An Introduction to Supply Chain Management Software (SCM)

The end effect of SCM is improving long-term performance of the company, the companies within the supply chain, and the supply chain as a whole for competitive advantage

Supply Chain Management (SCM) is the management and administration of a network of interconnected enterprises involved in the fundamental provision of product and service packages required by end customers.¹ This complex discipline is the systematic and strategic coordination of traditional business functions—and the tactics across those business functions—within a particular company and across businesses within that company’s supply chain. The end effect is improving long-term performance of the company, the companies within the supply chain, and the supply chain as a whole for competitive advantage.²

Keith Oliver, an analyst working for the consulting firm Booz Allen Hamilton, coined the term “Supply Chain Management” in 1982 to describe the overall process of planning, implementing, and controlling what goes on in the supply chain to satisfy customer demand quickly and efficiently. As executed in the marketplace, Supply Chain Management can involve everything from monitoring the procurement, exchange, and storage of raw materials; to taking inventory of all work in process; to tracking the movement of goods from their point of origin to the point where they will be consumed.³
Supply Chain Management has five basic components:

1. Planning: A plan or strategy must be developed to address how a given good or service will meet the needs of customers. A primary goal of this component is to develop cost-efficient procedures that will deliver high-quality products to consumers at a lower production cost.
2. Sourcing: This component involves building a strong relationship with suppliers of the raw materials needed to make the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment.
3. Making: This is the manufacturing section of SCM. The product is manufactured, tested, packaged, and scheduled for delivery. Quality levels, output, and worker productivity are constantly being measured to optimize efficiency, making this component critical to the company.
4. Delivering: This component in SCM is logistical, and involves the company creating warehouse networks, coordinating the receipt of orders from customers, deciding on the transportation and shipment methods, and setting up invoices to receive payments.
5. Returning: This is the final, service-oriented part of the supply chain. In this component, the company tries to create a network that is responsible for receiving defective products or excessive amounts of them, as well as maintaining the original products sent to the customer.⁴

Each of these components is composed of scores of specific tasks. Supply Chain Management must address the following issues:

• Distribution network configuration: including number, location, and network missions of suppliers, production facilities, distribution centers (DCs), warehouses, crossdocks, and customers.
• Distribution strategy: including questions of operating control (e.g., centralized, decentralized, or shared), delivery schemes, modes of transportation, replenishment strategy, and transportation control.
• Logistical compromises: to ensure that distribution activities are finely coordinated to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized, therefore making it critical to take a systemic approach to logistics.
• Information: integration of processes must extend through the supply chain to allow sharing of key information, including demand signals, forecasts, inventory, transportation, and collaborative strategies.
• Inventory management: including quantity and location of inventory, raw material, work-in-progress (WIP), and finished goods.
• Cash flow: to arrange the terms of payment, as well as methods of exchanging funds across members of the supply chain.

Supply Chain Management software incorporates tools or modules used to execute supply chain transactions, manage supplier relationships, and control all business processes related to the functioning of the supply chain. SCM software applications often rely on the type of information stored in Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems. ERP is usually the application that aggregates the essential information, and SCM integrates with ERP for current and emerging data impacting the supply chain.

Organizations typically benefit from implementation of ERP before SCM. ⁵ While applications addressing the logistical component of SCM have historically been independent of ERP, this has changed. Increased demand for integrated information, driven in large part by the increasing role of Web-based activity throughout the supply chain, makes it critical that SCM applications integrate with ERP and the Internet.⁶

According to Gartner, worldwide SCM software market revenue totaled $6.2 billion in 2009. New license revenue was down 7.4%, but recurring revenue from subscriptions and maintenance were up 10.8% and 0.2%, respectively, keeping the market relatively stable during the economic downturn.⁷

"The economic climate of the past few years and the maturity and saturation of implemented business applications have proved difficult,” said Chad Eschinger, research director at Gartner. “This stressed environment has forced many vendors to increase maintenance rates and explore various channel, delivery, and pricing options.”

Competition has intensified between enterprise-suite and specialized, best-of-breed vendors. Specialized vendors' sole or primary business is to market supply chain applications within defined markets. These vendors may offer a suite of supply chain solutions but typically do not provide solutions in other markets. Suite vendors compete with specialized vendors, but they offer products in several markets, and revenue from supply chain applications is not their sole focus. While suite vendors are typically positioned within enterprises to combat emerging-application purchases, there nonetheless remain considerable opportunities for specialized vendors that offer differentiating domain and vertical solutions.

The specialized segment of SCM software revenue totaled $3.5 billion in 2009, a 1.6% increase from 2008. The suites segment of SCM software revenue totaled $2.7 billion in 2009, a 3.7% decline from 2008 revenue.⁸