Supply Chain Management is an important part of most businesses. It also plays a vital role in customer satisfaction, cost management, and improving the financial position of an organization. However, many businesses struggle with supply chain efficiency. Often, these firms fail to recognize the deficiencies in their supply chain. The ones that can detect the gaps in their supply chain performance do not know how to improve them.
Choosing a strategy for improving the supply chain process can be difficult. It is important to understand that each business is unique. Therefore, the strategy you choose must complement your business environment as well as the nature of your business operations.
For instance, if your business offers home delivery services, your distribution network will be very complex. A complex distribution channel can be hard to manage. It is also very costly and any inefficiency may end up draining a significant amount of your capital.
The good news is that regardless of the nature of your business, every supply chain process is composed of 6 key areas. You can analyze each of these with respect to your business and identify the gaps that require attention.
Like most other areas, your team, as well as any related third parties, will play an important role in determining the efficiency of your supply chain management. This involves your employees, your suppliers, and your distributors. To analyze their performance, you should ask yourself the following questions:
- What are the obstacles that they face in carrying out their tasks?
- Can in-house distribution help improve efficiency?
- Can in-house manufacturing or acquisition of raw material help improve efficiency?
- Do suppliers cause delays in product manufacturing or product delivery?
- Do your distributors cause delays in product delivery?
- Do you need to add more middlemen in your distribution channel?
- Should you expand or reduce your current geographical coverage?
- Do your employees require further training in supply chain management?
- Will a change in your suppliers or distributors impact your customers?
- What are the short-term costs and long-term costs of your supply chain process?
To develop a plan to improve your supply chain management, you need answers to all of these questions. You must also create a matrix based on risk and mitigation. This will help you prepare for any adverse outcomes.
Any directives regarding improving your supply chain efficiency must involve your customers as well. You need to carefully analyze what your customers want and what you are doing to deliver value for them.
A common example is when businesses add too many bells and whistles to their products. This can add to your production costs and increase the complexity of your supply chain.
Once you understand your customer’s interpretation of value, take a look at the extraneous things you add to your products. Would removing these impact the sales of your product? If not, then you can cut costs and invest this money elsewhere.
The Physical Network
Your supply chain network plays an important role in improving the efficiency of your supply chain management as well. This starts with your suppliers and ends with your customers.
We have already discussed the ‘human element’ of this network, i.e., the team and customers. However, to maintain efficient supply chain management, you must also take a look at the physical elements involved. This includes:
- Your supply points
- Your network costs (facility, inventory, storage, transport, and service costs)
- Your customer locations
As discussed earlier, if you notice any inefficiencies, then you can develop a model of a low-cost network and test it. Transforming your network can be costly. You can weigh the benefits against the cost and proceed accordingly.
Your supply chain strategy naturally takes center stage as well. This needs to be aligned with your customer’s requirements, as well as your business objectives.
A lack of a strong strategy will naturally impact the efficiency of your supply chain. The following can help you understand why your strategy is not delivering the results that you would like:
Your supply chain strategy is not holistic.
It does take into account all the departments involved in the supply chain process. Consequently, your strategy will have a very narrow approach and will not account for the processes, procedures, and obstacles faced by all areas of the business.
You’re not using your resources efficiently.
There is a discrepancy between the costs of your supply chain and your profits. Specifically, your profits are not high enough relative to the cost required to provide your product or service. This indicates ineffective utilization of resources.
Look at your supply chain to make sure that your process is cost-effective. If you have expenditures that do not directly translate into delivering your product, get rid of them.
You should also review your pricing structure. The problem may lie in pricing that is too low for what you’re providing. Make sure you factor in all associated costs, including owner’s draws and distributions. This is often overlooked, resulting in pricing and margins that are too low.
Your supply chain strategy has not been modified since the inception of the company.
If your business has been around a while or has experienced rapid changes, perhaps your supply chain model is outdated.
It is important to remember that as your business evolves and the needs of your customers change, your supply chain strategy must also be modified accordingly. Inflexibility and stagnation will only result in failure.
Make sure that your supply chain strategy is clear, concise, and complements the current business environment. This can help you make sure that your tactics and operations result in the effective use of resources. The result— Improved supply chain management.
Everyone understands the use of technology in cutting costs and improving efficiency. However, a lack of standardization among technological solutions can have a negative impact on your supply chain management.
The use of data analytics can play an important role in improving efficiency. However, if you are unable to share these insights with your team or your vendors, then it is all for naught.
You may use a certain program for gathering and processing data. But, if your supplier or distributor uses a different program, you may not be able to share your insights with them as effectively. There is also an increased chance of miscommunication.
Read also: How to Reduce Shrinkage in a Warehouse
Aiming for standardization can prevent this. You can discuss the drawbacks of the present technology being used by your organization or your vendors.
Once you have reached an agreement, you can choose an appropriate technological solution and have it installed as part of your standard supply chain procedures.
Changing systems is a monumental task. If you’re considering this option, you may want to read How To Implement ERP Software.#ProTip
This can improve the flow of information between you and your vendors. Once the solution has been successfully integrated, you can use it to take faster decisions and improve your supply chain process.
The Endgame: Measuring Your Objectives vs. Your Performance
Control and measurement are a necessary part of every management process. Once you have made the changes required for improving the supply chain process, you must carry out a performance review as well. This can help you make suitable changes to your supply chain strategy and aim for further improvement.
Make sure that you have a set of clearly defined KPIs for this. For instance, if you establish KPIs that cannot be tracked easily, then this can create a problem towards the end. Your KPIs must also be focused on efficiency and improving the performance of your supply chain.
To recap, improving the supply chain process involves the following:
- Analyzing your team
- Understanding the requirements of your customers
- Choosing the right strategy
- Implementing the right technological solution and aiming for standardization
- Analyzing the costs and deficiencies in your physical network
- Measuring the final performance and making changes accordingly
Supply chain management is a cyclical process. You must be able to pinpoint the gaps at every step and improve accordingly. Improving supply chain efficiency will result in higher profitability and a bigger return on your investment.