What is Supply Chain Management? SCM Definition & Examples

Products go through quite a journey before they reach your customers. They are manufactured, reviewed for quality, stored temporarily, and shipped (often several times) before they actually reach the end consumer.

Each step is part of the retail supply chain. Proper supply chain management (SCM) is crucial to optimizing inbound and outbound logistics processes as well as growing your business.

Even one broken link in the ecommerce supply chain can lead to a ripple effect that ultimately leads to harmed margins, lost revenue, slow supply chain velocity, and a drop in customer satisfaction.

To help your brand avoid those effects, we’ll cover how supply chain management works for ecommerce businesses, what the global supply chain looks like, and best practices for SCM.

What is supply chain management?

Supply chain management (or SCM) involves overseeing the movement of all the materials, finished goods, and processes that come together to get products to customers. This includes every supply chain function, from production to last-mile delivery. 

Source: Recurrency

Supply chain management (SCM) vs. supply chains

Supply chain

A supply chain is a system focused on moving a product or service from supplier to customer.

This system is made up of a few key elements: 

• Resources – raw materials, finished products, wholesale inventory, and information
• Processes – operational functions such as inventory putaway, order picking, and shipping
• Stakeholders – suppliers, manufacturers, 3PLs, carriers, etc.

In an ecommerce business’s supply chain, different stakeholders work together to exchange resources and perform operational functions, with the shared goal of obtaining products and transporting them to customers. 

For example, say an ecommerce business makes and sells scented candles. This business’s supply chain consists of sourcing raw materials like wax, wicks, and glass containers from suppliers, creating the final products, fulfilling orders, and shipping orders from their warehouse to a customer’s doorstep via carrier partners. 

Supply chain management

Supply chain management is monitoring and optimizing how a product moves through the supply chain. 

Because supply chains are multi-phase endeavors, they require a lot of coordination to run efficiently. SCM is that coordination – that is, all the management activities that keep a supply chain operating smoothly. 

Using the previous example, the candle business’s supply chain management might include:

• Determining how many of which candle scents to create
• Placing an order for raw materials from the supplier
• Arranging and timing transportation of raw materials and finished goods 
• Auditing inventory and monitoring inventory levels over time
• Partnering with a 3PL for order fulfillment

Types & examples of SCM

There are a few different supply chain models that businesses typically use. Each model may require a different approach to supply chain management. 

Continuous flow 

Some supply chains are built around stability. Businesses that sell the same products year after year and experience stable customer demand for them don’t see a lot of volatility in their operations. As a result, they can keep their supply chain running on a set schedule. 

For example, the toilet paper brand Charmin has a strong customer base and steady demand for their product. With stability expected, the brand can continuously create and sell their product with little variation. 

Continuous flow supply chains still require supply chain management. However, most SCM efforts are aimed at adjusting processes and optimizing for costs, rather than navigating surprises or market shifts. 

Fast supply chain

The fast supply chain model is for businesses that sell products with short life cycles. Fashion brands, for example, must have fast supply chains, so that they can acquire, sell, and deliver clothes that fit the current trends before those trends go out of style. 

Brands using the fast supply chain model will need SCM that keeps up with their sales cycles. In most cases, their SCM will be focused on forecasting demand, coordinating quick manufacturing and transportation of goods, and keeping deadstock and obsolete inventory in check. 

Flexible and agile

An agile supply chain model is a must for brands that expect sporadic peaks and troughs in demand. For instance, a brand that sells Christmas lights will see great spikes in demand in Q4, but very little demand the rest of the year. 

For these brands, supply chain management involves communicating with suppliers to ensure that the brand has enough stock to satisfy customers during periods of high demand, while auditing inventory to avoid overstocking in leaner periods.

The benefits of stellar supply chain management

Supply chain planning and management is what keeps a business moving. Therefore, if it’s slow or not optimized, you can’t grow efficiently. Ecommerce businesses of all sizes have a lot of unseen opportunities to improve their supply chain.

Whether it’s diversifying manufacturers and working with local suppliers, changing how inventory is stored in warehouses, or even outsourcing fulfillment to the right third-party logistics (3PL) provider, there are plenty of ways to improve your supply chain to save money and keep customer satisfaction high.

Having the right amount of product at the right time

If you don’t have enough safety stock, you run the risk of stockouts and backorders, causing your customers to wait longer for their orders. With too much inventory, you’ll have to pay high warehousing fees, which eats up your capital.

Proper supply chain management ensures you can anticipate and forecast demand for products and always have enough on hand.

Minimizing lag time between parts of the supply chain

By analyzing and optimizing your supply chain, you can minimize lag time and make the chain more efficient.

• Are your products taking too long to be manufactured? Negotiate better terms or find another supplier.
• Are your transit times slow and average shipping zones high? Analyze your warehouse locations and determine fulfillment center location(s) that are closer to your end customers.
• Are you constantly out of stock for popular products? Up production, invest in inventory forecasting, set more frequent reorder points, and increase your reorder quantity.

By examining every aspect of your supply chain, you can find improvement opportunities and implement changes as needed.

Reducing fulfillment costs

Order fulfillment can be costly for your business if it’s not implemented strategically. Inefficient inventory storage, poor geographic locations, high shipping costs, and unoptimized labor and operations can add up over time and kill your margins.

With good supply chain management, ecommerce businesses can not only minimize fulfillment costs, but actively transform fulfillment from a cost center to a revenue driver and competitive advantage.

Leveraging technology for better visibility

Efficient SCM almost always requires up-to-date software and tools. These tools not only provide increased visibility throughout different supply chain stages for a more comprehensive view, but also reveal new opportunities for improvement in particular areas. 

For example, ShipBob’s merchant dashboard combines the best of inventory, order, and warehouse management to deliver real-time analytics on every supply chain phase.

ShipBob customers can track inventory levels and KPIs, access historical order data, and monitor fulfillment performance to pinpoint optimization areas, and improve their supply chain management.

Improving environmental sustainability

Through good supply chain management, a business may minimize its environmental impact. By making eco-conscious choices with regards to suppliers, manufacturers, transportation, and inventory management, your supply chain can run efficiently without deepening its carbon footprint. 

For instance, businesses can partner with local suppliers to avoid the heavy carbon emissions of ocean or air freight. Similarly, optimizing transit routes to minimize the number of trips inventory makes also reduces carbon emissions. 

Merchants can also distribute their inventory to be closer to customers (shortening transit distances) and manage inventory levels so that less deadstock ends up in landfills. 

Streamlining logistics across the board

When your supply chain is properly managed, your logistics become much easier. This is especially true when your brand partners with a 3PL like ShipBob.

The right 3PL will use their expertise to optimize your supply chain for speed, efficiency, and cost, and help you streamline logistics across inventory management, fulfillment, and shipping.

This also gives you time back to focus on other strategic priorities, like marketing or product development. 

How does SCM work?

Ecommerce businesses have a different supply chain compared to brick and mortar retailers. Instead of having products shipped to a retail location, products are stored in an ecommerce warehouse and shipped directly to consumers. Here’s an overview of what the ecommerce supply chain looks like:

1. Planning

Good supply chain management begins with accurate demand forecasting. Demand planning allows you to anticipate changes in volume and ensure orders are placed at the right time so that you always have just the right amount of inventory. 

If you don’t correctly estimate how much demand there will be for each SKU, you may stock out (leading to backorders and dissatisfied customers) or end up with too much stock (inflating your holding costs). 

To get the best demand forecasts possible, study historical sales data for past patterns that may repeat themselves. You should also factor in trends, seasonality, and geographical values or needs, as these can also affect demand.

Implementing an inventory management system (or IMS) can make it easier to track and analyze this data over time.

2. Sourcing and manufacturing

Next, your business must manage procurement – in other words, how and when you obtain the products you’ll sell.

Find a supplier

The first stakeholder in the supply chain (other than your business) is the manufacturer. Though it will depend on the types of products you sell, you’ll need to find a supplier that can manufacture your product in a safe, cost-efficient, and timely manner.

Here are some questions to ask when evaluating potential suppliers:

• Where are the raw materials coming from?
• If your manufacturer is overseas, have you ever evaluated the shipping savings of a closer-to-home supplier?
• Can your goods be made closer to home?
• Have you looked at diversifying your suppliers to have other sites as backups for risk management in the event that a factory shuts down?
• Can you cut costs and production lead times?
• Does your supplier know when products need to be reordered?
• Can your manufacturer further package or build your products to reduce the need for kitting and assembly in the fulfillment center?

Having risk management built into your supply chain at times like the COVID-19 pandemic are more important than ever.

Arrange for inventory transportation

You must then coordinate with your manufacturer on how your product(s) or raw materials will be transported. If you have multiple warehouses, you need to ensure that the right amount of inventory reaches each specific warehouse and the proper documentation is included with the freight shipments.

Demand planning allows you to anticipate changes in volume and ensure orders are placed at the right time so that you never run out of inventory and also don’t have money tied up in excess inventory. An inventory management system can help manage this.

3. Fulfillment

After inventory is transported from the supplier or manufacturer and arrives at the ecommerce brand’s warehouse or fulfillment center, the next supply chain stage is fulfillment.  

Receive and store inventory

Once inventory is received at a fulfillment center, it must be properly stored. Each SKU needs its own unique storage spot for accurate and fast retrieval (e.g., a red shirt that is available in S, M, L, XL, and XXL will require five separate storage locations).

Process orders

The next phases of the supply chain are triggered when an order comes through from one of a business’s sales channels. Whether it is an ecommerce platform, social channel, or dropshipping order, the merchant’s order management system must confirm the order and route it to a warehouse or fulfillment center.

Some 3PLs, like ShipBob, integrate directly with a business’s ecommerce store to automatically process orders. They may even automatically assign those orders to be fulfilled in the fulfillment center closest to the order’s final destination to minimize shipping times and costs.   

Pick and pack orders

Once an order is confirmed, the items in that order must be retrieved from storage. This process, called picking, is usually done by hand but optimized for accuracy and efficiency using barcode scanners, pick list generation, and other automations. 

Picked items are then transferred to packing stations, where they are placed inside a box or poly mailer. Businesses may choose to customize their packaging to delight customers or advertise their brand – though this can add complications and slow operations.

4. Delivery

Packed orders must then be delivered to end customers. 

Selecting a carrier

Merchants will need to select a carrier partner to ship their packages. Different carriers will offer different services and rates, and some may be more reliable than others. In evaluating your options, you will need to decide what qualities are most important to your shipping strategy. 

While customers expect fast shipping, it is not always affordable. With a logistics partner to strategically distribute inventory and negotiate bulk discounts on your behalf, your brand can achieve fast shipping at a good price.  

Prepare orders for shipping

Next, merchants need to get their packages into the carrier’s hands. If you fulfill orders yourself, this may involve multiple trips to the post office. When you outsource fulfillment and shipping to a 3PL, they will coordinate with carriers to hand off packages for you. 

Last-mile delivery

From there, couriers will deliver packages to the end customer. Carriers might use multiple different modes of transportation, but ground transportation is the most common method of doorstep delivery.

Make sure you choose a carrier that you trust to keep packages in good condition, as damage in transit still reflects poorly on your brand.

5. Returns

Even after customers get their orders, they may decide to return items. Your brand should have business processes in place to manage returns, as well as to determine which items are restockable and which are not.

What links all of the parts of a supply chain?

A supply chain is made up of a lot of moving parts. There are physical goods continuously being transported, with lots of critical information that must be shared across several stakeholders.

With the combination of physical and digital counterparts, a supply chain in today’s world is a complex beast that requires a lot of attention to detail.

Transfer of physical inventory

From the manufacturer to the end consumer, there are many inventory movements across different modes of transportation including:

• Vessels moving inventory overseas
• Trucks that pick it up at the port and bring it to a fulfillment center
• Warehouse associates who receive it at the dock, count, and stow it in the fulfillment center
• Pickers and packers who retrieve inventory and pack it in the fulfillment center
• Shipping carriers who pick up daily orders at the fulfillment center, bring them to their sorting facilities, and carry out last-mile delivery
• International orders that travel via air or sea, stop at customs, and are sometimes handed off to a different carrier

For each of these movements, there needs to be a digital trail to ensure order accuracy and visibility in inventory reporting.

Transfer of information

There’s a lot of data being exchanged in a supply chain — between suppliers and buyers, sellers and customers, shipping carriers and sellers — and it must be recorded, analyzed, and shared with the proper parties in a timely manner.

From order tracking to inventory tracking, the right technology, including a centralized knowledge base, must be in place to keep information organized, clean, and accessible.

The future of SCM

The COVID-19 pandemic was a defining event of the decade, both for individuals and for ecommerce. As it ground global supply chains to a halt, it revealed weaknesses in supply chain management that businesses are now addressing. 

For instance, SCM strategies are increasingly focusing on building supply chain resilience. The pandemic underscored how unprepared global supply chains were to handle unexpected disruptions – and with the McKinsey Global Institute finding that companies experience a significant disruption every 3.7 years, businesses are taking steps now to minimize supply chain risk and prepare for the next crisis. 

For many businesses, this will involve accessing better data using cutting-edge software, diversifying supplier and manufacturing options, and creating the contingency plans they needed a few years ago. 

Supply chain strategies will similarly emphasize supply chain agility going forward. After being forced to turn to new sales channels throughout the pandemic, consumers expect to be able to shop on multiple platforms. To keep up, 63% of brands surveyed in a 2023 report expected to add a new sales channel, and 40% expected to sell through brick and mortar locations as well as online. 

Brands adopting a more omnichannel approach will have to adapt their supply chain management accordingly. This means offering a consistent delivery experience, balancing demand, and meticulously tracking inventory across all channels. 

Additional challenges, such as driver shortages, are also shaping today’s supply chains. Many businesses are investing heavily in automation and artificial intelligence as a result of labor shortages, and seek to automate menial tasks. One report even suggests that by 2026, 75% of large enterprises will have adopted some form of intralogistics smart robots in their warehouse operations. 

But will increased automation take away the need for people? Probably not. As advanced and impressive as supply chain automations may become, some tasks will still require a human touch. Automations can save a business from repetitive or time-consuming tasks, giving your team more time to focus on strategic planning – and managing your supply chain. 

How ShipBob simplifies supply chain management

Ecommerce companies that don’t want to oversee warehouse management themselves can simplify supply chain management by working with 3PLs like ShipBob.

Doing it yourself is time-consuming and costly, with lots of labor, training, certifications, resources, safety measures, and other costs that make in-house fulfillment unappealing to many.

On the flip side, 3PLs are experts in supply chain management, know how to optimize operations, and keep up-to-date on the latest supply chain trends and technology.

ShipBob fulfills orders for thousands of ecommerce brands across their large network of fulfillment centers and gives brands time back to focus on marketing, product development, and more.

Here’s how a 3PL like ShipBob improves your supply chain management:

Better inventory management

The best 3PLs give you the information you need to manage inventory without having to store products yourself. ShipBob’s dashboard tracks inventory levels for all products are tracked in one place and in real-time, and you can set automatic reorder notifications to make sure you time replenishment correctly and avoid stockouts.

Distributed inventory

ShipBob has a large network of 40+ global fulfillment centers to help get your products to customers quickly and affordably.

By shipping orders from warehouses closest to the customer, you can reduce your fulfillment costs, shipping costs, and lead times – all of which can boost customer satisfaction and repeat purchase rates.

Using ShipBob’s Ideal inventory Distribution tool, merchants can even calculate the most strategic allocation of inventory throughout ShipBob’s fulfillment centers to speed up shipping while lowering average shipping cost.

2-day shipping

2-day shipping is a great conversion tool, and drives a lot of revenue.

With ShipBob, you can ship 2-day across the entire continental US affordably, so your brand can compete with retail giants without having to spend an exorbitant amount of money.

“Once we decided to implement ShipBob’s 2-day shipping for our US orders, we really saw a shift in how fast our orders were shipping. Even when we’ve had one fulfillment center run out of inventory, orders get pushed to a different fulfillment center and they still arrive on the customer’s doorstep in 2 days.” 

Maria Osorio, Logistics and Operations Director at Oxford Healthspan

Order management

With real-time visibility into your orders from the ShipBob dashboard and automated order processing, you can keep customers up-to-date and also easily access order management and supply chain performance metrics.

“ShipBob’s technology provides immediate visibility into inventory and the flexibility to quickly correct and edit customer errors post-order. We also don’t have to worry about fulfilling large volumes of orders on time, all at once, or by ourselves.”

Carl Protsch, Co-Founder of FLEO Shorts

Conclusion

Your ecommerce supply chain can affect how your business grows. With a properly managed supply chain, you can scale your business without having to constantly worry about manufacturing, inventory levels, warehouse issues, shipping, and more.

There are unseen profits to be gained from fixing even a few minor inefficiencies in your supply chain to make your supply chain leaner. You may be surprised at the amount of waste that’s in your own supply chain.

If you want to learn more about how your ecommerce business can optimize your supply chain through ShipBob, request a retail fulfillment quote below and our supply chain professionals will be in touch shortly.

Supply Chain Management FAQs

Here are answers to common questions about supply chain management.