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Supply chain management (SCM): meaning and functions

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What is supply chain management (SCM)?
Objectives of supply chain management
Three areas of supply chain management (SCM)
Supply chain management throughout the supply chain
Phases of supply chain management (SCM)
Supply chain management: software solutions
Supply chain management: importance for companies
Supply chain management issues
Supply chain management: importance for eCommerce
Tips for managing the supply chain in eCommerce


Supply chain management (SCM): meaning and functions

A well-designed supply chain can be decisive for the success or failure of a company. In times of crisis, when logistics or production problems arise, implementing the right strategy ensures that sales continue to be generated. Through effective supply chain management , large multinationals can identify alternative supply locations , take advantage of big data analytics, and obtain detailed information on the availability and demand for goods from international suppliers..

The timing of the flows of information and goods not only sectoral level can strengthen the adaptability of a company regarding the changing conditions of the market, but also help to maintain good relations with suppliers, manufacturers and end customers in times of crisis.

We tell you what exactly supply chain management is, what it consists of and why it is so important for eCommerce..

  1. What is supply chain management (SCM)?
  2. Objectives of supply chain management
  3. Three areas of supply chain management (SCM)
  4. Supply chain management throughout the supply chain
  5. Phases of supply chain management (SCM)
  6. Supply chain management: software solutions
  7. Supply chain management: importance for companies
  8. Supply chain management issues
  9. Supply chain management: importance for eCommerce
  10. Tips for managing the supply chain in eCommerce

What is supply chain management (SCM)?

The increasing digitization and international reach of supply and production chains pose not only a challenge for companies, but also an opportunity. By organizing the flows of goods and information through supply chain management going forward, companies can both compensate for market unpredictability and create a flexible network of services.

The concept of supply chain management encompasses the planning and optimization of both physical and digital supply chains , from raw material suppliers to the end user. An efficient SCM manages to develop distribution and production processes at competitive prices and constant exchanges within the value chain . The important thing is not only to detect the weakest link in the supply chain, but to know all the links that form it..

An open and transparent exchange of information between distributors, suppliers and producers ensures that companies can respond quickly and flexibly to fluctuations in demand, such as the bullwhip effect. In this way, goods flow as uninterrupted as possible and inventories do not accumulate. The supply chain can only be planned effectively if there are short communication channels , big data analytics and innovative technologies that have an immediate effect on suppliers and the flow of goods.

Implementing modern information and communication technologies in the form of software and machine learning solutions is essential for the effectiveness of supply chain management . The faster, more uniform and more automated the exchange of data, the better the links in the supply chain will be linked.

Objectives of supply chain management

In a globalized world, product lifecycles and production lead times are shortened, customer expectations rise, and pressure to reduce production costs and expedite delivery increases. Through supply chain management, transparent and collaborative networks are created that promote stability throughout the value chain.

The main objectives of SCM are cost reduction , customer orientation and demand-driven production through division of labor . Physical and logistical infrastructures can only become cheaper, faster and more competitive if companies collaborate with their partners and manage information and goods with transparency.

Thanks to the division of labor, partner companies can focus on their core competencies . The product is no longer manufactured centrally, but the components and raw materials are transported to producers, suppliers and subcontractors with the best value for money, and then reach the end customer as a finished product. The integration process oriented to the analysis of big data and machine learning enables synchronization of demand and supply and the balance of production and demand.

Three areas of supply chain management (SCM)

Supply chain management is divided into three areas of application:

Production process : companies must not only maintain close relationships with their partners, but also know the subcontractors involved in the supply chain, since the flow of materials and goods resulting from deliveries and returns can only be controlled by knows the path that the product follows, from the supplier of the raw material to the end customer, through production.

Information flow : information must flow in both directions along the value chain. To deliver goods effectively, companies turn to data on consumer behavior: How much do you buy? In what places is there an unknown demand for goods? Are there regular spikes in demand? For a good management of distribution flows, it is necessary for stores to transmit customer data to companies. Having information on transportation routes and having a general communication infrastructure is an integral part of SCM.

Financial flow : financial flows run in parallel and in relation to production processes. Each link in the value chain has its own economic interests and aims to benefit from collaboration. In SCM it is essential to control and optimize financial flows to reduce costs and increase profits for all partners.

Supply chain management throughout the supply chain

Product development : Supply chain management ensures the selection of the right suppliers and manufacturers, as well as contact with them in the development phase. Requirements for product quality and cost efficiency can be implemented already from this early stage.

Purchasing : to make the acquisition and storage of materials as complete and economical as possible, the SCM centralizes and organizes logistics, purchasing and management aspects of suppliers, manufacturers and clients.

Production - Supply chain management monitors quality requirements for materials, production, packaging and service, as well as optimizing the flow of goods through transparency and evaluation of work results.

Sales : SCM constantly evaluates and improves warehousing, distribution companies, and transportation routes to optimize the movement of goods in all phases, from production to consumer.

Supply chain management helps to monitor and control production processes and financial and information flows between the product development, purchasing, production and sales phases.

Phases of supply chain management (SCM)

Supply chain management is developed in three phases:

In the strategic phase , the company makes long-term decisions, over several months and years, to optimize and stabilize the logistics network throughout the value chain (for example, in aspects such as planning and expansion of facilities, investments, outsourcing or capabilities).

In the tactical phase, medium-term decisions are coordinated and implemented, within a quarter or year (for example, on delivery strategies, warehouse logistics or personnel planning).

In the operational phase , production and delivery decisions are made in the short term, within days or weeks (for example, on distribution of orders or sales and storage of products).


Supply chain management and logistics are similar concepts, but they deal with different areas. Logistics is primarily responsible for the actual delivery of goods or materials. SCM, on the other hand, deals with the functional aspects of value creation and specializes in optimizing costs, profits and processes.

Supply chain management: software solutions

Implementing SCM requires effective and innovative strategies and technologies . To this end, modules and applications that use planning concepts common to various companies are connected in a uniform and process-oriented manner. These concepts include financial and goods flows, resource optimization, logistics, and data transmission. Companies like Amazon and Netflix have long used big data analytics , real-time content, and engagement systems to directly assess data and consumer needs and design measures based on it.

Today, many companies use technology to improve the supply chain. However, an efficient real-time digital supply chain is rarely implemented . This is due, on the one hand, to the fact that the partners use different computer systems throughout the chain and, on the other, to the concern that causes disclosure of company data to all those involved. In terms of SCM, however, increasing transparency would streamline the process for all parties.

Key components for successful supply chain management include big data analytics , cloud computing, simulation tools, real-time content, bimodal strategies, and strong customer focus . Monitoring of the products themselves could be improved, for example, by using RFID (Radio Frequency Identification) technologies, which allow manufacturers and suppliers to obtain direct information on demand and purchasing behavior.

Transforming a company from the field of supply chain management requires a complex change of information systems and communication channels throughout the entire supply chain and, therefore, represents a great challenge.

Supply chain management: importance for companies

With increasing global protectionism and the severe blows that international trade has suffered in recent years, many companies have no choice but to familiarize themselves with SCM. Today, product launch and life cycles are getting shorter and shorter , making it costly to cut costs and maximize profits without being in constant contact with national and international partners.

Changing distribution routes and production figures to reduce inventory levels and keep goods flowing is especially necessary in times of crisis and unstable markets. It has been a long time since the big players in the market, such as Walmart, Tesla, Apple or Amazon, jumped on the bandwagon of innovative technologies, artificial intelligence and automation.

Supply chain management issues

The most common problems that arise from supply chain management are the following:

  • Conflicting business objectives : in the value chain, the different planning objectives of the partner companies can conflict.
  • Distribution of costs, tasks, burdens and benefits : it is important to distribute tasks, costs and burdens fairly and equitably in all links of the supply chain.
  • National and International Standards - Coordinating business and planning standards can be challenging.
  • Data security : it is necessary to protect the company's internal financial and production data and follow the different security regulations of each country.
  • Lack of proximity : maintaining close and transparent collaboration across borders, without direct personal contact, is not an easy task.

Supply chain management: importance for eCommerce

In a globalized world, eCommerce is increasingly important to the retail sector. The best way to manage the sale of goods and services in online stores and Internet commerce is to implement a well-developed SCM. In this sense, a flexible and forward-looking cyberbusiness requires two key elements: the ability to assess its own scalability and a transparent view of inventory levels and the demand for goods.

With a good implementation of supply chain management, it is possible to predict sales and plan production strategically . The great advantage of eCommerce is the proximity to the customer and the immediate evaluation of big data and purchasing behavior. Due to these factors, SCM is especially useful for online trading.

Tips for managing the supply chain in eCommerce

To successfully use SCM in e-commerce, there are a few important factors to pay attention to.

Personnel planning and digital infrastructure : to ensure a reliable supply chain, it is important to create a flexible network of manufacturers and suppliers , adapting to the needs of a growing company. In international trade, it is very important to exchange ideas with experts who can advise us on contractual, monetary and customs matters .

Goods availability and delivery times : Due to competitors like Amazon Prime, customer expectations are very high. Short delivery times, low prices and good quality are essential for most consumers. To be competitive, companies require an effective supply chain , proactive inventory management, and the ability to structurally adapt through the use of alternative subcontractors.

Reduction of excess inventory : to minimize unnecessary costs, it is necessary to avoid excess merchandise and adapt inventory levels to real needs. Evaluating customer data and assessing the capabilities of our own warehouses, manufacturers, and suppliers allows us to operate flexibly in electronic commerce.

Manage returns : Especially in online retail, customers expect the return process to be easy. Therefore, working on favorable terms with suppliers themselves in terms of returns is important to balance lost revenue with good customer service.


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