13 Best Practices in Supply Chain Management to Improve Efficiency and Profitability
Supply chain management is essential to all aspects of society. It’s the mechanism that ensures consumers receive all kinds of products; from essentials, such as food and medicine, to luxury items.
Supply chain management is a crucial part of the manufacturing and distribution processes. It can be carried out on local or global scales.
The efficiency of supply chain management will have a bearing on a company’s success, as it impacts product fulfillment and cost.
Supply chain best practice goes hand-in-hand with successful supply chain management. It ensures supply chains operate efficiently and can mitigate the risk of delay or disruption.
The development of a supply chain strategy must align with the organization’s business goals. This could be to offer the fastest shipping, for example, or the cheapest products.
An effective strategy should be designed to deliver the service customers expect from you. By analyzing competitors, you’ll get a better idea of market expectations, allowing you to create an achievable supply chain strategy that keeps up with industry developments.
Supply chain strategies should look at potential trends, for example, and the introduction of new technologies. These will influence how your business operates in the future.
Setting KPIs (key performance indicators) will help you to measure and evaluate the success of the supply chain’s performance. This will also identify areas that can be improved.
Continually improving the supply chain strategy to implement new technologies is vital in this fast-paced industry. Developments need to be explored proactively to see if they can improve the efficiency and performance of supply chain processes.
Planning is another essential element that ensures supply chains run efficiently. Proper planning will mitigate potential disruptions to supply chain operations and ideally achieve optimal performance.
Forecasting demand based on data and analytics will help with inventory requirements. Inventory management should ensure that raw materials and products can be supplied without delay.
However, keeping excess inventory will lead to rising costs. This is because of the initial outlay for these items and the warehousing costs to store and manage them.
Capacity planning refers to the work that can be carried out by an organization. This will involve:
This should be planned to meet customer demands. If customer demands exceed what your organization is capable of, customers may look to competitors. Expansion could be an option at this point if it makes good business sense.
DRP (distribution requirements planning) refers to the efficiency of delivering goods, including raw materials used in manufacturing. It also covers the distribution of completed products to the point of sale.
Logistics management is crucial for good distribution planning. An efficient supply chain minimizes potential delays and the knock-on effects this can have on operations.
Sourcing and Procurement
Sourcing the best suppliers is essential for the procurement stage of supply chain management. Strategic sourcing allows organizations to minimize the risk that comes with working with outside agencies.
This can include conducting market research, defining your needs, and then sourcing potential suppliers that fulfill your requirements.
These suppliers should then be fully researched; after which you can discuss your needs and evaluate their capabilities.
All potential suppliers must be reputable, to ensure you do not encounter problems in the future.
You should then negotiate with the supplier to find a pricing scheme that meets your requirements.
A good relationship with suppliers is highly beneficial in all aspects. Communication – open and direct dialogue between parties – is a non-negotiable.
A good relationship is especially valuable if you suddenly encounter high demand for a material or product. A healthy collaboration will make any negotiations easier.
After you have sourced a supplier and agreed to a contract, you must monitor and manage their performance.
An efficient supply chain is only possible if all links are working well. If disruptions are caused by a supplier, good communication should be an effective solution.
Potential disruptions can also be mitigated by a good working relationship with a supplier. It will allow you to put contingency plans in place to minimize delays.
Manufacturing and Production
The manufacturing and production process of a supply chain will determine the quality of a product and how quickly it reaches the consumer.
Supply chain management strategies can include transporting raw materials to production facilities. When the product has been made, distribution services will then transport the product to the consumer or point of sale.
Different manufacturing strategies will affect the cost and efficiency of supply chain organizations. Lean manufacturing is the process of efficiently creating products in a way that minimizes waste.
This technique evaluates the amounts of raw materials required by manufacturing plants, which streamlines the process and can reduce costs.
Quality control is an important part of the manufacturing and production process. This will improve customer satisfaction. It will also ensure production processes are working as they should.
Production scheduling will be dependent on the procurement and transport of raw materials. It must also meet expected deadlines for distribution.
Poor logistics planning can cause supply chain disruptions; hindering operations, increasing costs, and reducing efficiency.
It’s important not to flood the system with materials and products, but the opposite is also true. Capacity utilization ensures all aspects are working to maximum efficiency. No part of the supply chain should be overloaded or left waiting.
Logistics and Transportation
Logistics and freight management ensure the supply chain is not disrupted or delayed due to transport. Supply chain managers must time collections and deliveries accurately. This will be based on demand and production times.
Carrier selection will affect the cost and reliability of deliveries. Delays in different processes can also affect the availability of different carriers. This is why relationship management is crucial.
Route optimization can help to reduce overhead costs and delivery times, impacting the final cost of any given product.
Freight cost management will be affected by a number of factors. Products can be moved by road, rail, air, or boat. Finding the most cost-effective way that also meets efficiency targets is important.
Collaboration and Communication
Relationship management is essential to good communication. It will also make it easier to minimize the risk of disruptions to the entire process. It will allow you to make alternative arrangements with partners, suppliers, and customers.
Collaboration should benefit all parties: strong communication and good relationships always lead to profits.
Supply chain organizations rely on a number of other companies. Good supply chain leaders will ensure there are functional communication channels. This will help to improve supply visibility.
Good supply visibility will help to mitigate potential delays as everyone can follow the progress.
Using technology to facilitate collaboration and communication is important. State-of-the-art systems can be used to check inventory levels and deliveries in real-time. This ensures supply chain visibility is optimal for all parties involved.
Technology and Automation
The digitalization of the supply chain has improved efficiency dramatically. Successful supply chain management relies on having access to information immediately. Technology has helped make this possible.
Automated systems have helped with efficiency and supply chain visibility. IoT (Internet of Things) connects each supply chain leader with data on vehicles, devices, and equipment. This can be analyzed to identify areas that are performing well or those that can be improved.
Blockchain technology documents tracking and progress across the entire supply chain network. This is another example of how technology can improve the efficiency and visibility of supply chain networks.
The sustainability of the supply chain process has come under scrutiny in recent years. The government and the public want organizations to do everything they can to minimize their carbon footprint.
Supply chains will always be big producers of CO2, due to the transportation and manufacturing processes it involves. However, some changes can be made to improve this.
Ethical sourcing will help to reduce the environmental impact of product manufacturing. Exploring the best distribution networks is also a positive step.
In some cases, drop-and-pick distribution is possible. Good logistics management is essential for this, as it involves dropping off products and picking others up. It relies on everything being ready when it needs to be.
Corporate social responsibility (CSR) is also important in supply chain management. This safeguards the people working directly for companies, and those involved in the supply chain process. This will affect the procurement of materials, especially in countries where laws aren’t as stringent in terms of workers’ rights.
Corporate social responsibility also covers health and safety in the workplace. It ensures employees have a good working environment.
Talent and Training
Supply chain processes can only be carried out efficiently if an organization employs good recruitment strategies. Regular training is also advised.
Finding the right people for the job is essential for a successful supply chain. It is equally as important to ensure employees upskill regularly as new systems and processes emerge.
Employee retention in the supply chain is often down to salary. The working environment and developmental opportunities also play a part.
Providing employees with the opportunity to further their careers can tackle all three issues at once. Career progression typically brings greater job satisfaction and increased pay.
Risk management is a cornerstone of supply chain operation. Being able to identify and assess risks will help organizations avoid them or create contingency plans.
Mitigating risks will help with the overall efficiency of the supply chain and cost reduction. Business continuity plans are an important part of the supply chain. They guarantee that processes can keep moving even when facing challenges.
Contingency plans can be implemented in the case of supplier issues or logistical delays. They can also be put in place for large-scale issues, like natural disasters or armed conflict.
Supply chain security explores all factors that pose potential risks. These include:
- Weather conditions
Contingency plans can sometimes include using alternative organizations.
Performance Measurement and KPIs
KPIs in supply chain management allow leading companies to measure performance. This can be on an individual employee basis or relating to entire links of the supply chain.
KPIs make it easier for organizations to identify a business’s positive and negative aspects. This data can be used to improve efficiency and reduce costs.
The benefit of identifying successful elements is that it allows supply chain managers to identify what works well. This can then be applied to other aspects of the business.
Analyzing metrics can help with the continuous improvement of KPIs, helping to ensure the organization is at optimal performance.
Vendor-Managed Inventory (VMI)
Vendor-Managed Inventory (VMI) is when the supplier manages pre-determined inventory levels. This allows the supplier to replenish stock when they see fit.
This can help to reduce supply chain costs and minimize risk. It also improves relationships with suppliers and ensures retailers don’t run low on stock.
To implement this, the retailer will share data directly with the supplier, typically through an automated digital portal. This allows the supplier to access relevant data and forecast stock requirements.
This type of relationship requires a lot of trust. An excellent business relationship is required for this type of agreement.
The supplier must also ensure they provide a good service and keep up with demand. Failure to provide the necessary products can lead to fractured business relationships.
Supplier Relationship Management (SRM)
Maintaining good supplier relationships is vital to supply chain success. Supply managers must liaise regularly with suppliers to manage orders and keep operations functioning smoothly.
A good business relationship will make these interactions significantly easier. It can also be beneficial if demand grows and supply chains need to renegotiate or make unexpected orders.
The relationship between the supply chain manager and the supplier should be collaborative. Setting targets and monitoring suppliers will allow you to understand their performance. Creating a clear and open dialogue will help both sides of the collaborative project.
Supplier relationship management (SRM) can be challenging, as you will have to ensure standards are met. Maintaining good relationships is important in the long term to prevent supply chain disruptions – a vital part of risk management.
How can supply chain management be improved?
Supply chain management best practices, such as the above, make these logistics networks more efficient.
What are the key performance indicators (KPIs) in supply chain management?
The most significant KPIs in a supply chain are:
- Transportation costs
- Delivery performance
- Order cycle
- Forecast accuracy
What is demand planning?
Demand planning allows a supply chain organization to project demand for a product and manage production to meet it.
There are a number of key best practices in supply chain management. These include:
- Sourcing and Procurement
- Manufacturing and Production
- Logistics and Transportation
- Collaboration and Communication
- Technology and Automation
- Talent and Training
- Risk Management
- Performance Measurement and KPIs
- Vendor-Managed Inventory (VMI)
- Supplier Relationship Management (SRM)
Most best practices work in conjunction to create a centralized strategy that benefits the long-term success of the organization.
Failure to implement best practices will decrease efficiency, leading to increased costs and reduced customer satisfaction.
The benefits of implementing an effective supply chain management business strategy are countless. Organizations will have a more knowledgeable and happy workforce and costs will be reduced. Improved efficiency will also improve customer satisfaction and business relationships.