Supply chain management (SCM) describes how you coordinate product sourcing, manufacturing, and delivery. It involves planning purchases and working with suppliers to prepare products for sale.
Late shipments, oversized orders, and supplier decisions all affect your finances and your customers. Getting supply chain management right keeps products moving without tying up cash you need elsewhere, like in excess unsold inventory.
This guide outlines five common SCM stages: planning, sourcing, manufacturing, delivery, and returns. Learn how they work, why they matter for your business, and how different supply chain models suit different needs.
What is supply chain management?
Supply chain management (SCM) is the planning and coordination of sourcing, procurement, manufacturing, and logistics across a product’s journey from suppliers to customers:
- Sourcing: Finding and evaluating suppliers.
- Procurement: Purchasing materials or finished goods and agreeing on terms.
- Manufacturing: Producing finished products from raw materials or components. Also called conversion.
- Logistics: Managing storage and movement, including deliveries and returns.
These activities depend on coordination across suppliers, factories, warehouses, and other partners.
Maintaining supply chain visibility lets a business see inventory, orders, and shipments as they move between partners. For example, a store can see that a manufacturer's shipment is running late in time to push back a product launch date.
In a small business, the owner or an operations manager often handles this work. A buyer might place supplier orders, and a fulfillment partner might store and ship products. The store still needs to coordinate these activities, track costs, and resolve delays, whether or not there is a dedicated supply chain team in place.
The importance of supply chain management
Effective supply chain management means keeping products available to customers, ensuring cash is accessible for business operations (i.e., not tied up in excess inventory), and shipping orders on time. Coordinating supplier deliveries with inventory management helps you replenish products before they sell out. It also reduces the risk of buying more stock than your business can sell.
Finding suppliers that fit your budget and order volume is part of the work. Becca Millstein, cofounder of premium canned seafood brand Fishwife, encountered this challenge when looking for manufacturing partners.
“You really have to scrap it together,” she says on the Shopify Masters podcast. “In terms of supply chain, you really have to dive into the internet. You have to use any possible connection you can to find your manufacturing partner.”
One obstacle Becca faced was suppliers’ minimum order quantities (MOQs). “Most copackers have MOQs, minimum order quantities. So originally, when I was speaking to canneries in Europe, I was hearing, ‘We have a 200,000-unit MOQ.’ For someone that does not have a bunch of cash lying around to buy tens of thousands of cans of fish, that was very intimidating.”
She tackled the problem by working with smaller suppliers that could grow along with her business. “The way that I ended up hacking around that was working with micro-canneries in the US that had lower MOQs,” she says. “Then we scaled up those canneries by partnering with them and supporting them in purchasing new machinery that we were going to use and that they could use to make their own operations efficient.”
For Fishwife, supplier selection meant finding an affordable production volume first, then investing in more capacity as the business grew.
How does supply chain management work?
Supply chain management is how a business coordinates sourcing, production, and logistics with related functions such as sales and finance. A supply chain strategy sets out the details and includes information such as a sales forecast and budget to inform purchasing decisions.
The five stages below explain this work, but they're only one SCM framework. The Association for Supply Chain Management’s SCOR Digital Standard outlines seven processes: orchestrate, plan, order, source, transform, fulfill, and return.
1. Planning
Planning aligns expected customer demand with the stock and resources needed to meet it. It spans strategic decisions about long-term capacity, tactical plans for seasonal demand, and operational decisions about daily replenishment.
Stores use past sales, upcoming promotions, and other demand signals to forecast demand and schedule purchases. Production planning sets manufacturing schedules. Capacity planning checks whether suppliers, equipment, and staff can meet those schedules.
Supply chain key performance indicators (KPIs) give businesses a way to measure operational performance. Shopify’s inventory metrics can inform these decisions:
- Sell-through rate: Units sold divided by units sold plus ending inventory, expressed as a percentage. Use it to compare product sales performance and adjust purchasing quantities.
- Days of inventory remaining: An estimate of how long stock will last at the current sales rate. Compare it with supplier lead times when scheduling reorders.
Businesses also track inventory relative to sales. The U.S. Census Bureau reported that the total business inventories-to-sales ratio at the end of June 2026 was 1.3, down from 1.39 a year earlier.
2. Sourcing
Sourcing means finding, evaluating, and selecting suppliers. Procurement is the purchasing work that follows, from placing orders to arranging payment.
Stores compare suppliers on price, product quality, delivery reliability, and service. Global sourcing can offer lower prices or access to specialist manufacturers. The trade-offs include longer shipping times, customs procedures, and exposure to exchange-rate changes.
The agreed supplier price is only part of your landed cost. Actual landed cost also includes freight, duties, insurance, and other charges incurred to get the goods to their destination. Compare the final cost with your estimate after delivery.
To create a purchase order in Shopify, go to Products > Purchase orders, then click Create purchase order. Add the supplier, products, quantities, and agreed costs. Record payment terms and the receiving location before confirming the order.
When cash constrains a sourcing decision, Shopify Capital offers eligible merchants financing to fund inventory purchases. Availability and terms depend on the business’s location and eligibility.
3. Manufacturing
Manufacturing produces finished goods from raw materials or components. Depending on the product, this involves fabrication, assembly, and testing.
Quality control checks that goods meet agreed specifications. Equipment maintenance reduces downtime, and staffing plans ensure workers are available to complete production.
For stores using an outside manufacturer, this work means agreeing on product standards and production schedules, then checking progress before the shipment date. Retailers that buy finished goods still need to understand their suppliers’ production lead times when planning orders.
4. Delivery
Delivery is the process of fulfilling orders and transporting products to customers. It’s part of logistics, which manages the storage and movement of goods. Supply chain management also coordinates sourcing, production, and related business functions.
In warehousing, teams receive and store inventory, track its location, and pick and pack products for orders. Order processing confirms the customer’s purchase and determines what needs to ship. Transportation management determines which carriers and services will get it to the customer.
Stores have several fulfillment paths:
- Self-fulfillment: Your team stores inventory, packs orders, and arranges shipping.
- Third-party logistics (3PL): An outside provider stores your inventory and fulfills orders for you.
- Dropshipping: A supplier ships products directly to customers after you receive an order.
For self-fulfilled orders, merchants with eligible fulfillment locations can buy and print shipping labels directly from the Shopify admin. Carrier availability varies by country and location.
The Shopify Fulfillment Network app lets stores find and work with 3PL partners. Those providers store inventory and fulfill orders, with transfers and fulfillment progress visible in the Shopify admin.
5. Returns
Returns management coordinates the receipt, inspection, and resolution of products customers send back. The National Retail Federation and Happy Returns estimated that 19.3% of online sales would be returned in 2025.
Reverse logistics moves those products back from the customer. The costs include returns, but shipping, inspection labor, and restocking also add to expenses. Damaged goods also generate repair or disposal costs. Products resold at a discount recover less revenue.
After inspection, the business decides whether to restock, repair, recycle, or dispose of each item. It also resolves the customer’s request through a refund or exchange.
Shopify store owners can manage returns and exchanges from the Orders page in the admin. They can create returns, send shipping instructions, and issue refunds after inspection.
Types of supply chain models
Supply chain models organize production and delivery around demand, cost, and speed. These four approaches suit different products and operating conditions.
Continuous flow model
The continuous flow model keeps goods moving at a steady pace. It’s ideal for standardized products with predictable demand, such as packaged food. Stable production schedules depend on reliable suppliers and accurate stock records.
Enterprise resource planning (ERP) software can coordinate purchasing, inventory, and production. In 2025, 41% of small EU enterprises used ERP software, versus 89% of large ones.
Agile model
The agile model adapts production to changing demand or individual orders. For example, a custom furniture maker schedules work around each customer’s specifications.
Suppliers need to accommodate changes in materials or quantities. Smaller production runs offer flexibility, but frequent adjustments can increase costs and make delivery dates harder to predict.
Efficient chain model
The efficient chain model prioritizes low costs for products with predictable demand and strong price competition. A household cleaning products manufacturer that coordinates purchasing and production to reduce waste is an example.
Larger production runs and consolidated shipments can lower unit costs. The trade-off is less flexibility when demand changes unexpectedly.
Fast chain model
The fast chain model quickly moves products with short selling seasons from development to sale. Trend-driven clothing, or fast fashion, is one example.
Short production lead times and responsive fulfillment teams help brands sell before demand fades. Rush manufacturing and shipping can increase costs, and stock left after a trend passes often needs retail markdowns.
Supply chain management software: What it does and what it costs
Supply chain management software helps businesses plan purchases, track goods, and coordinate production and delivery.
Some functions already exist in a merchant’s commerce platform. Shopify, for example, has built-in inventory tracking, purchase orders, order management, and reporting.
| Function | What it helps manage | When a separate tool may be useful |
|---|---|---|
| Inventory management | Stock quantities and movements across locations | You need batch tracking or expiry dates |
| Order management | Customer orders, fulfillment status, and returns | You coordinate orders across several systems |
| Warehouse management | Bin locations, receiving, picking, and packing | Warehouse teams need directed picking workflows |
| Shipping and transportation | Shipping labels, carriers, freight, and routes | You manage freight or your own delivery fleet |
| Demand planning and replenishment | Forecasts, reorder timing, and purchasing quantities | Seasonal demand complicates purchasing across locations |
| Analytics and reporting | Inventory performance, costs, and supplier reliability | You combine data from several business systems |
Built-in functions are part of your platform subscription. Separate software adds subscription costs, so budget for setup, integrations, and training when comparing quotes. Shipping labels and fulfillment services have their own charges.
Inventory Planner by Sage adds demand forecasting, replenishment, and multi-location planning. Its Shopify app is free to install, but service pricing is quote-based. The vendor bases pricing on inventory volume.
The U.S. Census Bureau’s Business Trends and Outlook Survey found around 14% of retail trade businesses were using AI in a business function as of May 3, 2026, below the national rate of 19.8% across all industries.
AI in supply chain management can assist with forecasting and data analysis. Shopify Sidekick answers questions about store data and helps complete administrative tasks. Review its recommendations against actual stock counts and supplier lead times before placing orders.
Where to start with supply chain management
Give one person responsibility for coordinating these four steps:
- Map the product journey. Record suppliers, production lead times, storage locations, and delivery partners for your bestselling products.
- Check your stock. Use Shopify’s built-in inventory tracking to record quantities by location. Reconcile those records with a physical count.
- Plan the next purchase. Compare sales rates with supplier lead times. Create a Shopify purchase order to record quantities, agreed costs, and payment terms.
- Review results weekly. Check stockouts, late supplier deliveries, and landed costs. Fix recurring problems before adding software or increasing order volumes.
Supply chain management FAQ
What are the five stages of supply chain management?
Five commonly cited stages are planning, sourcing, manufacturing, delivery, and returns. They cover demand forecasting, supplier selection, production, order fulfillment, and returns management. Each stage hands off to the next, so a delay in one—a late shipment from sourcing, for example—shows up downstream in delivery or returns.
What is the future of supply chain management?
Supply chain management will use more connected data, automation, and AI to improve forecasts, inventory decisions, and responses to disruptions. Supply chain professionals will still set priorities, evaluate suppliers, make cost and service decisions, and respond when data is incomplete or conditions change.
What is supply chain risk management?
Supply chain risk management identifies, assesses, and addresses events that could interrupt sourcing, production, or delivery. Businesses map dependencies, rank risks by likelihood and impact, and prepare responses such as backup suppliers, safety stock, alternate shipping routes, or insurance.
How much does supply chain management software cost?
The price depends on order volume, locations, users, integrations, and implementation. Built-in platform features cost nothing extra, while standalone tools typically add a monthly subscription on top of setup and integration time. Inventory Planner by Sage, for example, is free to install but uses quote-based service pricing.
Will AI replace supply chain management?
AI won't replace supply chain management. It can automate forecasts, flag inventory problems, and analyze operational data, but people still negotiate with suppliers and respond to disruptions when conditions change.
