Summary: SCM is a software solution that helps companies make their supply chains as efficient as possible, usually by reducing inventory without compromising service levels. For manufacturers of complex products, SCM also catalyzes collaboration between the engineers who design assemblies and the suppliers who make them.
What is supply chain management in manufacturing
SCM software creates processes and workflows that manage the data suppliers need from clients and vice versa.
This can include everything from procurement, fulfillment, and PO requests, to inventory, warehouse, and shipping/logistics management. The overall goal of SCM is to reduce inventory without compromising service levels and make manufacturing as lean as possible.
More specifically, SCM is a software tool architected to do two things:
- Track the movement of physical products over time and location
- Link those physical dimensions to broader business data structures.
Where SCM came from
Supply chain management has existed in some form or another ever since the industrial revolution, but really became what it is today in the 1990s.
The rush to move to ERP over Y2K fears made believers in the power of data out of even the most conservative in large organizations. There was a general move to make supply chains better, data-driven, and more efficient by leveraging the information organizations already had.
And just in time – globalization that dovetailed with the rise of Chinese manufacturing meant that organizations needed a better way to manage their suppliers.
Suddenly, OEMs and brands weren’t just using their supply chain to stock their nuts and bolts. Increasingly, they were relying on factories in the developing world to build whole assemblies (often intricate and complex ones) and then piecing them together state-side.
Why does SCM matter?
To understand what is supply chain management in manufacturing, and why the SCM market is growing like crazy, we need to understand the context of modern product development.
First, products are more complex than ever before.
It’s not feasible for a single company to create and manage its engineering end to end – working with a large number of specialist suppliers shipping fully-completed assemblies is par for the course. So on top of globalization, we now have specialization.
Second, products are no longer built by brand owners.
Instead, they’re built by a distributed network of teams. According to CIMdata, a leading PLM strategic consultancy company, up to 70% of industrial and consumer products are made from procured-in content.
70% of industrial and consumer products are made from procured-in content.
Combined, these factors mean tight collaboration with suppliers is essential just to deliver products to market.
Intel, for example, might be supplying the entire onboard computer for a new car. Or Samsung might supply the entire screen for the new iPhone.
This means suppliers are vulnerable to design changes, so they need to be more involved in the engineering/design stage. SCM helps bridge this gap to fuel collaboration between suppliers and design.
Supply chain management software in manufacturing is increasingly necessary so that suppliers and designers to develop in tandem. The traditional model of firm handoffs between stages isn’t a reality anymore. Rather, software works collectively in a network. For supply chain management in manufacturing, it means that SCM must work closely with product designers and engineers so that those building products:
- Know what parts and assemblies are available
- Can communicate their design specifications early
- Can manage engineering changes in conjunction with the suppliers who are affected.
Where SCM is going
We’ve looked at what supply chain management is in manufacturing. But where is it going next?
We think that SCM will become more of a collaboration tool.
The requirements for SCM to work with things like cloud PLM make it clear that it’s going to sit equally in the design and production stages of product development.
This shift mirrors the increasing involvement of procurement in the design process as engineering spend more of its time shopping for components that designing from scratch.
Second, we see SCM embracing best of breed technology with integration tools.
ERP continues to position itself as a single suite provider, capable of delivering some or all SCM functionality.
We don’t think that SCM is going to go that way.
As SCM moves to engineering/design, it’ll extract itself slightly from the financial data core of ERP. There will be less functional overlap, and it’ll just make sense for SCM to offer a best of breed solution with flexible data pushing/pulling integrations, rather than sitting within the ERP suite.
SCM is often a thorny problem, first because it’s functions are split into multiple software suites and second because its functions are rapidly moving from production to design and engineering. It’s difficult to answer the question: what is supply chain management in manufacturing.
For us, SCM stands apart because it’s fundamentally about uniting multiple companies in the supply chain. That cross-organizational design means its a critical part of the enterprise suite as companies engineer in one location and build in another while assembling in a third. SCM is needed to link engineering with production, and we think that weld will be a cloud PLM/SCM connection.
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