10 Ways to Optimize your Supply Chain
One of the constant challenges we face in industry is to optimize the supply chain. The supply chain environment is often set up to buffer against inefficiencies elsewhere in the organisation but there are some steps you can take to mitigate against that and optimize your supply chain.
1. Define the Strategic Goal
When your business was set up it likely had a Goal. A clear objective to fill a customer need better than anyone else in the market. The founders all rallied around that goal and strove to meet it with enthusiasm.
But now is that goal still valid? Has the company evolved? Have you lost sight of the goal of your organisation? Often at board level a company has a strategic goal, but it is poorly defined and even more poorly communicated. When optimizing your supply chain, you first need to know what optimized means. It is more than just the lowest cost. If all you are competing on is price, then someone will undercut you.
A good tool to use to help clarify your goal is the Business Model Canvas by Strategyzer. This is a well-known tool in the startup community but can be used equally well in established companies. But be sure to be focused on your goals when you fill it in. Approach it from where you wish to be not where you are. This will take effort and honesty.
2. Clarify the As-Is situation
Now that you know what your goal is and a Business Model Canvas that illustrates that goal in a one-page document you need to understand where you actually are.
It is amazing how often companies do not fully understand their as-is situation. There may well be a documented set of procedures and policies but they often say what the as-is situation was meant to be some years ago. They do not represent what the as is situation really is now.
You should conduct an audit of your supply chain (PlanPotential can help with that). Understand the efficiencies and inefficiencies. Understand the strengths and weaknesses. And understand the flows (Material, Money, and Information) through your supply chain. To achieve this, you will need to set up a cross functional team with representatives from every department and encourage the members to be open and honest and tell it as it really is. Some companies refer to this as a Supply Chain Council.
Now map that information on a new Business Model Canvas. You should start to see gaps between where your goal and your reality.
3. Use Analytics to understand your Customer
This could fall under clarifying the As-Is situation, but I feel it deserves its own section. This is because the customer is king. But also, the customer is fickle and changing. The way customers purchase goods and services is evolving rapidly. Part of that is due to the internet and online shopping etc. But world events are also causing these changes. Trade disputes, environmental concerns, pandemics etc are all changing supply chains in both B2B and B2C.
And there are even more changes to come (Industry 4.0 etc). For more information on that please see here
So, you need to understand your customers. Fortunately, the internet which has created many of these challenges has also created solutions. Analytics tools, such as Google Analytics, will allow you examine and understand what is driving traffic to your website. Where they are coming from, what they are searching for, what are they engaging with on your site.
And beyond that there are a myriad of companies out there who specialise in market research and from whom you can purchase reports on your industry segment. There will be a cost involved but it is small versus the time involved in attempting to compile the data yourself.
4. Outsource Non-Core Business Activities
Coming back to the Business Model Canvas you will have listed your key activities. These are the activities that are core to your business or ones that give you a competitive advantage over rivals. You cannot be good at everything so examine the functions in your supply chain that should be outsourced.
Warehousing, Logistics, Manufacturing, Administration, Office functions etc. For different companies some will be core and others will be non-core. To optimize your supply chain, look at each element and ask is there a better alternative to doing it yourself. Are you, as the owner of a small to medium sized business, spending much of your time on HR or IT or Accounts? Do you need to hire someone to help you do that or should you outsource it to experts?
For example, shipment and logistics. It may have made sense when you first set up to buy a van and do the deliveries yourself as all your customers were local. Is this still the case? Are you spending too much money doing shipments yourself when courier companies could do it for you? And worse still are you ignoring potential customers because they fall outside of your serviceable area.
5. Establish Communication across the supply chain.
This is quite possibly the key step and if you take one action from this article please let it be this one. Communication is key. The flows of a supply chain are Material, Money, and Information. So much effort goes into getting the product flowing to the customer and the money flowing back from the customer. But comparatively little goes into communication.
Communication is the key to an optimized supply chain. The faster information flows through a supply chain the better you can react to changes and the leaner your supply chain can be.
For example, two companies I have encountered in the past had contrasting approaches to sharing forecast information. One allowed the planning department to communicate directly with the sales reps and in many cases directly with the customers themselves. And they were able to directly communicate with suppliers. So as soon as anything changed in the customer demand that would reach the planning department within minutes and could be actioned. Of course, this could represent a lot of “noise” and you do not want the factory to be constantly reacting to small changes, so it needed to be filtered through an experienced planning team. But it worked. In contrast another company took up to 17 days for an updated forecast to come from the customer to the planning department and then it could take 2-3 days to get an answer from a supplier. The company compensated for this by holding massive amounts of inventory. They could do this because the product had a relatively long shelf life, but the inefficiencies were clear to everyone but the organisation itself. The practices that lead to this inefficient communication had been laid down decades before and “this is how we always do things” was the mantra.
6. Negotiate with your suppliers
This is perhaps an obvious step in supply chain optimization and one that most companies do but it is still worth putting in the list. I will not explain the benefits of getting a better price from your supplier. Instead I want to suggest you train your Supply Chain and Planning Teams on negotiation itself.
Negotiation is often seen as something that is an art. Some people are good at it and some people are bad at it. But that is not correct. Rather it is a skill. And like any skill it can be learned. There are many courses available on Negotiation. But I recommend you look for one that covers BATNA (Best Alternative to a Negotiated Agreement). This is what you will fall back on if negotiations fail to come to an agreement. Knowing when to walk away in a negotiation is a key piece of information a negotiator should have.
7. Make Supply Chain integral to every department.
Supply Chain should be at the forefront of every department’s approach to business. That does not mean that supply chain concerns should override every other department’s objectives. Rather by involving supply chain requirements in all their activities companies can ensure the supply chain remains optimized and still able to adapt to changing customer needs.
For example, in one company I worked with Sales agreed to send a sample carton of products with each delivery for the customer’s quality department to check. A simple enough request. A truck was arranged to carry the product to the customer’s depot. At the last minute, the requirement for the additional case was communicated and production made it and it was put on the truck. But then, with the truck in transit, it then turned out that the customer’s quality department was in a different location to the depot. It was two expensive to have a truck travel 300km to deliver one case so instead a new case was quickly produced and sent via a courier and the excess case in the truck was written off. Time, money and aggravation that could all have been avoided had the logistical requirements been clarified from the beginning.
The easiest way to do this is have your planning and supply chain team sit in on weekly meetings with key departments such as New Products, Sales, etc. Not to act as a barrier but to act as a facilitator.
8. Implement Technology
I have deliberately left this towards the end of the list as it is often one of the first things that companies jump to. But to make the technology work you must first put steps like communication, strategy, integration in place. Once that is done the technology should be selected to solve the problems and difficulties in achieving those other elements.
Key among those is communication. There are many cheap or even free tools to help boost communication. Zoom, Skype, etc are the obvious ones. But it is important to capture and record the information. In this case I would recommend using collaboration tools like Microsoft Teams or Slack.
And of course, the ultimate Technology solution is a full ERP system with everything seamlessly communicating in the background. This is an extremely expensive step and one that companies often get wrong and do not achieve the full potential of the system. For example, to achieve Supply Chain Optimization it is important that the system you choose will link with the systems of your key suppliers and customers via EDI etc. Most systems have that functionality, but will your customer/supplier allow it?
9. Be environmental & socially responsible.
If you attend a supplier or customer review meeting then it is likely that the environment, sustainability, and social responsibility will come up in the review. A supply chain that is low cost because it uses environmentally unfriendly processes or abuses cheap labour is not optimised. It may be cheap but in the long term it will not be acceptable to end customers.
Examine your supply chain for potential environmental or social problems. When you find one examine it closely? Why is it there? Can it be improved? Is there an alternative? And finally “Would I like this to appear in the Media?”. If the answer to that last question is No then you should operate under the assumption that it is only a matter of time before it does appear in the media.
10. Constantly recheck assumptions.
Once you have set up your optimized supply chain the hard part is done. But do not then fail on the easy part. You need to constantly recheck the assumptions and data that underpin your definition of “optimized supply chain”. Doing this constantly and making small adjustments is relatively easy. Doing it once every two or three years makes it a major project.
The Supply Chain Team or Council should be a permanent structure specifically tasked with monitoring the supply chain and ensuring it is still meeting the goals of the company and aligned with the needs of suppliers and customers.