Doing business today requires ever-faster shipping of products to increasingly demanding customers, who are often spread around the world. That explains why supply chain execution has become so pivotal to companies’ success.
Supply chain execution describes how companies drive the flow of goods from procurement to delivery, including activities like production, warehousing and transportation. This is often an area the company pays a lot of attention to because it’s a major cost center and typically is ripe for cost savings.
What Is Supply Chain Management?
Supply chain management is a broad term that refers to the coordination of production, warehousing, inventory, distribution and transportation among the participants in a supply chain to respond efficiently to customer demand while minimizing costs. Supply chain execution is one of the two main functions of supply chain management, with supply chain planning being the other.
What Is Supply Chain Execution?
Supply chain execution aims to optimize the use of all available supply chain assets, control costs at each step and deliver items to customers on time and to specifications.
Successful supply chain execution relies as much on information and communication as it does on forklifts and freight carriers. Day-to-day decisions are often shaped by exceptions and disruptions to the delicate balance between supply and demand. To stay on top of the situation, supply chain managers need to be able to track the movement of goods throughout the supply chain, which includes the ability to quickly spot bottlenecks or other problems. This information helps managers decide whether to reroute products, reassign employees, workstations or machinery, push out or move in production, increase or reduce supplier orders or take another action. By doing so, they can often mitigate knock-on issues throughout the supply chain—known as “the bullwhip effect”—that are caused by sudden changes, like a shift in consumer demand.
To gain the visibility that allows for better decision-making, companies use applications that direct and track the progress of specific supply chain execution tasks. For example, a procurement system can automatically place purchase orders with suppliers when inventory is low; an order management system can identify the cost-effective fulfillment option for a particular order; and a warehouse management system can help an employee pick, pack and prepare an order for shipment in the most efficient manner.
Companies often give suppliers select access to their supply chain execution applications—and vice versa—to share real-time information. Others provide some supply chain visibility to customers so they can see the status of shipments.
Some companies outsource certain supply chain execution tasks to third-party logistics providers (3PLs) that specialize in functions the company isn’t prepared to handle itself or can’t perform as cost-effectively. Many companies offload warehousing, shipping and the processing of returns to 3PLs.
What Is Supply Chain Planning?
Supply chain planning involves mapping out the manufacturing, logistics and inventory that the business thinks it will need to meet future demand. It combines forecasting, pricing strategy and inventory management to balance product supply and customer demand, often with the help of supply chain management software that’s integrated with a larger enterprise resource planning (ERP) system. Supply chain planning requires frequent communication and coordination with raw materials suppliers, manufacturers, distributors and other partners, depending on your business model.
Supply Chain Planning vs. Supply Chain Execution
While supply chain planning involves looking into the future to predict and prepare for impending demand, supply chain execution focuses on the day-to-day completion of the supply chain plan. That includes activities such as tracking current inventory levels, taking orders, planning and executing work orders, picking and packing orders and scheduling shipments. Execution may also involve adjusting the plan in response to a shift in demand or an issue with a certain link in the supply chain.
Supply Chain Execution Benefits
Efficient supply chain execution can enhance customer satisfaction by ensuring fast and accurate order fulfillment. It can also reduce a company’s operating costs by reducing the amount of inventory it holds, and it can give a company a competitive advantage that helps it pull in new customers and increase sales.
Sharing the valuable information a supply chain execution system provides with other departments or external suppliers can also improve supply chain execution. For example, an organization could better synchronize the movement of goods to delivery schedules, gain real-time insights that allow upstream and downstream partners to quickly respond to changes affecting supply or demand, or measure performance to make improvements for the future.
What Is Integrated Supply Chain Planning and Supply Chain Execution?
Supply chain integration is an umbrella term that describes tightening the relationship between supply chain planning and execution. This integration can take many forms. For example, it could include giving your external suppliers limited access to your supply chain execution system. Or it could mean integrating a company’s supply chain management functions with its finance and sales systems to give those teams better visibility. An emerging best practice is to integrate the supply chain planning and execution components of supply chain management software.
Supply chain control towers can play a key role in this integration. A relatively new concept, a supply chain control tower integrates various software applications to provide a single view of a company’s entire global supply chain, alerts them to issues and could even make suggestions to resolve those issues. Ultimately, control towers can provide information that helps both employees responsible for purchasing and demand planning and managers or directors on the warehouse floor. It could help with everything from scenario planning to the detection of capacity or inventory shortages.
Supply chain integration can be especially valuable for smaller companies, which may have only one or two people focused on supply chain. They can punch above their weight, gaining an edge in the market with detailed, easily accessible information on everything from projected demand to real-time inventory availability.
Supply Chain Execution Applications
Supply chain execution is highly complex, especially when it involves global supply chains. Supply chain execution works with supply chain planning to set production capacity and determine a production plan to meet requirements. Yet managers need to make decisions and respond in short order. To support this decision-making and improve efficiency, companies use a range of supply chain execution applications, which are often part of a broader suite of ERP applications:
An order management system receives and organizes orders from multiple sales channels, managing processes including order creation, order prioritization, approval workflows and returns management. This software can also track vendor performance.
Transportation Management Systems
A transportation warehouse system helps businesses optimize their use of carriers for land, air and sea transportation. This solution also tracks shipments while in transit and may handle compliance requirements for global trade, such as international tariffs. While multinational enterprises were the primary users of transportation management systems in the past, cloud-based solutions have made these benefits more accessible to smaller companies.
Warehouse Management Systems
A warehouse management system helps a company optimize its use of warehouse space, schedule labor, manage inventory and fulfill orders. It can direct associates through the process of picking, packing and attaching shipping labels based on the order picking method that’s most efficient for the organization.
Warehouse Control Systems
Interfacing with a warehouse management system, a warehouse control system regulates equipment such as conveyor belts, sorters and scanners that can make inventory handling more efficient. A warehouse control system can monitor the status and performance of this equipment, as well.
Slotting software helps companies place items in the optimal location within a warehouse, so that workers can retrieve them with the greatest accuracy in the least amount of time. That could mean, for instance, putting popular items in a spot where they can be reached quickly or placing similar products in different locations to minimize errors.
Yard Management Systems
A yard management system, paired with tracking technologies such as GPS and RFID, coordinates the movement of trucks, trailers and sometimes pallets of goods in the yards of manufacturing facilities, warehouses and distribution centers. These systems aid in optimizing the loading and unloading of goods—for instance, directing a truck to a specific warehouse door when its assigned shipment has been moved to a nearby staging area and is ready to go.
Labor Management Systems
A labor management system helps companies schedule warehouse or manufacturing employees based on expected workloads to manage those resources efficiently. The system can track employee activity and productivity levels to control and monitor labor costs.