get out of hand and drive down a company’s bottom line. The foremost aim is to anticipate as much as possible any risks that may indeed affect the system and also cause unexpected additional costs. The impact of these expenses on the company’s profit margin is consequently significant.
Expenses are also a vital part of the productivity objectives set by management. To accomplish these goals, massive supply chain budgets are standard. For these reasons, the professional supply chain manager indeed often sits on the board of directors and also must report indeed the results of activities to the managers.
To recap, a profitable Supply Chain must:
- Enhance its service
- Decrease the inventory and cash invested in the business
- Decrease spending
Six Factors Make Supply Chain Management Crucial For Businesses
1. Reduces Operational Costs
Good supply chain management spots costly operations that don’t contribute value to the final product. This allows a business to minimize or remove these processes, lowering operating costs.
2. Less Expensive Production
Manufacturers depend on effective supply chains to get raw materials to assembly facilities at the best possible price and in a timely way to avoid shortages that hinder or halt production.
3. Reduced Holding Costs
Retailers, distributors and wholesalers depend on supply chains to deliver products rapidly to avoid the cost of maintaining inventory in their warehouses.
This is particularly true for goods with a limited shelf life, like fresh food, or goods that age quickly, like laptops or cell phones.
4. Increases Effectiveness
Wastage — wasted time, effort or raw materials — is the bane of operational efficiency. A good supply chain management strategy considers wastage and minimizes it by focusing on value-adding activities.
5. Boosts Profits
Solid and effective supply chains typically result in higher revenue and profit levels. Lower costs enable more competitive pricing and profit margin and allow for activities such as marketing.
6. Improves Product and Material Flow
The more quickly products are delivered to consumers, the more effectively the product flow operates.
Efficient product flows see less lag between demands and supply – making accurate forecasting easier – and bullwhip impacts less evident.
7. Increases Flow of Information
An efficient supply chain allows information to be shared along the whole supply chain. This eliminates bottlenecks, and organizations get a complete picture of the supply chain, enabling them to make wise decisions. Also, real-time data keeps all participants alert so they can react fast to changes.
8. Boosts Customer Satisfaction
Satisfied clients get what they want when they want it and for the lowest possible cost. An optimized supply chain can boost customer satisfaction and loyalty, encouraging more sales in future. Transparency in the supply chain is a topic that consumers value more and more.
Key Features Of Effective Supply Chain Management
The company’s most evident “face” to customers and consumers is the supply chain. A company’s supply chain management will defend its brand and long-term viability the better and more effective it is.
In The Road to a Thinking Supply Chain1, Simon Ellis of IDC outlines the five “Cs” of the future’s successful supply chain management to explain what supply chain management is:
Being connected means accessing structured and unstructured data also from the Internet of Things (IoT) and more conventional data sets made available by traditional ERP and B2B integration technologies.
As multi-enterprise cooperation and engagement become more critical, cloud-based commerce networks are being used to improve supplier collaboration.
System hardening and cyber-attack protection for the supply chain should be a top concern for the organization.
4. Cognitively Enabled
By compiling, coordinating, and leading choices and actions across the chain, the A.I. platform transforms into the modern supply chain’s control tower. The majority of the supply chain is self-learning and automated.
Analytics must scale in real-time with the data. The insights will come quickly and thoroughly. The supply chain of the future cannot tolerate latency.
With involvement in cloud-based commerce networks at all-time high and significant efforts to strengthen analytics capabilities, many supply chains have already started the process.
Supply Chain Management Evolution
Today’s supply chains are about managing data, services, and products packaged into solutions, whereas yesterday’s supply chains concentrated on the availability, transportation, and pricing of physical assets. Today’s systems for managing the supply chain involve much more than where and when. Supply chain management impacts the quality of goods and services, delivery timing, expenses, client satisfaction, and profitability.
- A typical supply chain is indeed accessed 50 times more data in 2017 than only five years prior.
- However, just about 25% of this data is being examined.
- So, it is possible to lose the value of crucial, time-sensitive data, including information about the weather, unexpected labor shortages, political upheaval, and microbursts in demand.
Contemporary supply networks are curated by data scientists and analytical professionals and use the enormous volumes of data produced by the chain process. Future supply chain directors will likely concentrate on maximizing the value of this data by conducting real-time, low-latency analyses using the Enterprise Resource Planning (ERP) systems they oversee.
Supply chain resilience, described as “the capacity of a supply chain to survive, adapt, or transform in the face of change,” is a crucial component of SCM. For a long time, supply chain management interpreted resilience as engineering resilience, giving rise to the idea of persistence. Measuring the supply chain’s time-to-survive and time-to-recovery allows for identifying weak places in the system, a standard implementation of this concept.
The concepts of adaptation and transformation, respectively, have emerged more recently due to interpretations of resilience that emphasize ecological and social-ecological resilience. As a result, a supply chain is seen as a social-ecological system that functions similarly to an ecosystem (e.g. forest) and can convert itself into a fundamentally new system and continuously adapt to external environmental conditions thanks to the presence of social actors and their capacity for foresight. This results in a panarchical interpretation of a supply chain by integrating it into a system of systems and enabling the analysis of interconnections between the supply chain and systems that function at other levels.
- These three resilience factors, for instance, can be considered in the 2021 Suez Canal blockage, which lasted for several days due to a ship.
- Persistence refers to the ability to “bounce back”; in our case, it relates to the need to remove the ship to resume “regular” activities rapidly.
- Redirecting ships around the African cape or using alternate forms of transportation can be used to recognize that the system has achieved a “new normal” condition and act appropriately.
- Last but not least, transformation refers to challenging the tenets of globalization, outsourcing, and linear supply chains while imagining alternatives; in this case, this might result in local and circular supply networks that don’t require cross-border transportation routes.
The creation, integration, globalization, specialization phases one and two, and supply-chain management 2.0 are the six main trends that can be seen in the development of these studies.
Age of Creation
Keith Oliver initially used the term “supply chain management” in 1982. But, in the early 20th century, particularly with the invention of the assembly line, the idea of also a supply chain in management was of utmost significance. The necessity for extensive adjustments, re-engineering, downsizing motivated by cost reduction programmers, and widespread attention to Japanese management methods are traits of this supply-chain management era. However, the phrase gained popularity after Robert B. Hadfield and Ernest L. Nichols, Jr.’s foundational book Introduction to Supply Chain Management was published in 1999. It sold over 25,000 copies and was also translated into Japanese, Korean, Chinese, and Russian.
Age of Integration
With indeed the development of electronic data interchange (EDI) systems in the 1960s and the advent of enterprise resource planning (ERP) methods in the 1990s, this period of supply-chain management research was highlighted. With the growth of Internet-based collaborative technologies, this age has continued to advance into the twenty-first century. As the supply chain evolves, value contributed rises, and costs fall due to integration.
A network can be categorized as stage 1, stage 2, or stage 3. Systems like production, storage, distribution, and material control are unconnected and independent in a supply chain of stage 1. Enterprise resource planning (ERP) is enabled and combined into a single plan in a stage 2 supply chain. A supply chain that achieves vertical integration with upstream suppliers and downstream customers is in stage 3. Tesco is an illustration of this kind of supply chain.
Era of Globalization
The globalization era, the third stage in the history of supply-chain management, can be identified by the focus on global systems of supplier connections and the growth of supply chains over national boundaries and onto other continents. Although the usage of international sources also in organizations’ supply chains can also be traced back several decades (for example, in the oil sector), many companies began incorporating global sources into their primary business in the late 1980s. The globalization of supply-chain management within enterprises to enhance their competitive edge, bring value, and lower costs through global sourcing characterizes this era.
Phase 1 Of The Specialization Era: Outsourced Distribution And Production
Businesses started emphasizing “core competencies” and specialization in the 1990s. They stopped integrating vertically, offloaded non-core operations and outsourced those jobs to other firms. Due to the supply chain’s expansion outside of the company’s boundaries and the distribution of management across specialized supply-chain partnerships, new management requirements emerged.
- Each company’s underlying viewpoints were refocused as a result of this transformation.
- OEMs (original equipment manufacturers) have evolved into brand owners with a profound need for visibility into their supplier chain.
- Instead of doing it internally, they had to oversee the entire supply chain from the top. In addition to supporting customer requests for work-in-process visibility and vendor-managed inventory, contract manufacturers had to manage bills of materials with various part-numbering schemes from multiple OEMs (VMI).
The specialization model establishes manufacturing and distribution networks made of numerous separate supply chains specialized to producers, suppliers, and customers to design, manufacture, distribute, promote, sell, and support a product. A particular market, location, or channel may have different partners, leading to a proliferation of trade partner settings, each with unique requirements.
Phase II Of The Specialization Era: Supply-Chain Management As A Service
The supply chain began to specialize with the advent of transportation brokerages, warehouse management (storage and inventory), and non-asset-based carriers in the 1980s. Today, this specialization extends beyond transportation and logistics, including supply planning, collaboration, execution, and performance management.
- In their capacities as elements of supply-chain networks, suppliers, logistics providers, locations, or customers may occasionally be required to make quick changes.
- The impact of this variation on supply-chain infrastructure is significant, ranging from the fundamental requirements of establishing and indeed managing electronic communication between trading partners to more complex needs like the configuration of processes and workflows crucial to the network’s management.
- Like outsourcing manufacturing and distribution has improved overall competencies, supply-chain specialization enables businesses to do the same.
- It enables them to concentrate on their core competencies and build networks of specific, best-in-class partners to contribute to the overall value chain, improving overall performance and efficiency.
- One of the critical reasons supply-chain specialization is becoming increasingly popular is the ability to swiftly acquire and deploy this domain-specific expertise without establishing and maintaining a unique and challenging competency in-house.
Since its introduction in the late 1990s, outsourced technology hosting for supply-chain solutions has become popular in transportation and collaboration categories, from the application service provider (ASP) model, which was prevalent from roughly 1998 to 2003, to the on-demand model, which was commonplace from approximately 2003 to 2006, to the software as also a service (SaaS) model that is currently in the spotlight.
V2.0 of Supply Chain Management (SCM 2.0)
The term “SCM 2.0” has also been coined to characterize changes within supply chains and the evolution of processes, methodologies, and tools to manage them in this new “period,” which builds on globalization and specialization. The development of Trade Card’s supply-chain collaboration platform, which links numerous customers and suppliers with financial institutions to enable them to undertake automated supply-chain finance transactions, underlines the growing popularity of collaborative media. Web 2.0 is a trend in Internet usage that aims to foster user cooperation, information sharing, and creativity. The fundamental characteristic of Web 2.0 is assisting users in navigating a large amount of information available on the Web to locate the goods they are purchasing.
- It is the idea of a navigable route.
- This idea is replicated in supply chain management 2.0.
- As the complexity and indeed speed of the supply chain increase as a result of increased global competition, swift price fluctuations, fluctuating oil prices, short product life cycles, expanded specialization, also near-, far-, and also off-shoring, as well as talent scarcity, this pathway to SCM results combines processes, methodologies, tools, and delivery options to help companies get their results quickly.
- In addition to listing the services for consumers, the supply chain management company also offers additional pertinent services like monitoring the warehouse and logistics.
Supply chains have been more volatile since around 2000. According to Douglass in 2010, “extreme supply chain management” is a type of SCM management that acknowledges the need for communal risk management rather than sequential risk management and promotes collaboration on a new scale essential for survival. It calls on businesses to be “constantly attentive.”
Supply Chain Management Software's Function
Today’s supply chains must be managed using technology, and ERP vendors provide modules that concentrate on important SCM tasks. There are additional vendors of business software who specialize in SCM. Many significant points to be aware of are as follows:
- Supply chain execution software for tasks like routine industrial operations; supply chain planning software for functions like demand management;
- Software for supply chain visibility to help with activities like identifying and proactively managing hazards;
- Software for inventory management that tracks and optimizes inventory levels;
- Software for managing logistics and transportation, particularly for controlling the transport of commodities across international supply chains; and
- Systems for managing the activities involved in warehouse operations.
Other well-known supply chain software providers include Inform, Blue yonder (previously JDA Software), Manhattan Associates, Oracle, and SAP.
The rise of e-commerce, with its emphasis on almost immediate small delivery straight to consumers, and the increasingly global nature of indeed today’s supply chains provide issues, notably in logistics and demand planning. Many tactics, like lean manufacturing, and more recent methods, like demand-driven material requirements planning, could be helpful.
Current difficulties are being addressed using technology, massive data, predictive analytics, IoT, supply chain analytics, robotics, and autonomous vehicles. These challenges include those related to supply chain risk, disruption, and sustainability.
IoT can improve transparency and traceability by utilizing sensors to track the temperature of perishable food while it’s in transit, to name just two applications. Moreover, analytics can decide where to place smart lockers in densely populated locations to reduce the frequency of deliveries of single items and greenhouse gas emissions.
Supply Chain Management Process
Demand management, supply management, S&OP, and also product portfolio management are the four primary components of the supply chain management process.
1. Demand Management
Demand, merchandise, and trade promotion planning make up demand management. Demand planning is predicting demand to ensure that goods can be delivered reliably. A successful demand planning strategy can increase the accuracy of revenue forecasts, match inventory levels to demand peaks and troughs, and increase the profitability of a specific channel or product.
Merchandise planning is a methodical technique for organizing, purchasing, and selling goods to maximize return on investment (ROI) while also having goods accessible at the locations, occasions, costs, and numbers that the market requires.
Trade promotion planning is a marketing strategy that uses special pricing, display fixtures, demonstrations, value-added extras, no-obligation freebies, and other promotions to boost product demand in retail outlets. Short-term customer demand for goods typically supplied in retail settings is promoted by trade promotions.
2. Supply Management
The five supply management components are planning for supply, production, inventory, capacity, and distribution.
- Planning for supply decides how to meet best the demands that the demand plan generates. Supply and order must be balanced for the firm to meet its financial and service goals.
- The production and manufacturing departments of a corporation are covered by production planning. It considers how resources are distributed among workers, materials, and manufacturing capability.
- Production/supply planning includes:
- Collaboration with suppliers
- Arranging the production
- Inventory planning establishes the ideal level and timing of inventory to match it with demand from sales and manufacturing.
- The manufacturing personnel and machinery required to satisfy customer demand are determined by capacity planning.
- Network and distribution planning regulates the flow of products from a supplier or producer to the point of sale. An umbrella word for procedures including packaging, inventory, warehousing, supply chain, and logistics is distribution management.
3. Planning For Sales and Operations (S&OP)
Sales and operations planning (S&OP) is a monthly integrated business management process that enables leadership to concentrate on critical supply chains drivers such as sales, marketing, demand management, production, inventory management, and the launch of new products.
With a dynamic connectivity of plans and strategies across the organization, S&OP aims to empower leaders to make better-informed decisions with an eye towards financial and business impact. S&OP, frequently repeated every month, allows for efficient supply chain management and concentrates an organization’s resources on providing what customers need while being profitable.
4. Management of Product Portfolios
Developing a product idea and bringing it to market is known as product portfolio management. A corporation must have an exit strategy as a product reaches the end of its lucrative life or if it doesn’t sell well.
Management of a product portfolio entails:
- Introduction of a new product
- Planning for death
- Planning to become cannibals
- Preparing for commercialization and the ramp
- Analysis of contribution margins
- Portfolio administration
- Planning for brands, portfolios, and platforms
5. Guidelines for Supply Chain Management
It would help to connect a supply chain from beginning to end, across your organization and beyond, to succeed in an expanding global market. We suggest the following five steps for achieving linked supply chain planning.
6. Real-Time Supply Chain Planning Should Be Adopted
Companies frequently rely solely on historical data when utilizing spreadsheets and ERP systems for planning, leaving little room for adjustment should supply or demand interruptions arise. For instance, a business can predict how many products it will sell in the upcoming quarter using data from the prior year.
But what if a powerful hurricane wipes out a crucial distribution facility, leaving the shelves with insufficient stock? You can develop “what-if” scenarios and plan more efficiently with Ana plan’s real-time linked supply chain planning system, ensuring you are prepared for disruptions.
7. Combine Enterprise Planning and Supply Chain Planning
Integrating historically separate sales, operations, and financial planning with supply chain planning is a crucial second stage. Businesses can gain from coordinating their short-term operational planning with their longer-term business planning procedures to update real-time supply and demand projections. When key stakeholders across the company use real-time S&OP solutions that enable enterprise-wide collaboration, they can quickly analyze how to use their resources to maximize profitability during an unforeseen event.
8. Recognize The Demands Of The Final Consumer
Companies that manufacture consumer packaged goods need help predicting what customers want and when they will like it. By end-to-end visibility across the supply chain and beyond the current network of wholesalers and retailers, a product like Anaplan enables the detection of client demand signals. The company, partners, and clients benefit from better profitability, margins, and lead times when shifting consumer sentiments can be quickly discovered and changes to demand for the product assessed.
9. Utilize Real-Time Data at All Supply Chain Nodes
Models can grow large and possibly tricky to handle because supply chain planning typically involves various suppliers, channels, customers, and pricing schemes—especially when spreadsheets are the main planning tools.
10. Using A Real-Time Data Solution Enhances Planning Accuracy and Lowers The Possibility Of Stock-Outs Or Excess Inventory
As technology enables effective planning and quick responses, interruptions are less disruptive since re-planning and re-forecasting are simple, saving time and money and increasing profitability.
Important Supply Chain Trends
What will the future supply chain look like? Below are a few major supply chain management trends.
Both Machine Learning And Artificial Intelligence
Supply chain planning now relies on historical forecasts, but artificial intelligence (A.I.) and machine learning (ML) are poised to change that for good. Predictive models powered by A.I. and ML will revolutionize supply planning and processes like demand sensing, shaping, and orchestration. Dynamic pricing will start to be driven by A.I., and the launch of new products will be based on foresight into the market. A.I. and ML will also drive new approaches for managing product promotions and responding to supply chain problems.
A.I. and ML predictions will significantly impact future supply chain operations, which will also revolutionize other corporate procedures.
Regulatory Difficulties and Security Dangers
Companies will need to improve their privacy and protection practices this year due to the ongoing possibility of high-profile cyberattacks that damage the data of millions of customers. Operations of businesses will be impacted by new privacy protection laws that came into effect this year, such as the General Data Protection Regulation (GDPR). Tax reform, Brexit, political unpredictability, oil pricing, and resource availability—will necessitate supply chain changes and company-wide action. As a result, to prepare for every conceivable situation, supply chain planners will need extensive modeling capabilities.
Blockchain And Beyond
The collaboration between trading partner networks has already changed due to blockchain. As 2019 goes on, technology will continue to improve cooperation, use bit coin and distributed ledgers, and eliminate the need for banks. The collaboration will become more critical in the design and execution of the supply chain thanks in part to blockchain technology. Track and trace, previously a movement centered on radio frequency identification (RFID), puts sensors and gadgets on equipment and assets. It will continue to be employed in novel ways this year. Thanks to the Internet of Things (IoT), data will permeate the supply chain and be utilized to revolutionize operations once it has been evaluated and consumed by A.I. and ML.
An Active, Interconnected Future
As the contemporary supply chain develops, managers constantly seek novel approaches to seize opportunities and overcome challenges. Data is gathered, and more individuals are included in decision-making processes using new technologies and a connected supply chain planning strategy. These themes will be crucial to the change of the supply chain as the future supply chain emerges.
Digital Supply Chain
The next generation of supply chain management is the digital supply chain. Businesses need to understand that “global digital supply networks” or “the digitalization of supply chains” are related to the idea that the business world strongly relies on a digital transformation revolution: sophisticated robotics, the internet of things, the blockchain, and many other technologies. Here are five ways forward-thinking businesses use blockchain to optimize their supply chains.
1. Blockchain for Smart Contracts:
Blockchain reveals the enormous interconnection and complexity of the world’s digital supply networks. It accomplishes this by keeping a master ledger with all pertinent data (the blockchain). Smart contracts ensure that concerns with data redundancy are reduced, and trading partners can cooperate much more effectively by recording the contract terms in the blockchain and comparing all proposed transactions against it.
2. Use of Blockchain in Ethical and Sustainable Supply Chains:
A product (or set of items) may receive an encrypted, unique identification when sourced or generated. This identity can be connected to a token that tracks the product through the supply chain and has a time stamp. The blockchain stores all of this data, allowing supply chain leaders to verify that a product was created or sourced ethically and sustainably while also improving operational efficiency throughout the entire process of bringing a product to market. Several businesses are using blockchain technology to support excellent and social-environmental change, giving customers a chance to express their gratitude to those who helped make the things they purchase by giving them blockchain tokens.
3. Blockchain for Greater Security:
With priceless merchandise and sensitive data transacting quickly across the globe, maintaining the security of the supply chain is a critical concern for businesses. A blockchain ledger is virtually impervious to hackers. It cannot be changed without the explicit consent of relevant parties because it is immutable by nature and configured so that everyone involved has a complete copy. An immutable ledger’s built-in security feature facilitates audits and prevents data corruption. The fact that it uses a distributed storage system further reduces the risk of cyberattacks.
4. Blockchain for Increased Efficiency:
At the moment, millions of products are being transported around the world using international supply chains. Data is associated with each product, including manufacturer, origin, destination, and serial number. By allowing for the tracking of goods at every stage of their route and by doing away with the need for specialized software or numerous planners to keep track of the millions of goods moving through the supply chain, blockchain technology lowers the risk associated with digital supply chains.
5. Block chain To Boost Productivity:
All stakeholders participating in the digital supply chain may track pertinent information about a product and have real-time access to it because block chain is transparent and irreversible. This significantly improves supply chain effectiveness.
Intelligent contracts raise the bar for efficiency even higher because this safety measure can cut down on time wasted in legal disputes. A set of terms and conditions accompanying a product along the supply chain prevents disagreements over that information from leading to repeated searches for the culprit.
What Expertise Is Required For Supply Chain Management?
They must combine technical and business expertise with teamwork and communication abilities to pave the path for a transformational future. Because supply chain projects frequently span beyond business divisions, it is crucial to have the skills to influence department executives who collaborate with the supply chain and the ability to communicate intelligently with leaders throughout the organization.
- Strong business acumen is also essential because speaking the same language as your colleagues in sales, marketing, and finance will make working with them more accessible.
- The successful supply chain manager of the future is computer aware and at ease working with the “machine” world.
- Some have said that when discussing the potential clash between humans and machines, managers who use artificial intelligence will replace managers who don’t.
- This demonstrates the supply chain change: technology and humanity are necessary. That is the new normal; it is not a paradox.
- This leader is not just adept with technology but also with people.
Also, this leader is a storyteller who can sift through the numerous layers of the supply chain to identify the problems and construct the ideal narrative to address them. As we speak, the multifaceted position of a supply chain leader is changing. Supply chain professionals must develop teamwork, communication, and leadership abilities to succeed in this new environment. These abilities must be combined with in-depth technical knowledge to make them formidable forces in developing supply chain management software.
Supply Chain Management's Role
Supply chain management enables the interchange of goods between firms and customers, laying the groundwork for economic progress. The entities participating in the supply chain comprise the following, making the significant role of supply chain management and also its impact on economic growth possible.
These include businesses that use natural resources to process raw commodities like metal, rubber, and wood.
These are the businesses that turn raw resources into products for end users, producing the goods that are offered for sale. Not all supply chains result in tangible goods. For instance, in the energy industry, energy producers create a form of energy for human consumption from raw materials like coal.
Vendors, also known as sellers, supply the following link in the supply chain goods. Vendors can also be manufacturers.
The items need to be stored after they have been sold. For individuals involved in the next stage of the supply chain, warehouses are frequently found in busy areas where they can be purchased and shipped to distribution centers.
Companies that provide transportation services include trucking, container shipping, and freighter businesses. The products are transported to a different location at this stage of the supply chain with the sole intention of being distributed to merchants.
Centers for Distribution:
Regional distribution centers store the goods that will later be transferred to wholesalers, retailers, and, occasionally, end users directly. To preserve perishable goods, a distribution facility may have refrigeration capabilities.
Retailers, who offer goods to customers directly in malls, stores, and online, are at the end of the supply chain,.
It is beneficial to draw attention to different company operations that impact or are impacted by the supply chain while examining what supply chain management is and why it is crucial.
This is how items are introduced and brought to market. It might also entail modernizing or revamping an already existing product. The ability of persons to design, engineer, and ascertain the purpose and function of a product depends on the materials available to manufacture it.
The adage “a good product sells itself” is common. In actuality, businesses must work to increase consumer demand for their products. The role of marketing is here. Target audience selection, packaging, price, product placement, distribution, advertising, and promotion are all part of the marketing strategy.
Ensuring a company’s internal operations are efficient to increase production and cut expenses is one of operations managers’ primary goals.
This activity is frequently seen as a component of the marketing mix. Through direct or indirect distributors, it covers making items accessible to end users in the business and consumer markets.
This sector collaborates with departments like sales to establish revenue targets, obtain funds or capital, and choose how to spend and invest.
This function has a significant impact on how customers view an organization. Customer service aims to assist customers at every stage of the purchasing process, from answering questions and resolving issues to giving information that may aid customers in making informed selections.
Delay in The Pandemic
The pandemic significantly impacted the current supply chain in several ways. For instance, numerous factories in low-cost manufacturing hubs in Southeast Asian nations like Vietnam, Indonesia, and Malaysia shut down or reduced production, severely hurting the bottom line of multinational corporations.
- Problems arise for everyone if there is an interruption at any point in the supply chain. Below is an illustration of a sequence of events brought on by the pandemic’s disruptions:
- Due to the lockdowns, millions stayed inside their houses all at once.
- Many ordered products, including desks for homebound kids taking online classes and furnishings for home offices.
- Most of these components come from Asian nations, which had to deal with numerous lethal varieties.
- A lack of supply to satisfy demand resulted in several factory closures, which had a significant negative impact on retailers.
- Even factories that were still operating frequently cut production, which resulted in a shortage of raw materials and higher costs for them.
- The cost of goods increased when the price of raw resources rose.
- Price increases for several products were sudden. Food costs were also impacted. According to database from the U.S. Bureau of Labor Statistics, the cost of meat, poultry, fish, and eggs increased by 10.5% for the year ending in September 2021. (BLS).
Demand rises when global markets recover, but manufacturing is still constrained, leading to an imbalance in supply and demand. This is referred to as the scarcity principle in economics.
Global commodity supplies may become scarcer due to geopolitical events, which could artificially disrupt the supply chain. The worldwide semiconductor sector has recently seen disruption due to sanctions and a ban on the supply of microchips to Chinese firms. The global shortage restricts access to the parts that power our electronics, computers, and other technology-dependent devices. Automobile manufacturers have also reported declining sales due to issues with the global supply chain, such as chip shortages.
Taxation and paperwork at ports are other facets of geopolitics that impact supply chain management. Every nation has unique laws, rules, and regulations that frequently change. Importers and exporters must be aware of the changes to guarantee that their products reach the places they were meant for. Necessary paperwork that needs to be included may result in a shipment of goods sitting at a port for an extended period, costing firms money.
Information Technology's Function in Supply Chain Management
Supply chain management involves a lot of moving elements, necessitating the use of systems and technologies to increase efficiency, reinforce accuracy, and streamline procedures. Information systems are crucial in supply chain management by assisting companies with data analytics, supplier management, scheduling, and sourcing.
These systems assist businesses in managing the essential supply chain components, from resource development through logistics. They can help enterprises keep track of various supply chain actors, such as suppliers, warehouses, transportation providers, retailers, manufacturers, and customers.
Information systems in supply chain management are primarily responsible for ensuring that organizations have access to the data they need to make sound business choices. Operational visibility, for instance, enables businesses to evaluate fluctuations and anomalies in their operations. Companies can act wisely to identify and resolve supply chain problems before they become significant concerns by harnessing data from their internal systems (and public data).
Information systems can also aid decision-makers in making better decisions across the supply chain process, enabling them to:
- Recognize what’s occurring at significant supply chain management touch points (operational visibility)
- Use analytics and cutting-edge technologies to analyze data utilizing visual dashboards and easily understandable information (for example, machine learning)
- Look for ways to improve the supply chain, as doing so can increase profitability and improve client experiences.
Finance's Function in Supply-Chain Management
In supply chain management, finance plays a critical role. To support suppliers and customers, finance and accounting activities provide stability and flexibility to supply chain management.
Ensuring Reliability and Transparency of Payments.
Organizations use financial and accounting principles to ensure a business has a healthy working capital and complies with legal and tax requirements.
Payment Terms Being Extended.
Finance departments at suppliers can assist buyers in optimizing their cash flows by providing flexible payment terms for goods, which will help to improve the relationship between buyers and suppliers.
Making Sure Taxes Are Paid
Taxes are paid by many businesses all along the supply chain, making indirect taxation a complicated procedure. The ultimate cost of the goods includes the taxes paid, but because finance is involved in the process, the buyer must be aware of this.
To accomplish customer goals at the lowest total cost possible, other operations, like customer service, can benefit from strategies developed by the finance department.
To control and lower costs, businesses rely on the function of finance in the supply chain, which creates chances to increase margins.
To assist firms in exploring supply chain prospects, the role of finance in also supply chain management is evolving. Using cutting-edge technology that exchanges financial and transactional data is part of this. The development of sophisticated financing plans aimed at maximizing the balance sheet requirements and liquidity of all supply chain participants can be aided by this insight into financial data across all organizations in a supply chain.
Finance also works with other departments like legal, marketing, information technology, and operations to maximize operational value and reduce risk.
Train to Become a Supply Chain Management Professional
Every link in the global supply chain is interconnected, and each participant, from the producer to the supplier to the consumer, is essential.
The ability to get things into consumers’ hands, from luxury goods to necessities like food and medicine, depends on supply chain management.
Supply chain management in business enables producers to produce as many goods as required to satisfy consumer demand. It aids retailers in lowering storage expenses and extra inventory. Effective supply chain models that ensure that the right product of the right quality is accessible at the right location and time are essential to sales and marketing success.
An advanced business degree, such as an online MBA, can help people who want to work in supply chain management get start in their careers. Students who complete the online master’s in business administration programmer at the Robert H. Smith School of Management at the University of Maryland are better equipped to recognize, assess, and manage risk, increase productivity, and use cutting-edge supply chain technology applications.
Challenges in Supply Chain Management
Although supply chain management has many advantages, implementing it takes more work. The supply chain becomes more complicated due to globalization, raising worldwide rivalry. Businesses must quickly adjust to shifting consumer needs, but sound decision-making necessitates real-time supply chain visibility.
Effective supply chain management requires the optimal and smooth operation of numerous companies, including retailers, distributors, vendors, suppliers, and logistics service providers, for the most significant outcomes. A single error in any one component of the supply chain can have a cascading effect that affects every other part until the delivery of the finished product. Supply chain performance can also be impacted by external, frequently unpredictable circumstances, such as weather-related delays in logistics.
The obligation to adhere to the various regulatory requirements in the regions where a firm operates complicates supply chain management. Another area for improvement is cost management. Stricter laws, higher labor expenses, growing commodity prices, a rise in international consumers, rising energy, gasoline, and freight costs, as well as other factors, make it difficult for supply chain managers to keep costs low. For cheaper production costs, many businesses outsource their manufacturing to other nations. Nevertheless, this approach also has drawbacks, including issues with quality and risk management that, if handled appropriately, might positively influence revenue.
Best Practices For Supply Chain Management
Despite its complexity, there are several best practices that businesses can use to make the supply chain go as smoothly as it should:
Use Technology to Provide Total Supply Chain Insight and Real-Time Data:
You must constantly be aware of what is happening with your company and your suppliers, shipping companies, and other partners.
Concentrate on Managing Tier II Suppliers:
When your supplier’s sources are from their suppliers, you need to control your product supply and your direct suppliers. To put it another way, you should ensure that your suppliers’ suppliers get the data on demand they want for efficient capacity planning and raw material acquisition.
At Every Level, Talk About Compliance And Quality:
Once more, a little error at any point in the supply chain process might cause it to malfunction. Implement robust quality assurance methods to exceed your company’s minimal quality standards, and ensure regulatory compliance is followed at every stage and level.
Always Have A Fallback Strategy:
A supply chain manager must always have a backup plan in place if an unforeseen delay occurs because some elements and variables are beyond their control.
Prioritize Risk Management:
Risk identification and quantification should be made regularly since you can only minimize risks if you know what they are. Doing this allows you to manage any elements that raise those risks effectively.
Employ The Best Supply Chain Management Professionals:
It would help to have good people, processes, and technology for effective supply chain management. Hiring top talent in supply chain management is always a wise investment.
Use Automation to Boost Productivity and Maximize Human Labor:
Although human capital is essential, completely optimized human labor is the secret to a successful supply chain. Chuck, a collaborative mobile robot from 6 River Systems, and other automation technologies enable your human employees to accomplish more in less time and with fewer mistakes.
Every aspect of contemporary businesses is impacted by supply chain management. Without reasonable supply chain management procedures, companies ultimately disappoint their customers and lose market share to rivals. Companies that have mastered the numerous, complicated supply chain elements
Supply Chain Management Innovation
Experts that can provide ideas and improvements to intricate supply chain networks are needed in almost every business. The demand for skills in the field will only increase as analytics and A.I. drive transformation in the supply chain sector and firms look for more dynamic supply chain models.
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Frequently Asked Question (FAQ)
For your help, we have created a list of answers to assist you more.
Supply chain management refers to the comprehensive management of the flow of goods and services throughout all stages of their transformation from raw materials into final products. This management process is characterized by deliberate efforts to streamline a company’s supply-side operations, with the ultimate goal of optimizing customer value and gaining a competitive advantage in the marketplace.
In essence, supply chain management involves the orchestration and coordination of various interconnected networks, encompassing activities such as procurement, raw material management, manufacturing, transportation, delivery, storage, and after-market services. The primary objectives of supply chain management include maximizing quality, ensuring timely delivery, enhancing the customer experience, and improving overall profitability. This approach is essential for achieving efficiency, reducing costs, and creating net value within the supply chain ecosystem.
Supply chain management encompasses five fundamental stages:
- Plan: This stage involves strategic decision-making. It focuses on designing an effective supply chain strategy, forecasting demand, and setting objectives.
- Source: Sourcing involves selecting suppliers, negotiating contracts, and establishing relationships to obtain the necessary materials and services for production.
- Make: This stage involves the actual production of goods or services. It includes manufacturing, assembling, and quality control.
- Deliver: Delivery encompasses the logistics and transportation of products to customers or distribution centers. It also involves order fulfillment and inventory management.
- Return: The return stage addresses product returns, recycling, or disposal. It focuses on managing returned items efficiently and ensuring sustainability.
The 7 C’s of supply chain management are critical factors that contribute to a successful supply chain:
- Customer-Centric: Prioritize customer needs and preferences throughout the supply chain process.
- Cost-Efficiency: Optimize costs without compromising quality or service levels.
- Communication: Maintain open and effective communication among all supply chain stakeholders.
- Collaboration: Foster collaboration between suppliers, manufacturers, distributors, and customers.
- Consistency: Ensure consistency in processes and operations to minimize disruptions.
- Control: Implement robust control mechanisms to monitor and manage supply chain activities.
- Continuous Improvement: Continuously seek ways to enhance efficiency, reduce waste, and adapt to changing market conditions.
- Procurement: This function involves acquiring the necessary materials, goods, or services from suppliers.
- Production or Manufacturing: In this phase, raw materials are transformed into finished products.
- Warehousing and Inventory Management: It’s the process of efficiently storing and managing inventory.
- Distribution and Logistics: Ensuring timely product delivery to customers or distribution centers.
- Demand Planning and Forecasting: Predicting customer demand and aligning supply accordingly.
Supply chain management plays a crucial role in enhancing efficiency, reducing costs and ensuring customer satisfaction. It does the following things:
- Manages the flow of materials, information, and finances across the supply chain.
- Optimizes inventory levels to minimize holding costs while preventing stockouts.
- Enhances collaboration with suppliers to ensure a stable supply of materials.
- Minimizes lead times and improves delivery performance.
- Adapts to market changes and disruptions, ensuring business continuity.
- Procurement: This function involves acquiring the necessary materials, goods, or services from suppliers.
- Production or Manufacturing: In this phase, raw materials are transformed into finished products.
- Warehousing and Inventory Management: It’s the process of efficiently storing and managing inventory.
- Distribution and Logistics: Ensuring timely product delivery to customers or distribution centers.
- Demand Planning and Forecasting: Predicting customer demand and aligning supply accordingly.
- Planning: Strategizing supply chain objectives, forecasting demand, and setting a direction.
- Sourcing: Selecting suppliers, negotiating contracts, and establishing relationships.
- Making: The physical production and quality control processes.
- Delivering: Managing logistics, transportation, order fulfillment, and inventory.
- Returning: Handling product returns, recycling, or disposal, and ensuring sustainability.
- Demand Forecasting: Predicting customer demand to plan production and inventory levels efficiently.
- Procurement: Sourcing materials, negotiating contracts, and managing supplier relationships.
- Production Planning: Determining what and how much to produce based on demand forecasts.
- Inventory Management: Controlling inventory levels to balance supply and demand.
- Logistics and Distribution: Managing the movement of goods from suppliers to customers.
- Order Fulfillment: Ensuring customer orders are processed accurately and on time.
- Returns Management: Handling product returns, recycling, or disposal effectively.
- Physical Flow Management: Planning, implementing, and controlling the efficient movement and storage of products, raw materials, and finished goods.
- Transportation: Selecting optimal transportation methods and routes for timely deliveries.
- Warehousing: Efficiently storing and managing inventory.
- Order Fulfillment: Ensuring customer orders are processed and delivered accurately and promptly.
- Inventory Management: Keeping track of stock levels and optimizing them to meet demand efficiently.
Improving supply chain efficiency involves various strategies:
- Use Technology: Implement supply chain software for real-time visibility and data-driven decision-making.
- Optimize Inventory: Reduce excess inventory while ensuring product availability.
- Collaborate with Suppliers: Build strong relationships with suppliers for better coordination and cost savings.
- Streamline Processes: Identify and eliminate bottlenecks and inefficiencies in the supply chain.
- Enhance Demand Forecasting: Use accurate forecasting to align supply with demand.
Supply chain sustainability can be achieved by:
- Sourcing Responsibly: Select suppliers with eco-friendly practices.
- Reducing Waste: Minimize waste in production and packaging.
- Optimizing Transportation: Choose greener transportation options and route optimization.
- Embracing Renewable Energy: Use renewable energy sources in operations.
- Promoting Ethical Practices: Ensure fair labor practices throughout the supply chain.
Modern supply chain management faces challenges such as:
- Globalization: Managing complex international supply chains.
- Cybersecurity: Protecting digital supply chain data from cyber threats.
- Environmental Concerns: Adapting to sustainability requirements and regulations.
- Supply Chain Disruptions: Addressing disruptions like natural disasters and pandemics.
- Customer Expectations: Meeting evolving customer demands for speed and customization.
E-commerce has transformed supply chain management by increasing the need for faster deliveries, order accuracy, and seamless returns. It has led to the growth of last-mile delivery solutions, more extensive warehousing networks, and advanced order processing technologies.
Data analytics plays a pivotal role in supply chain management. It offers valuable insights into demand patterns, optimizing inventory management, facilitating efficient route planning as well as enabling continuous performance monitoring. Utilizing advanced analytics techniques such as machine learning enhances decision making precision and improves forecasting accuracy.
Supply chain disruptions can exert adverse effects on businesses. These effects include delayed operations, escalated costs and diminished levels of customer satisfaction. They underscore critical importance of bolstering supply chain resilience and implementing robust risk mitigation strategies.
A sustainable supply chain offers numerous advantages. This includes reduction of operational expenses and enhancement of brand reputation. It also maintains access to environmentally conscious markets. The whole process is compliant with regulatory standards and establishment of long term resilience against environmental and social risks.
The Internet of Things is also abbreviated as IoT. It is a transformative force within supply chain management. IoT devices and sensors facilitate real time tracking and monitoring of products. It also includes assets and equipment across the entire supply chain. This data empowers organizations by enhancing visibility, traceability and overall supply chain efficiency.