Supply Chain Management For Dummies
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One of the most exciting and challenging aspects of supply chain management is how quickly things change. New customers, new suppliers, and new technologies are added to supply chains every day. In order for supply chain managers to meet their goals of delivering value to customers while maximizing profits, they need to always be looking for ways to improve. This list provides ten questions that you should ask to make sure your supply chain is meeting your customers' needs, giving your company a competitive advantage, and keeping pace with technology trends.

Who are your key customers?

One big challenge for supply chain managers is that they're often disconnected from the company's customers. Sales and marketing departments make deals and entice customers to buy; then it's up to the supply chain folks to make the products and deliver them on time. Although supply chain managers have a set of production targets, they often have no idea who their customers are.

Although all of your customers are important, your key customers are the ones that are most important for your supply chain. Key customers buy in large quantities, are expected to buy more in the future, or are influential in your industry. As a supply chain manager, you should learn who these key customers are and what makes them important to your business so that you can focus your improvement efforts on profitably meeting their needs.

Two common ways for supply chain managers to collaborate directly with key customers are through routine meetings and process improvement projects.

What do your key customers value?

Your supply chain creates value by addressing your customers' needs. There are many ways to gather data about the things that your key customers expect and are willing to pay for including:
  • Analyzing industry trends
  • Conducting surveys
  • Interviewing customers
  • Attending conferences
  • Sponsoring focus groups
As you gain new insights about what your customers value, use this information to improve the metrics for your supply chain. Ensuring that your supply chain is performing in terms of metrics that matter to your key customers helps you capture new customers, sell more to your existing customers, and introduce new products and services that address needs that aren't being met.

How could your supply chain create more value?

Companies can become comfortable — even complacent — about the relationship they have with their customers. This attitude is dangerous, of course, because what customers want and how much they are willing to pay will change over time.

There is often pressure to lower your prices to make your products more competitive. You should always be looking for ways to improve supply chain efficiency because this can allow you to lower prices without sacrificing profits. However, you should also be looking for opportunities to increase revenue by reaching new customers or making your product or service more valuable to your current customers. For example, selling products online can be a good way to connect with new customers, and profitably fulfilling to online sales often involves significant changes to a supply chain.

How do you define supply chain management?

Many people use the term "supply chain management" when they are really talking about the procurement, logistics, or operations functions. To be effective in improving your company's supply chain, you need to have a broader perspective. For example, a project that reduces procurement costs can end up increasing costs for logistics and operations. As a supply chain manager you should look across all three of these functions and identify the best end-to-end solution. You should also look beyond your own company and understand the effects that a change could have on your suppliers and your customers.

Driving down costs and improving performance in a supply chain requires alignment across functions and between companies, and that means everyone needs to think about how their decisions affect the rest of the supply chain. Supply chain management should be viewed as the process of synchronizing the activities within your company and aligning them with your customers and suppliers.

What information do you share with suppliers?

Your suppliers need to get certain information from you to maximize their value in your supply chain. Many companies try to position themselves as strategic partners with their customers but then maintain a guarded, arms-length relationship with their own suppliers. It's also important to make sure that you are sharing information in a useful way. If the data you share is hard to interpret or changes too frequently, it can cause confusion.

Here are two tips for successfully sharing information with your suppliers:

  • Share all the information you can. Decide what information to share with suppliers and what information to hold back. Some business information certainly needs to be protected, but not all of it requires the security of state secrets. In fact, you're probably better off to share every piece of information that could be useful for a supplier unless you can identify a genuine risk from disclosing it.
  • Ask suppliers what they want. Talk with your suppliers to find out what information they want from you and how (and whether) they're able to get it. In many supply chains, one company assumes that another company is getting the information that it needs, but that may be incorrect. The information could be hard to find or interpret, or it could be going to the wrong person in the company. The easiest way to identity and resolve gaps is to have a conversation with the supplier.
Sharing information with suppliers can help both your company and the supplier create more value.

Many retailers have begun sharing sales and inventory information with their suppliers in order to reduce the bullwhip effect. When suppliers have access to information about supply and demand in retail stores they can do a better job of planning for future needs.

How do you compare with competitors?

You can find out a lot about how well your own supply chain is doing by benchmarking against other companies, including your competitors. You can do benchmarking informally by researching public information about your competitors. You also can do formal benchmarking by sharing data between companies or working with a research firm that collects data from many companies and provides them all with benchmarking reports. One advantage to participating in a multi-company benchmarking study is that it can allow participants to see how they're performing relative to other companies without having to reveal their identities.

Although sharing non-financial data with other companies for benchmarking studies is usually perfectly legal, it's illegal to share some information that could stifle competition. For example, you probably can share information about your inventory turns, but you probably can't share information about your prices. Before sharing any information with someone who works for one of your competitors, make sure that you understand what you can and can't discuss.

What changes could increase revenue?

There are basically only three ways to increase revenue, and each of them depends on effective supply chain management:
  • Raise prices.
  • Sell more stuff to current customers.
  • Attract new customers.
To raise prices, you need to be providing more value than your competitors. As long as you can deliver the product your customers want, when they want it, and where they want it better than your competitors, then you can charge more money.

If you are looking for ways to increase revenues by selling more stuff to current customers and attracting new customers, here are some specific goals that supply chain management can pursue:

  • Distribute your products through new channels.
  • Improve customer experience and increase brand loyalty.
  • Adapt your product, package, and processes to the needs of new customers.
Think about ways to increase revenue for your company and then get your supply chain team on board with those initiatives.

What changes could lower costs?

Supply chain management decisions drive most of the costs for every company, so be on the lookout for opportunities to reduce the amount of money that you spend. Following are some supply chain savings to look for:
  • Increase transportation capacity utilization. By squeezing more valuable products into every shipment, you make better use of the money that you spend on transportation and lower your overall costs.
  • Increase supply chain velocity. By increasing the rate at which products move through your supply chain, you increase your return on investment. Inventory velocity can be measured with inventory turns. Shipment velocity can be measured with order lead times or transportation lead times. End-to-end supply chain velocity — how long it takes for a product to get to your customer — can provide important insights about where your products get stuck along the way.
  • Reduce order variability. Variability in order patterns is a well-known driver of costs in supply chains. Variability causes companies to build up inventory, which is expensive. Inventory swings amplify as they move up the supply chain, causing the bullwhip effect. Finding ways to make smaller orders more frequently and reduce variability can translate into significant savings by reducing both inventory and the chance of lost sales from stockouts.
Efforts that you make in each of these areas have direct and indirect benefits. The direct benefits are money added to your bottom line. The indirect benefits are reductions in waste and a better utilization of the capacity throughout the supply chain.

Often, 80 percent of a company's expenses are tied directly to supply chain decisions. Every dollar saved in the supply chain becomes profit for your company.

What affects your supply chain now?

Supply chain technology is evolving quickly, and no supply chain manager can afford to ignore it. To stay competitive, keep your finger on the pulse of supply chain technology. Here are a few good ways to stay informed:
  • Read supply chain magazines and blogs.
  • Attend supply chain conferences and trade shows.
  • Subscribe to reports by supply chain consultants and analysts.
  • Stay active in a professional association.
  • Maintain communications with technology vendors.
You may not need to learn the ins and outs of every new technology that comes down the pike, but you need to have a sense for how new technologies can help you deliver more value to your customers, either by increasing revenue or reducing costs.

What will affect your supply chain in the future?

You may have heard the saying "A leader needs to have a microscope in one eye and a telescope in the other." Using your telescope to look at the future of supply chain management can make the field fun and exciting or terrifying and risky.

Imagine telling your wristwatch that you want a taco, and a few minutes later, a drone will deliver that taco. That scenario sounds silly, but all of the technology that you'd need for that supply chain is available today. All it would take to make that supply chain a reality is a viable business plan.

There will be lots of opportunities to transform supply chains using technology in the next few years, and by recognizing those opportunities early you can get a competitive advantage. Try to imagine ways that each step in your supply chain could be done differently using technology, and look for opportunities to create value in new ways.

In many cases, the technology doesn't change what is happening, but it does change how it happens. For example, right now you probably go to the grocery store and pick out your bananas. However, many grocery stores will allow you to place orders through a website and pick them up at the curb. You are still buying bananas, but how you buy them is starting to change. The time that your customers save by ordering online instead of shopping in the store is valuable to those customers.

In other cases, new technologies could make an existing supply chain obsolete. For example, imagine a world of autonomous cars that are shared or rented on demand. Rather than buy cars from a dealership, customers may sign up for subscriptions to a car-on-demand service through a website. This new technology could make car dealerships, and their supply chains, obsolete.

The only way to measure risks and identify opportunities that come from technological innovation is to stay in touch with trends. Understand the value your supply chain provides to your customers and what additional needs aren't being met; then keep an eye out for new technologies that could help you meet those needs.

About This Article

This article is from the book:

About the book author:

Daniel Stanton is known as "Mr. Supply Chain." His books are used by students and professionals around the world, and his courses on LinkedIn Learning have been viewed more than 1 million times. He holds numerous industry certifications, including Certified Supply Chain Professional (CSCP) and SCPro.

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