Selecting the right supply chain strategy

  • Organisation's supply chain footprint is unique in complexity, scale and cost.
  • Business processes and functional reporting standards are mostly industry based
  • Manufacturing standards are product or process specific within compliance protocols.
  • Supply chain technologies vary to provide customers with the best service proposition.
  • The quality of your supply chain peronnel are always challenged to improve themselves.
  • Financial reporting conforms to corporate and statutory governance requirements

 

Take a moment to process these factors and try to visualise your supply chain in reverse. Starting at the customer end, does the customer satisfaction experience validate your existing supply chain strategy? A high customer service level is acceptable, though not at the expence of high inventory holding costs and underutilised distribution fulfilment centres. The challenge for your organisation is to focus on those customers who are below your corporate service level target and work on the factors that are affecting this poor result. Selecting the right supply chain strategy becomes extremely important when oparational costs start to become prohibitive.

With the use of integrated systems namely ERP, WMS and CRM, most organisations have all of the tools, data and information. Their challenge is how utilise, interpret to content in developing and  selecting the right supply chain strategy. This new dynamic supply chain strategy must aim to increase customer service levels at the cost of operating your supply chain. It is important to discuss these core components of your supply chain to better understand the challenges. 

Supply chain footprint: The size, complexity, cost and location

Your supply chain footprint will represent a significant cost to your business, in some cases over 65% of total supply chain cost. The supply chain network may consist of distribution centres in each state and/or an outsourced 3PL model allowing you to focus on your core business. It could simply be a number of smaller warehouses that were established years ago in regional locations, although the current demand and cost profile of these facilities make supporting the scale of your supply chain footprint cost prohibutive.

When selecting the right supply chain strategy, it is important to look at your entire supply chain footprint's value proposition on a strategic, tactical and operational level and then continue to ask yourself

How long can we support a poor customer service levels with a cost prohibutive supply chain model?

Strategic level

  • Is this the most efficient and effective supply chain model to support?
  • Are there opportunities to consolidate storage and delivery points to minimise scale and cost?
  • Can our existing 3PL support a hybrid supply chain model?
  • Do we continue with an in-house supply chain model and resource structure?

 

Operational level

  • Is our resource plan reactive or responsive to surges in demand?
  • Can our inventory be more centralised to support demand locations?
  • Are our systems able to be more responsive to support fast lane orders?
  • Space is diffucult to manage when order qty's are linked to rebate program

 

Business Processes

A new acquisition by your business to broadened its product portfolio and venture into untapped markets can create pressure on your supply chain.  As your existing premium range is servicing a different distribution channel, you may be operating two supply chain model's during a business integration phase and will need to standardise your business processes. This can be quite complex as it not only involves procedures, but technology drive processes that require extensive analysis and understanding prior to any form of migration is considered.

Inventory

What is the depth and scale of your product range? How many SKU's are active and how many are due for transition or disposal? What is the current margin on these products? What marketing programs are in play and is there an on boarding program for key customers or distributors? Does the current supply chain model suport a centralised inventory policy where the majority of inventory investment is managed by a single distribution centre or are warehouses operating autonomously supporting a decentralised inventory policy? Though many of these are operational in nature, there is a heavy emphasis and reliance on a strategic level to ensure that assets are supported in right sized warehouses located in the most optimum locations. 

Supply management

The management of supplier arrangements from initial contract negotiations through to the mechanical process of reorder management and replenishment, this function has an enormous role to play both at a strategic and operational level. At a strategic level, focus is purely on policy settings to ensure that the procurement plan is achieved and lines up with the inventory policy settings. Vendors are capable and are constantly measured through a continuous improvement program. The disconnect in some organisations is the pursuit of volume purchases at the expence of real inventory carrying cost and the pressure it places on space management.

Operationall speaking, the execution of the procurement plan can have a considerable impact on not only the logistics of moving and storing inventory, rather the poor level of customer service when a vendor is unable to meet your delivery expectations. Existing supply contracts will need to be reviewed to understand commercial implications, inventory holding commitments within the current supply chain model and the cost impact for non conformance. The physical location of your supply points and the vendors capacity to achieve constant supply may present centralisation options. Your supply strategy will need to be refined to incorporate these challenges. 

Physical Distribution

Whether you operate your transport operation as a profit centre or cost centre, the ability to manage freight and deliver the orders on time is the primary objective. Transportation is typically the most exposed area of your supply chain as it is reliant on a number of different stakeholders and transport providers that manage touch points, information exchange and proof of delivery. Poor customer service can be attributed to the inability of organisations to provide an end to end track and trace service as the barrier continues to be technology or lack of technology. Some transport providers embrace change while others are still in catch up mode. The challenge is further complicated by the use of different transport modes and services such as line haul, local carriers, independant contractors, road, rail and air.

Supply chain technology

Many SME's use an ERP system that supports their financials and inventory management, with limited capability for warehouse order management. Other larger organisations use a 3PL provider which operates a warehouse management system that works independantly or interfaces to your ERP with order management and inventory updates. At the warehouse level, operations vary from manual order picking through to the use of technologies that support pick to light, voice pick and RF scanning.

Irrespective of the technology being deployed, the causes of poor customer service need to be identified and removed through a continuous improvement program. Can these systems be integrated any further to remove delays or data integrity issues? How is customer service to be managed?

Developing the right supply chain strategy requires a responsive framework that can support strategic, tactical and functional changes in an organisations supply chain model. The challenge for organisations remains, which supply chain strategy is right for my business?

What is the right supply chain strategy?

"EFFICIENT supply chain model"
"SPEED TO MARKET supply chain model"
"CONTINUOUS FLOW supply chain model"
"AGILE supply chain model"
"FLEXIBLE supply chain model"