In my last article, we briefly mentioned that there are many different ways companies can improve their supply chain management to increase operational efficiency, reduce costs, and provide a better customer experience.
Below are 15 supply chain management practices that businesses can follow in 2024 to start realizing these benefits.
- Recruit & Develop Supply Chain Professionals: Emerging technology and an increasingly globalized supply chain are driving forces in the evolution of supply chain processes, but the skilled workers needed to run these operations are in short supply. Only 38% of supply chain leaders are confident in their current supply chain team’s abilities to compete in today's market.
- Align the Supply Chain Team: Effective cross-business execution is integral to establishing an efficient supply chain. However, too often, each function of the supply chain operates like a distinct entity, separated by business units, varying priorities, disparities in time and resources, siloed systems and procedures, and even geography. That often leads to information gaps, slow communication, errors, and inconsistent processes. So how can supply chains be more efficient with such disjointed teams? Creating a specific role that coordinates activities and communication between the related business units can help by facilitating collaboration and orchestrating tasks.
- Establish Alliances with Suppliers: Building strong partnerships with suppliers is vital to supply chain success, often saving expenses and improving reliability. If both sides treat this as a partnership, these relationships should be equally beneficial. That requires balanced problem resolution and co-creating goals that help both parties achieve their objectives. Companies should also look for suppliers that share the same values and principles beyond the basics, such as expertise, pricing, and timeliness in vetting supply partners.
- Purchase Supplies in Volume to Reduce Costs: Taking advantage of economies of scale can be a cost-effective way to purchase inventory. Understanding demand from all areas of the business and making a single purchase lowers supply chain costs via volume discounts and reduced administrative and warehousing labor costs compared to multiple supply purchases. While businesses can make one-time bulk purchases, there are two other ways to set up volume purchases: A - Blanket orders and B - Standing orders.
- Diversify Supplier Relationships to Avoid Delays: Supplier-side delays are one of the most common reasons for supply chain disruptions. A lack of availability of raw materials, import/export issues, weather and natural disasters, political and regulatory issues, and other unforeseen obstacles can all slow down or even cease the delivery of supplies. While it’s hard to predict delays, businesses can still account for and mitigate these problems. Communication is the primary defense. One of the main benefits of having strong alliances with suppliers is the ability to forge open and responsive communication that allows both parties to reach out as soon as possible once a potential delay is on their radar. Anticipating when a situation may affect a supplier is a key to avoiding delays before they become a more substantial problem.
- Improve Demand Forecasting: Having too much or not enough product in stock is a costly issue for companies. The former may mean that inventory isn't moving because sales are down or the business miscalculated demand and overbought. The second may mean that sales are up, but supply is lagging, leading companies to miss out on revenue opportunities. Both are consequences of inaccurate demand forecasting.
- Optimize Inventory Management: In tandem with demand forecasting, inventory management is another crucial part of an efficient supply chain. Once a business can reliably predict demand, supply chain managers need to calculate optimal inventory levels for current and future demand and develop replenishment best practices (e.g., ad-hoc supply restocking or one-time, standing, or blanket bulk purchases). Having visibility into inventory helps you forecast more accurately — without inventory visibility, you can't have accurate demand planning. Another important aspect of inventory management is ensuring that it aligns with supply chain objectives. That means determining where to make adjustments in your operations, such as fixing inventory-demand mismatches, lowering the total cost of ownership, accelerating the order-to-pay cycle, shortening delivery times or improving document management.
- Track Supply Chain Metrics: Supply chain managers need to establish specific parameters by which they can quantify supply chain performance. These key performance indicators (KPIs) allow businesses to identify and analyze strengths and inefficiencies to enable data-supported goals. Among the most critical metrics are: Perfect Order Rate, Warehousing Costs, Inventory-to-Sales Ratio, Inventory Velocity, and Supply Chain Cycle Time.
- Increased Supply Chain Visibility: Constant communication, timely updates, and reliable documentation are crucial to an efficient supply chain. Businesses need true end-to-end supply chain visibility and must account for every aspect, including suppliers, partners, warehouses and shipping carriers. Real-time data sharing across the supply chain provides a bird's-eye view of the entire chain and more granular information about each node. The benefits of this visibility even reach the customer in the form of real-time tracking of deliveries.
- Centralized Document Management: Managing purchase orders, customs paperwork, inspection reports, bills of lading, and other supply chain documentation can be a complicated process. Since supply chain documentation involves multiple business units, it often suffers from inconsistencies, disconnects, and misalignment of processes and goals due to siloed functions and departments. That creates confusion and can reduce responsiveness while increasing errors.
- Improve Order-to-Pay Process: The order-to-pay process, also known as the procure-to-pay process, encompasses all of the steps involved in an order, from requisition to final payment. This process usually includes various departments across the company, including finance, sales, warehousing, and logistics, all of which are likely to use different systems to fulfill their requirements. If operations are fragmented, this can cause many challenges, namely data discrepancies, lack of responsiveness, and misalignment of activities.
- Invest in Environmental and Social Sustainability: The goal here is to actively minimize the environmental, social and economic effects of the supply chain. That means finding innovative solutions to evolving environmental and social issues and meeting and exceeding expanding environmental regulations. It also means making conscious decisions regarding the supply chain's social and environmental impacts, such as only partnering with suppliers that uphold high standards for labor conditions or purchasing inventory and materials from environmentally friendly sources.
- Practice Risk Mitigation & Compliance: Supply chains are inherently full of risks. Natural disasters, raw material shortages, port disruptions, trade disputes, theft, cybersecurity breaches, non-compliance with laws and regulations, and reputational damage all represent potential supply chain disruptions. Known risks such as distribution limitations, demand fluctuations, supplier issues, and regulatory non-compliance can be identified, measured, and managed, and it’s often possible to quantify their impact on the supply chain. Unknown risks, on the other hand, are both difficult to predict and difficult to control. They include natural disasters and geopolitical events and are challenging to quantify or incorporate into the supply chain management framework. Diversifying solutions is the best way to mitigate both types of risks. That means having alternative suppliers, partners, facilities, and production processes.
- Focus on Total Cost of Ownership (TCO): The total cost of ownership (TCO) encompasses all of the costs associated with every aspect of the supply chain. It's how businesses account for each activity's costs within the supply chain, including material acquisition, storage, selling, transportation, currency exchange costs, trade incentives, and restrictions. The key to making adjustments in this area is to use the TCO to make informed decisions with all of the supply chain nodes and other business units that take part in strategic decisions. That's because there are usually unforeseen consequences to cutting costs to simply achieve a lower TCO.
- Invest in Technology & Software: Most businesses employ multiple systems to manage their supply chain operations. These often include basic programs such as Excel spreadsheets and applications that are then integrated with the enterprise resource planning (ERP) system. As described in the sections above, the issue is different parts of the supply chain often use different systems and manual processes to perform supply chain tasks. That can be a costly mistake in the current fast-moving business environment. A successful, efficient supply chain relies on access to real-time information and supply chain analytics to ensure data-driven strategies and enable swift action when necessary.
Following these supply chain management practices in 2024, businesses can start realizing the benefits more tangibly.
The effort put into updating and enhancing every one of these practices surely pays off over time. This is an iterative and optimizing process that will be refined as companies grow and embark on new business strategies to grow, solidify, and optimize their businesses.
If looking for suitable software to manage supply chain management several popular vendors offer a range of ERP options, like Oracle NetSuite, SAP, and Microsoft Dynamics. Each one with its strong capabilities and flexibilities, so ultimately, the best choice for a business will depend on the company's specific needs and requirements.
