Building Better Supply Chain
In order for your company to remain relevant in today’s marketplace, it is essential to continually look to evolve your supply chain process. Companies that prosper and minimize their costs while maximizing their profits and keeping customers happy realize that this habit of continual supply chain evolution relies on well thought out and well applied redesign efforts. And this redesign is accomplished by using computer systems to perform detailed analysis and perform more efficient supply chain planning. In this article, you’ll learn what some of these analytical systems can offer your business.
You may be wondering, “My supply chain functions fine! Why spend all this effort in some big redesign effort that might end up only saving a few measly bucks?” The answer to this question lies in the Japanese concept of Kaizen. Kaizen is the principle of continuous improvement that was popularized by certain Japanese companies, notably Toyota.
The purpose of Kaizen is to use scientific and analytical methods on a daily basis to eliminate all excess and waste within an organization through the process of making gradual and continuous improvements to the products, habits, and functioning of the organization. In order to be maximally effective, the philosophy of Kaizen must be shared and practiced every day by each member of the organization.
Some examples of things that the Kaizen method would seek to improve are:
- The quality of products (for example, an herbal supplement company seeking to remove as many impurities as possible and increase the value of its product to the customer);
- The speed of an assembly line;
- Product design (in certain cases, companies that followed the Kaizen principle would actually temporarily stop an assembly line upon finding a defective piece of equipment so that the defective piece could be examined and improved upon, while suggestions were given to prevent the defect from happening again);
- Shipping and storage costs and efficiency;
- Customer service response times (for example, constantly striving to reduce the time that customers spent on hold before being able to speak with a representative who could help them resolve their problem);
- And reducing the number of products returned.
Applying the philosophy and practice of Kaizen to your supply chain (and to the rest of your company) will benefit your company by creating an ever-increasing improvement in the value that your product has to your customers.
More value for customers means more loyal customers who spend more money and even refer your product or company to their friends as a result of their enjoyment of doing business with you. It will also reduce supply chain costs that eat away at your profits. This is what’s called a win/win situation.
Step 1: Determine Project Objective, Facilities And Needs
So, with the concept of continual improvement in mind, the first step in building a better supply chain is to determine your project objective, facilities and needs. This means that you must decide what your goal in redesigning your supply chain is. Once you know your goal, you must next get an overall awareness of the size and involvement of the project.
In order to know what the overall size and involvement of the project will be, there are several elements you will need to take into account.
- Do you know where your factories and other production facilities are located?
- Do you know how many of these facilities you have?
- What about your manufacturing facilities?
- Who supplies you with your product materials?
- Do you know how many of these suppliers you have and where they are located?
These are questions that, when answered, will help you arrive at a clearer idea of the size of the project you’re initiating.
In this stage, you should also begin to identify whether your manufacturing, production, storage and shipping facilities belong to your company, or are under another party’s ownership.
- Are these facilities under lease?
- Are they outsourced (often the case with a retail supply chain)?
This information is important to identify early on because it lets you know how much control you have over your facilities, so that you can plan your design project accordingly. If you wish to involve, say, a distribution facility owned by another company as part of your supply chain redesign program, you will have to establish a line of communication between your company and this other company.
Additionally, in this stage of your project planning, you should examine issues such as customer supply and demand patterns, and the overall financial health of your company. These issues are important because they will affect the size and involvement of your redesign project. If your company is in good financial shape, then you can allow yourself to choose a redesign plan that is more ambitious in scope.
Likewise, if customer demand for your product is high, then that is a signal that the benefits of your redesign project will be maximally effective because in a high demand environment, getting more products to your customers more effectively means more sales. Conversely, if your customer demand tends to be erratic, or is seasonal (fashion accessories, for instance), then you should factor this into your planning process.
Also, determine the range of your supply chain redesign. Is your company local, regional, nationwide or international? Your company’s range will affect your redesign effort in several ways.
For example, international product delivery rates will have an impact on your shipping costs. Also, in today’s age of heightened global tensions, dealing with security and privacy concerns should also be a consideration.
The next task is to assess your supply network. This includes identifying both your supply manufacturing needs (for example, identifying where you get your raw supplies from) and your means of distribution. When assessing this network information, it’s important to remember that the data can vary according to the time frame.
For this reason, it may be necessary to design different redesign analysis models that represent different scenarios. For example, one model that represents a short-term, seasonal analysis and another that represents a longer term approach.
Step 2: Identify People, Places and Things
As supply chain manager or logistics executive, your goal in this step is to identify your customers, transportation and shipping methods and means of storage. The first objective is to identify your customers. Specifically, this is where you gather data related to customer demand.
You can use electronic records of sale such as customer receipts and shipment records, as well as invoice materials to determine the volume of product that is being delivered to your customers. The good news is, the fact that this information already exists in your computer systems makes it relatively easy to acquire.
In addition to identifying your customers, you will need to determine your shipping and transportation costs. Depending on your location, you may be able to obtain some of this data from databases that describe trucking and parcel rates for North American carriers. Using this data can make your job much easier and save time that you would normally have to expend in research.
You will also need to compile data regarding your supply facilities. You can utilize contracts and various databases to determine the scope and cost of your supply chain facilities, including your distribution centers, manufacturing facilities and others.
Typically, accounting staff at these facilities can provide you with the data you need, but you may have to do some additional investigative work, owing to the fact that facilities in different locations may have different preferences in how they choose to maintain their accounting data.
Step 3: Testing your Data
After obtaining the relevant data, you must test its accuracy. This is the goal of Step 3. Acquiring and analyzing the data you obtained in Steps 1-3 provided you with a framework for redesigning your supply chain, but now that data must be tested so that any miscalculations can be eliminated and the data can be retested until the model is as accurate as possible.
Traditionally, this testing involved targeting the supply chain data and using mathematical formulas to validate the accuracy. Fortunately, this data can now be tested using supply chain management software that utilizes sophisticated algorithms to verify the validity of the information supplied.
Another key factor in testing your data will be structuring hypothetical scenarios based on the aggregated data from Steps 1-3. This will allow you to devise solutions to supply chain problems that might arise in real life, such as a weather condition that adversely affects your shipping route or storage location and necessitates an alternate plan.
The value of being able to formulate these situations beforehand and test them in no-risk situations cannot be overstated, as a realistic simulation based on actual data stimulates creative solutions that might not otherwise be apparent.
Also, you should take advantage of your supply chain software solution’s ability to generate mathematical solver programs that can optimize your supply chain by running through various scenarios and finding the best solution based on the data fed to it (your actual supply chain data accumulated in steps 1-3).
Using this technology to analyze your problem scenario can point to solutions that can reduce your supply cost, eliminate bottlenecks and other issues that result in longer product cycle times, and ultimately raise your customer higher satisfaction levels.
Step 4: Review your Results and Plan
Once you’ve performed adequate analysis and identification of your supply chain process, and tested your data for accuracy, the final step in re-designing your supply chain is to review the results of your testing and establish a plan of action based on the results.
Many supply chain software solutions come with applications that allow you to create detailed analysis reports, complete with representational charts and graphs. Some of the more user-friendly software solutions even allow you to customize this data and export it into common desktop software clients, such as Microsoft Excel.
After you review your test results, you next step is to develop a viable plan for action, which could include integrating software that allows or better communication between the various links in the supply chain, establishing greater supply chain visibility in order to identify problems in the chain more readily, negotiating new business terms with suppliers, or even planning to outsource some aspects of the supply chain.
In conclusion, there are several steps that should be followed when your objective is to redesign your supply chain form maximum effectiveness:
First, you must identify your project objective, facilities and needs. This step encompasses the initial stages of planning, and involves setting a clear objective and collecting information from the rest of your supply chain, such as distributors, warehouse staff, manufacturing facilities and others in order to determine the size, complexity and level of involvement that your project requires.
The next step is to determine the people, places, and things that exist as part of your supply chain. First, use customer sales receipts, shipping records and invoices to identify who your customers are. Next, determine your shipping costs and carriers. Finally, you must compile data regarding your supply facilities, which is often available through accounting departments at the facilities.
Next, you must test the data that you’ve compiled in steps 1-3 above for validity. Several supply chain software applications exist for this purpose. By testing the data, you can not only identify existing problems in your supply chain process, but you can also run hypothetical scenario tests that allow you to plan for future crises.
Finally, you must review your test results and use them to formulate a plan of action. You should also use your supply chain software analysis applications to compile these test results and export the data into more user-friendly applications for more widespread dissemination among relevant parties. Armed with this new accurate and tested information, you can now make plans to improve the efficiency of your supply chain and increase your profits.
Advances in technology have made it possible to obtain data and analysis that can be used to maximize your supply chain efficiency. When used consistently and correctly, the methods outlined above give your company the ability to achieve your business potential and keep your company’s name synonymous with superior service in your customers’ minds.