Managing your supply chain
Supply chain management (SCM) plays an important role in connecting the front-, middle- and back-offices in a business. It aims to increase efficiency and streamline your business's supply-side activities, including:
• demand and order management
• inventory control and warehouse management
• internal production
Optimising your SCM helps you provide better products and services at a lower cost to your customers and gain a competitive advantage in the market.
• Adequate supply chain management allows you to execute orders at the best prices, reduce logistics costs and save money on total operational costs.
• Good supply chain management helps you get better control over demand forecasts and build resilience to sudden changes in the market.
Your supply chain will depend on your lead times, the capital required for inventory, revenue, growth, market share and other related factors. Assess your business operations to create the most suitable and efficient supply chain for your business.
Technology can help you improve SCM efficiency. However, you do not need state-of-the-art software systems to have a good supply chain management process.
Supply chain risk management
Supplier risk management refers to balancing supply and demand and working with your key stakeholders (including employees and investors) and critical suppliers to contractually agree on logistics costs and necessary buffer stock, so as to reduce sudden price increases in the face of any adverse events. Managing risk is a key priority for supply chain leaders.
• Understand contracts with critical suppliers. Typical contracts include details of:
— liability and force majeure (such as shortage of supply)
— operational continuity clauses
— duty costs and other tax liabilities.
• Develop a single view of your inventory and achieve greater visibility of product in the supply chain to cope with demand.
• Identify supply chain risks and adapt your supply chain strategy accordingly. Identify local alternatives to help deal with challenges such as finding alternative suppliers, using alternative modes of transportation, making changes to product specifications and exploring various emergency shipping options. Improve decision-making (responsive supply chain planning) and interoperability through holistic and transparent supply chain models. Enhance the performance of your supply chain by applying insights gained from customers, suppliers, third-party providers and other external data sources.
• Move away from historical data and instead adopt predictive supply chain management capabilities to help capture potential inefficiencies. Real-time supplier data, including system performance alerts and geopolitical events, can help you manage performance and resolve issues. When an alert occurs, take proactive measures to uncover additional exposure levels by reaching out to suppliers outside affected regions to identify upstream supply dependencies within their supply chains.
To ensure independence from a few key suppliers make sure you research your options and identify alternative vendors or suppliers. You should also determine the location of the vendors and suppliers and define supplier routes. Explore alternative transportation options.
Applying structured approaches and enablers will help you address key challenges and embed sustainable value, as illustrated here:
Adapting your supply chain model
During your business operations you may encounter common supply chain challenges, such as:
— keeping control of your supply chain activities and attributable costs (for example, understanding how much working capital inventory is tied up in logistics routes)
— managing your operational risks
— building and maintaining relationships with your suppliers
• Having strong relationships with your suppliers should result in shortened supply cycle times and provide production continuity.
• Smaller businesses often find themselves at a disadvantage when it comes to supplier relationships, since unless the suppliers are also small businesses, the buyer does not have the scale to exert leverage.
— lost revenue and poor customer service due to failure of supply
• This may also cause increased expenditure on premium freight to expedite parts and materials where supply chains have failed.
— implementing technology to improve your daily operations
• If you currently have a modest IT infrastructure, expanding your budget and investing in technological developments such as warehouse automation could help you increase efficiency and achieve cost savings, improving your business operations.
— entering new markets and competing with global players.
• Expansion into new markets incurs high fixed costs, which cannot always be met by smaller businesses. However, if the funds or financing is available, this should pay off in the long run. Conduct a cost-benefit analysis before making any expansion decision. For some businesses, investing in expansion can bring great benefits in the future.
• Entering into new market channels that are already saturated with competitors and their suppliers might require great effort from your side. For example, if your business is a brick-and-mortar operation and you are bringing your business online where key competitors and suppliers already have significant market share, you will need to take more care than you would if your products or services are not already available online.
Think about your supply chain and the possible challenges you may encounter in your business. Work with your employees and customers or even link up with other smaller businesses in order to resolve any inefficiencies in your supply chain.
Micro supply chains
Recent trends in digitalisation have enabled businesses to become more connected with each other than ever. This has increased the ability for suppliers and purchasers to find and do business with each other. One result of this is that supply chain models are able to be less dependent on large manufacturers and can partner with local suppliers to source resources closer to home. The final manufacturing process can take place much closer to the customer, and local delivery companies can be used to supply to local customers. These arrangements are known as micro supply chains.
Look into micro supply chains and move towards flexible contracts to bring relationships with manufacturers closer to the point of purchase. Explore strategies to “buy where you make, and make where you sell”. Take advantage of the highly decentralised nature of micro supply chains and their ability to alter production and delivery, adjust volumes, and introduce new products at short notice.
• Modern supply chains require agility and flexibility. Flexible contracts differ from regular contracts by giving you more freedom to scale volumes up or down and alter or customise production. They are also usually entered into for a shorter timeframe.
• Micro supply chains adopt small operating models that create value as close to the customer as possible. As small operations standing alone, they have more agility and flexibility than supply chains based on standard models. They allow you take what your target market values – typically speed, service and cost – and finely tune supply chains to cater to them more optimally on a local basis.
• In micro supply chains, low-value, standard products, or standard parts of higher-value products, can continue to be made in larger volumes at established global factories. Non-standard parts and products are produced and assembled closer to the end market. This accelerates the move towards modularisation, where products consist of largely common components that can be customised easily and quickly to suit customer preferences.
• Local manufacturing and assembly can shorten transport routes significantly, often replacing global routes with routes between local production hubs, either within the country or at least between nearby countries. This not only saves on logistics costs but it reduces the carbon footprint. There will be a growing emphasis on last-mile delivery, which could open up access to a far wider range of local transport providers – including registered private citizens – via logistics platforms. These platforms include GoShare or Fetchr and operate in a similar manner to how consumer platforms such as Uber, Lyft and Bolt work as taxi service business.
• Collaboration across industries and between traditional competitors should increase as organisations seek to reduce the costs and complexity of their operations. Micro supply chains involve a vast number of players and logistics routes. In addition to supply chain management and e-businesses, there will be greater numbers of contract manufacturers, wholesalers, distributors and warehouse providers. The emergence of supply chain platform providers brings further choices (such as a wider network and more options and providers to choose from) and manufacturers could opt to use part or all of a platform provider’s supply chain as their channel to customers, distributors, wholesalers and last-mile delivery services.
• Micro supply chains are less vulnerable to crisis periods and other macro phenomena such as volatile interest and exchange rates, tax regime change, trade tariffs and quotas, wage inflation and crop failure.
• Explore further key steps in building a micro supply chain.
If possible, set up an end-to-end (E2E) supply chain. E2E supply chains cover the process in its entirety – from the procurement of resources to the stage when the product reaches the customer. Eliminating layers and steps enables you to optimise distribution, minimise possible disruption and cut costs.
• With the shift to e-commerce, E2E helps ensure internal supply chains and delivery mechanisms can cope with demand and have the ability to model and predict customer behaviour while ensuring greater control of the process.
• Establishing an effective E2E supply chain requires the implementation of an enterprise resource planning (ERP) system to help you manage your operations.
Illustrative example of adapting a supply chain model
Small manufacturing businesses will often be hindered by the fact that they order comparatively small quantities of resources and raw materials from their suppliers. This was the case for a small food manufacturing business.
• Some of the larger suppliers had a policy of charging extra for small quantities, as the cost of packing and delivery was the same as for large quantities despite the small order size, or not prioritising them, leading to longer delivery periods and waiting times.
• The charges were too high for the owner of one small manufacturing business. She went to her supplier and asked about the different options. The supplier said he couldn’t offer her a better deal without losing profit, but told her that there were other small manufacturers in the area that he also supplies.
• The owner then contacted a local SME association to find a list of small manufacturers. The owner decided to group individual smaller orders into one larger order to decrease costs for everyone and to access additional discounts available for larger orders.
• She contacted other SMEs and they agreed to group their orders. This reduced delivery time for everyone, since the minimum quantity for fast delivery was easily met. It also improved payment terms, with longer days payable and no advance or bank guarantee being required.