SET YOUR SUPPLY CHAIN UP FOR SUCCESS
Did You Know?
79% of companies with a highly-rated supply chain consistently achieved above-average growth within their industry sector.
In this article, Head of GSS, Simon Peacock, explains what areas companies should focus on when changing your supply chain strategies.
Getting items from multiple suppliers to the production line is a complex operation that requires systems spanning numerous companies, process, people and resources. It can be a time-consuming and costly procedure but it’s something that’s fundamental to any manufacturer’s core business plan. And that’s because of one undeniable truth: The success of any company is inextricably linked to the performance of its supply chain.
According to a survey conducted by Deloitte, 79% of companies with a highly-rated supply chain consistently achieved above-average growth within their industry sector. Now, compare that figure to the 8% of businesses that have supply chains deemed to below average or poor that managed to realise a similar level of growth. The difference is clear: A well-managed and efficient supply chain greatly increases the chance of a business succeeding.
Although it’s an extremely important aspect of a business’ day-to-day functions, managing and coordinating a supply chain is not a straightforward or easy procedure. Neither is it an inexpensive one as estimates suggest that 50% of a company’s outlay can be directly linked to its supply chain, though in many cases that percentage will be higher. With that in mind, it’s no surprise that businesses are always looking at ways to decrease their costs: A recent report by Accenture found that reducing the cost of a supply chain had become a major priority for companies. Unfortunately, that’s something easier said than done.
Instead of attempting to achieve headline-making cost-savings across a supply chain, businesses should look to make strategic savings.
Understand Your Needs
For individuals tasked with this, you should start by analysing existing practices and determine their strengths and limitations. This may seem to be a simple and obvious first step but it’s one that provides a thorough overview of which areas can be improved. Emphasis should be on processes that add no discernible value, with common examples being:
- Transportation and procurement costs
- “Hidden” fees, such as accounting and warehousing.
- Supplier management
- Customer service
These can be hard to pinpoint but they are all closely associated to a supply chain’s overall performance. And a great deal can be saved by improving, optimising and, potentially, streamlining relationships in these areas. Once these have been pinpointed, it’s time for everybody to consider how these actions would fit within the wider business strategy.
Back in 2014, a survey by Tomkins Consortium found that over 50% of participants considered supply chains to be a standalone business function. In other words, more than half of those questioned did not recognise the need for their supply chain to be in alignment with an overarching business strategy. Needless to say, the opposite is true. If your company hasn’t aligned its supply chain with its business aims and objectives, now is the time to make sure that everything is working towards one common aim.
Also, allow time during the process to receive advice, either from a third-party consultant or from a potential supply chain partner during initial discussions. In either situation, a fresh set of eyes could find areas for additional cost-savings that may have been missed by an internal audit.
With the right systems in place and partnerships with the right companies, your organisation will be able keep production lines running smoothly and efficiently. Now that you know which direction you want to take and what measurable improvements you would like to see going forwards, it is time to explore your available options.
The BCI, in association with the insurance brokers Zurich, conducted a report last year, and they found out that 65% of respondents had experienced at least one instance of supply chain disruption within the past twelve months. And the most common consequence (55%) of these periods of disruption was a loss of productivity.
In an ideal world, supply chains would work perfectly all the time. But for many, that’s a nirvana saved only for the super-rich corporations that can install safeguards. Even then, as we’ve seen with Apple recently, the best laid plans can often fall short.
When discussing a new strategy and when meeting with potential supply chain partners, always talk about contingency plans. What fail-safes are in place? What contingency measures can be activated in the case of industrial action or component parts being placed on allocation? These are all questions that need to be asked. Your supply chain needs to be resilient. If it isn’t, you’ll end up paying for it – quite literally.
Plan for the Long-Term
The process of changing supply chain management partners is a marathon and not a sprint. This may seem to be an obvious statement, but long-term strategical thinking has only just become prevalent in the sector. The BCI’s 2017 Resilience Report found that more organisations (74%) are asking their suppliers about their long-term strategies now than they were a year ago (63%).
It may take a lot of time and effort to overcome initial hurdles and make a new partnership work. Both parties involved need to recognise this and plan strategies and deadlines that encompass the short-, medium- and long-term. Such planning helps companies move away from focusing on immediate gains that can ultimately limit the success of a new partnership.
That said, everybody should also take care and ensure that they are doing everything possible to achieve results as quickly as possible.
Understand the True Costs Involved
One of the biggest areas of wastage in a supply chain is through the hidden costs associated with the warehousing, transporting and invoicing of goods. If you are working with several suppliers, each with their own importance and value, then these costs will quickly escalate and leave you multiple ‘hidden’ invoices that could be avoided altogether.
One way to do this is to map out your entire supply chain, a procedure that the majority of businesses (69%, according to the BCI) don’t undertake.
Find out where parts come from, where they are stored and where they eventually end up. With a physical route in front of you, can you identify any areas for improvement? Would it make sense to combine some shipments, or warehouse multiple items in one location? Can an external company provide large scale vendor management on your behalf?
New Balance reportedly cut its footwear supply chain by 65%. This move allowed the American sportswear company to focus on forming strong, positive relationships with its primary Tier 1 and Tier 2 partners. A result of this move, New Balance was able to cut costs by removing duplicate outgoings and spend more time extracting the maximum value out of its primary suppliers.
Make Sure the Solution Aligns With Your Business
Changing partners can be a costly process but finding the correct one will unlock numerous cost-savings across the entire supply chain.
When you are prospecting, take time to explore what industries they serve and how likely they are to understand the unique demands of your business and your supply chain. Throughout your discussions, keep in mind how willing a company is to adapt to your needs. No two supply chains are alike and as such, no two options should be alike. If you’re being offered an off the shelf solution, then the likelihood is that it won’t work for you. Find a partner that offers processes that match your business needs and that can deliver the functionality you require.
You’ll also need to do some work at your end to ensure everything aligns. As you embark on the journey of switching supply chain partners – or outsourcing certain aspects – it’s important to establish a team that’ll oversee the transition. Conduct impact assessments and get a firm understanding how what internal changes will be required.
This group should incorporate people from across your company and cover all areas. Ideally, quality, sales, operations and IT should all be involved. Many systems and processes will change and some of your internal operations may have to be adapted to successfully implement any new approach. And if the decision to change your supply chain strategies will impact staff in any way, we’d recommend that a HR representative is present.
Set Yourself Up for Success
If you want to give your business the best possible chance at success, then the supply chain must be at the centre of your entire operational thinking. Developing a sector-leading supply chain will not be an easy process; it takes time and investment, but the process will have an immeasurably positive impact on your organisation.
Today’s supply chains are constantly under pressure. With technologies changing and consumer demand liable to fluctuate, those businesses with a flexible and aligned supply chain will be more likely to succeed.
So, ask yourself honestly: is your supply chain in the best possible position? If the answer is no, then there is a golden opportunity to improve and drive your company towards a profitable future.
- Posted by Marketing
- On April 6, 2018