5 benefits of a supply chain management strategy

There’s a common misconception that a supply chain strategy is only required for multinational corporations that make or distribute complex products. But virtually any business that depends on a network of vendors, distributors, and customers can be impacted by supply chain disruption.

What exactly is a supply chain strategy? It’s a holistic plan designed to efficiently organise and manage the flow of goods and materials. Supply chain strategies may support a company’s overall business goals, increase inventory visibility, and boost competitive advantages by anticipating customer demand and market changes. It can also aim to reduce operational inefficiencies, drive down costs, and enable profitable growth.

Here are five potential benefits of a supply chain strategy.

Business leaders need to know what they need from vendors and distributors to achieve business goals. You may want to start developing your supply chain strategy by listing how your products move from the original supplier to your company and finally to your customers.

If you receive raw materials to make a product, consider mapping out each source to evaluate how the materials get to your company. This can be hard to fully document, particularly if parts or materials are coming from multiple suppliers, and may require additional help from an external consultant.

But regardless of whether you handle this step yourself or outsource it, the next step is to map out the flow to customers, accounting for distributors or logistics partners. Assess factors such as availability, quality standards, delivery timelines, and cost.

You may need to make strategic trade-offs between the cost to the company and the level of service to the customer. A characteristic of outstanding customer service might be, for example, always having every product in stock. But that approach can also lead to excessive inventory, which can overwhelm manufacturing capacity and disrupt schedules.

Conversely, paying too much attention to cost can lower the quality of products, reduce customer fill rates, or lengthen delivery times for out-of-stock products, leading to dissatisfied customers and diminished sales.

To know where a company needs to go, it first helps to understand where it has been. Consider starting by identifying how much product or raw material your company received from each supplier over the past year, noting the cost. Next, determine how suppliers performed on price and delivery times, identifying variances and their causes.

Comparing vendors on an annual basis helps you determine their future value in your supply chain strategy. Consistent inferior performance, for instance, leads to supply chain instability, which might prompt you to look for alternative, more consistent vendors.

Historical data can also be used to help streamline inventory management capabilities. Product quantities and delivery timelines, for example, can be tracked to help increase forecasting accuracy, reducing the chances of either holding excess inventory or encountering shortages.

Similarly, cost analysis can help identify trends. If a vendor’s costs are gradually increasing, for example, it might present an opportunity to negotiate better terms. This data can also be used to help optimise budgeting and financial planning processes.

Every company needs to know exactly where finished inventory and raw materials are within their supply chain to meet customer demand.

Cloud-based technologies enable businesses to see the exact location of all their inventory, from warehouse to store shelves. Point-of-sale (POS) systems, warehouse management solutions, inventory management solutions, and logistics management solutions are all useful for providing end-to-end visibility.

Some systems can even communicate with vendors and logistics partners in real-time, making it easy to identify the location of finished goods or raw materials from anywhere, at any time.

Markets evolve quickly. To make a profit, it helps if companies can rapidly identify changes in prices, delivery times, and customer demand.

The best supply chain management strategies prioritise flexibility and responsiveness, allowing companies to instantly perform dynamic adjustments, usually based on data from daily cloud-based reports. This method enables businesses to quickly adjust operations to meet fluctuating customer demand, without needing to wait for end-of-the-month inventory, production, and sales reports.

Cloud-based tools like POS and inventory management solutions provide valuable insights in real-time, providing insights that make it easier to shift gears on demand. They also tend to offer AI-fuelled predictive analytics capabilities that enhance a company’s capacity to meet customer needs.

Rapid innovation is critical for growing businesses, but innovation doesn’t exist in a vacuum. Products must be produced at the right cost and rate for a company to be profitable, and the actual costs to deliver a product must be accurately captured for financial planning.

Decisions made in the early part of product development can ultimately determine success. With the right supply chain strategy, designs can be optimised for “manufacturability” and long-term supply levels. For example, knowing the committed delivery rate and price of raw materials that will be sold to a business for a proposed product will influence the company’s desire to produce and stock that product, if they know they can make a long-term profit.

Here’s a hypothetical supply chain strategy example to illustrate the point. Say niche electronics manufacturer AZ Tech adopts a supply chain strategy focused on a single supplier and just-in-time inventory management. But as market conditions change and consumer preferences shift, they decide to launch a new product.

To keep up with the change, they adopt a multiple supplier strategy to ensure that they always have access to necessary raw materials. They also decide to keep higher inventory levels on hand to prevent costly stockouts, despite the potential increase in carrying costs.

By adjusting its supply chain strategy to match evolving business needs and market changes, AZ Tech can support growth and stay competitive, despite disruptive external influences.

While it is true that large companies often have very complex supply chains that span multiple countries, even smaller businesses can benefit from carefully managing their supply chains to prevent disruptions and stay competitive.

A good supply chain strategy fits into the company’s overall goals, focuses on customer demands, can rapidly adapt to changing market conditions, and helps facilitate an efficient flow of goods from raw material sourcing to the last delivery mile.

This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

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