What is Supply Chain Engineering?

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Not long ago I introduced myself to a client as my company’s Director of Supply Chain Engineering Services.  He responded, “Supply chain engineering?  Wow, that sounds important.”

There may have been a hint of sarcasm in his voice, or it may have just been my imagination. But either way, he was right.  Supply chain engineering, or SCE, is a new, exciting … and important field.  It is where the applied sciences of engineering and information technology meet the business of supply chain management.

But it is such a new field that its boundaries are not well defined.  For example, if you go to Wikipedia, you will find this: ”(In SCE) strategy, engineering and IT are not regarded separately but equally and integrated in all planning steps. Solutions for supply chain design that follow the SCE approach are therefore considered to be holistically and always influenced by engineering. All measures that follow the SCE process focus the most ideal supply chain construction whilst regarding cost optimization, a correct use of engineering and IT as well as training and integration of employees in production centres and logistical facilities.”[i] I have read that several times now and I am still not quite sure what it says.

And if you pull up the Council of Supply Chain Management Professionals (CSCMP) glossary, you will find a very detailed definition of  supply chain management (SCM): “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”[ii] 

Let’s make that a bit more succinct. SCM is the combination of business functions such as purchasing, logistics, production, and sales to move goods from raw material to the customer.

What you won’t find is a definition of supply chain engineering there.  Nope.  Not even a passing reference to SCE. And that’s not a slam to either the CSCMP or supply chain engineering. It is simply a testimony to how nascent this area of discipline is. And that’s probably why there is so much confusion around the subject. 

I have witnessed that confusion in the field. I have been places where a former IT guy manipulates item and supplier Master Data Files, so they called him a supply chain engineer.  But he’s not.

I’ve been where the lady who does the bid analysis is called a supply chain engineer. But she’s not.

So, what then is Supply Chain Engineer and how does it differ from a Supply Chain Management professional?  Well, at a very high (and somewhat vague) level, SCE is co-equal blending of business strategy, IT, and engineering. Alan Erera, director for the M.S. in Supply Chain Engineering program at Georgia Tech, offers a more concrete definition; “I view supply chain engineering as the application of the principles of management science, industrial engineering, operations research, and analytics for the design, control, and analysis of supply chain systems or their components.”[iii]

Put slightly differently, supply chain engineering (SCE) is the use of applied mathematics and applied science to analyze and optimize elements of the supply chain to meet specific business requirements.

And there you have it – the difference between SCM and SCE.

SCM says we need to have safety stock to prevent stockout.  SCE mathematically calculates the optimal amount of that safety stock for each item based on user-defined constraints.

SCM defines what the required service level is for meeting customer demand.  SCE analyzes demand and supply history to optimize the inventory policies to ensure those service levels are consistently met without unneeded investment in excess stock.

SCM determines the need to collaborate with upstream suppliers to ensure maximum profitability across the entire supply chain.  SCE identifies the tools and technology required to enable the requisite transparency as well as performs the analysis to optimize the profitability across the supply chain.

SCM recognizes the need to add a new distribution center (DC).  SCE determines the optimal location for that DC in order to minimize total investment and operating cost.

What makes a good SCE? First, like any true engineer, he or she must have a strong background in mathematics.  In the case of SCE, areas of statistical analysis and modeling are especially important. This includes subjects such as:

• Predictive (What could happen?), Descriptive (What has happened?), and Prescriptive (What should we do?) Analytics.

• Deterministic models and optimization techniques including linear programming, network flows, integer programming, and heuristics.

• Probabilistic models including the effects of variability in both supply and demand; forecasting and simulation.

They must also have a comprehensive understanding of the functional processes involved in a supply chain, including:

• Production scheduling; inventory management and warehousing, including stocking strategies, order-picking, sortation, automation; distribution.

• Problems of coordination and collaboration along the supply chain; make-or-buy decisions; pricing and auctions; wholesale and retail channels; supply chain dynamics, including the bullwhip effect. Distinctive supply chain issues in key economies.

• Familiarity with truckload, less than truckload (LTL), and last-mile transportation systems; container shipping, including port operations, steamship scheduling; railroad operations, including intermodal; air cargo. The international freight network and patterns of freight flow. Management and recirculation of trailers/containers, along with related labor issues.

• Planning and executing systems for inventory, warehousing, transportation, import/export, etc. Services-oriented architecture, cloud computing; systems integration; RFID and other technologies for scanning and monitoring.

So, I have to agree with my customer, whether he really meant it or not, Supply Chain Engineering is important.  It can be the difference between profitability and loss. It can determine a competitive edge. And in some cases (think Amazon and Walmart), it can mean market leadership.

And that is what Supply Chain Engineering is.

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[i] https://en.wikipedia.org/wiki/Supply_chain_engineering

[ii] CSCMP Glossary; https://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx?hkey=60879588-f65f-4ab5-8c4b-6878815ef921

[iii] https://www.quora.com/What-are-the-core-differences-between-supply-chain-management-supply-chain-engineering-and-industrial-engineering