Supply chain management has two primary functions: managing the numbers and managing supplier relationships. Good relationships are nothing without accurate numbers. Accurate numbers are nothing without partners who want to work with you.
So, what does successful supply chain management look like? Let’s start with strategy.
Developing a supply chain management strategy document is not standard practice and the thought is often stifling. Where will you start? How long will it take? Don’t you have better things to do? Creating a supply chain strategy may be time consuming, but not creating one could be even more costly.
While many factors affect the success of your supply chain, there are a few critical items that you should manage and monitor to ensure your success and profitability.
1. Create and Share a Written Supply Chain Strategy Document
If you have taken the time to create a supply chain strategy document, in most cases, you are ahead of your competition. Most manufacturers rely on gut, history and trust in their suppliers to develop their goods on time. With a written strategy, you can see and predict the future and determine your own success based on your suppliers’ success.
So, what does a supply chain strategy look like, and with whom do you share it?
A supply chain strategy is a document written to help your supply chain managers determine how to distribute or allocate resources over a period of time. We suggest you include a S.W.O.T. analysis in this document, so you can proactively address opportunities or issues.
Strengths: Who are your go-to suppliers that are always looking out for your best interests? Who understands your business best? Who has a quick turnaround? Do they have more parts they could supply to you, even if they are a little costlier? It may be worth paying a little more for predictability.
Weaknesses: What are your fears about your suppliers? Is there a supplier that is continuously pushing the envelope to deliver on time? Do you have a supplier that often ships incomplete orders or parts that don’t meet your quality reviews? Be sure to track this information. You may be missing signals that a supplier is unreliable.
Opportunities: Where along your supply chain and your production line is there an opportunity to improve? Are there parts you could start producing in house to increase costs, efficiency and lead time? Are there parts you should be outsourcing to free up your front line to work on more productive initiatives?
Threats: Threats can be obvious or hidden. An obvious threat could be that one of your suppliers is not producing up to par, or they always ship late, causing you to slow down production. A hidden threat may be that your competition is working with its suppliers to develop a newer, faster way to produce the same product you are offering.
2. Align Your Supply Chain with Your Business Goals
Aligning your supply chain with your business goals is crucial to the overall success of your business. But what does this mean? First, you need to have clear metrics based on the goals of your business (from projected sales volumes, production times and lead times down to every part required to produce your products and the predictability of your supply chain).
If you know you want to hit $20 million in sales, how does that break down by product and by month? What parts do you produce in house and what parts are provided by your suppliers? When do you need supplier parts in house to create the number of parts to reach your monthly sales and delivery goals? How much lead time do your suppliers require? The viability of your suppliers is key to your flexibility. If you are working with a small business, they may need more lead time to produce your parts. If you are working with a larger company, they may have the parts on hand, but they may also charge you more for this convenience.
Do you have a system in place to measure your supply chain? It may be as simple as a spreadsheet, or you may need to invest in a supply chain management tool to help you keep track of your options. Do you have a warehouse management system (WMS), an enterprise resource planning system (ERP) or a business intelligence tool (BI) in place? These systems can help you automate orders, manage your supply chain, see numbers in real time and increase your overall efficiency. The investment in evaluating and monitoring your supply chain is almost always worth it in the long run.
These tools will also help you prepare monthly reports to share with your partners, keeping everyone up to date on delivery times, schedules and future projections. Keeping supply chain partners aware of their monthly performance and upcoming needs will provide immeasurable results.
Bottom line: Plan to share as much information with your suppliers as you can to create a tight-knit partnership with them. This partnership will allow you to work together, catch problems earlier and give you the security and flexibility you need to stay receptive to your own customers’ needs by setting expectations they can trust.
Focusing on your end game (your projected and actual sales) along with your supply chain will allow you to keep a high-level view of your needs and gives you the opportunity to accurately and predictably align your supply chain with your business.
Advantages of having WMS, ERP and BI systems in place:
- Real-Time Numbers: Real-time monitoring of inventory levels allows for automated purchasing, giving your teams time to focus on production.
- Increased Efficiencies: Standardizing processes and procedures increases efficiencies and accuracy while improving teamwork and communication.
- Transparency: Faster, more accurate inventory numbers will increase transparency reducing waste and mistakes.
- Data, Data, Data: Data insights from a warehouse management tool allows for management to make critical decisions based on real-time numbers and reports.
- Supply Chain Management: Accurately monitor your supply chain performance and make quick turnaround decisions based on facts. This insight also allows supply chain managers to have an overview of how the company is spending its money. This insight also allows the managers to work together to streamline expenses they may not have seen as overlap using a traditional system. An effective business intelligence tool also gives you a leg up when it comes to renegotiating supply chain contracts because you are fully aware of all costs and ROI for each supplier.
- Return Management: In every product-based business, returns are inevitable. Having an effective management tool allows you to better manage and monitor returns so you can improve processes and reduce the number of errors or issues your customers are having with your products.
- Right-Sized Inventory Management: Are you able to handle a right-sized production schedule? ERP/WMS/BI systems are ideal for managing inventory efficiently. Right-sizing your inventory management allows you to decrease your overhead, reduce inventory costs, and increase inventory turnaround. Need we say more?
- Finance Focused: Along with managing inventory levels, automated purchasing, returns, and supply chain management, a sound warehouse system will also help you streamline your accounting.
3. Focus on Facts and Metrics, Not Assumptions
Assumptions are all you have when you are first starting up, but once you have an established business, basing decisions on facts and actual metrics needs to be the norm. Surprisingly, most businesses don’t use daily measures to track success. If you aren’t tracking daily progress and if your teams don’t know what their KPIs for success look like on a daily, weekly and monthly basis, how can you improve and optimize your production, let alone your supply chain?
A fact-based culture is inherent in a long-term, successful business. We suggest having each team sit down and come up with all the metrics they can measure on a given day, then work together to narrow down those metrics to the critical influencing metrics—the ones that genuinely affect your business results. Having full alignment from the front line to the executive team is crucial to optimizing your lines.
You will also be amazed at the change in attitudes when you start to look at the numbers. Facts take away ambiguity and allow your teams to remove the emotionally charged attitudes and stop finger-pointing when they work together to come up with solutions on how to improve processes.
4. Can You Hear Me Now?
Crystal-clear communication is critical to supply chain management. With more than a few players involved in the production of your products, the clearer your communication, the better.
Be sure that everyone is aligned with the information you are sharing with key suppliers. Transparency will help to further develop relationships with your partners and aid in on-time delivery, keeping production flowing.
5. It’s Not Just a Numbers Game
Consider the role you play to your suppliers. Are you one of their larger accounts? Or, will others take precedence over you when it comes to push and shove? Make sure you know your customers’ customers, your suppliers’ suppliers and your suppliers’ customers.
Sound confusing? If so, you have some homework to do to manage supply chain risk:
- Your Customers’ Customers: Make a list of who you supply products or parts to. Are you at the end of the supply chain, or do you fall somewhere between the start and the end game? If you are also a parts supplier, make sure you understand where you fall and how crucial (or not) your role is to the success of producing the end product.
- Your Suppliers’ Suppliers: Next, look at your suppliers. What do they need to create the parts they supply to you? Do they have supply chain considerations, or are they producing the parts themselves?
- Your Suppliers’ Customers: Then, look at who else your supplier works for. Are you the biggest fish in the pond, or are you a minnow fighting for your spot? Figure out how to make yourself essential to your suppliers. The more your business impacts their success, the better chances you will have at making things happen when there is an issue.
In summary, focusing on managing your suppliers by developing (and sharing) a solid supplier strategy document and building strong relationships by keeping lines of communication open—including being transparent in communicating numbers, goals and issues with your partners on a consistent basis—is key to successful supplier management. Let us know if we can help you get started, or help you take a look at how you’re doing.