The term “supply chain strategy" sounds like a word that is meant only for large corporations who make or distribute a complicated product.
But having a supply chain strategy helps companies know how to work with their products' distributors and vendors to improve operational efficiencies and drive down costs—and that can help enable profitable growth.
The overall goal of any supply chain strategy is to produce the best quality product for the customer at a sustainable profit margin. Here is why your business can benefit from a supply chain strategy and how you can start formulating an effective one:
To support your business goals
An important part of achieving business goals is to know what is required from your vendors and distributors to get there.
The start of any supply chain strategy is to list how your products get from the original supplier to your company.
If you receive raw materials to make a final product, map out each one of these sources and how they arrive at your company. Remember that parts or materials can come from multiple vendors or distributors. (Some companies hire an experienced consultant to analyze this since it is sometimes hard to document it from the inside out.)
Creating an effective supply chain strategy can involve making strategic trade-offs between the cost to the company and the level of service to the customer.
For example, making outstanding customer service mean that every product is always in stock can lead to excessive inventory. And that can lead to idle manufacturing capacity because too much product was made at one time.
A great supply chain strategy is one that fits into the company's overall goals, focuses on the customer and can be accomplished by the organization with its current resources.
Alternatively, paying too much attention on cost can lower the quality of products, reduce fill rates for customers or expand delivery times for out-of-stock products. This can lead to customer dissatisfaction and eventually lower sales.
To understand your historical data
To know where a company should go to achieve their business goals, they need to understand where they have been.
You can start by identifying how much product or raw material your company received from each supplier and what the cost was this past year. Determine how reliable they were in terms of promised price and on-time delivery. Identify what the variances were and their causes.
It's beneficial to compare how each of the vendors performed on an annual basis so their future value in your supply chain strategy can be determined.
To know where your inventory is
In order to meet customer demand at a sustainable profit, every company needs to know where their finished inventory or their raw materials are in the supply chain.
Cloud-based technologies now allow businesses to see exactly where all their inventory is from their warehouse to store shelves. I believe every effective supply chain strategy requires this end-to-end visibility. The types of systems companies can implement include point of sale, warehouse and inventory management solutions.
I think the best systems are those that have the ability to communicate with vendors in real time to identify the location of finished goods or raw materials.
To adapt to changing customer demand
Markets evolve quickly. In order to make a profit, companies need to able to identify changes in prices, delivery and customer demand rapidly.
Previously, companies waited for end-of-the-month inventory and production reports to change their game plan. Now, growing businesses with a supply chain strategy can make dynamic adjustments based on what their cloud-based systems report to them daily.
To adapt to changes in internal product design or management
Rapid innovation is critical for growing businesses, but it does not 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 its success. With the right supply chain strategy, designs can be optimized for "manufacturability" and long-term supply levels. For example, knowing the committed delivery rate and price that raw materials can be sold to a business for a proposed product will influence the company's desire to produce and stock it if they know they can make a long-term profit.
Remember, a great supply chain strategy is one that fits into the company's overall goals, focuses on the customer and can be accomplished by the organization with its current resources.
Read more articles on operations.
Photo: Getty Images