How do you know when your Supply Chain needs attention?
Tuesday 29th October 2013
Supply Chain Management is the strategic coordination of business functions within a company, with the aim of achieving the most efficient movement and storage of goods from point of origin to point of consumption. Unfortunately many companies do not realize that their supply chains need attention until they have a problem such as insufficient production or warehousing/ logistics capacity, too much capital tied up in stock, unable to meet customer service requirements and so on.
Where a company does not have a cohesive interdepartmental or cross functional Supply Chain Management policy it is difficult to have an overview of inter-dependencies and impact within the business. The result is a ‘sub optimised’ supply chain with limited visibility, hidden costs and fragmented teams working against each other.
A prime example is inventory, a critical element to most businesses, but different functions within a business have different perceptions of how much inventory there should be. Sales tend to want large volumes of inventory to guarantee service; finance want the inventory minimised to reduce working capital and operations want sufficient raw material to keep equipment operating efficiently. In addition, all inventories need to be positioned in the right place, at the right time and in the right quantity which is a logistics function. The difficult task of inventory management is to balance and satisfy all of these needs. A fact-based inventory policy can be developed in any business. There are proven methodologies and formulae that can optimise the level of inventory against all of the service, working capital and equipment utilisation criteria. These policies can be developed and introduced with consensus from all functions; they can demonstrate clear rationale and logic behind the resulting inventory levels and they can balance and satisfy all of the needs of the business.
This example of an inventory management policy is just part of an overall Supply Chain Management policy/strategy which all businesses should have in place. Supply chains have always been around and there has always been a desire to ensure they are optimised. However with the increased complexity of a truly global market place and an increase in global sourcing from Eastern Europe and the Far East it has become more of a challenge to optimise the supply chain. This in itself has proven that a supply chain management strategy, with a proper process for regular review and change, is more important now than ever and will continue to be so. This enables a company to identify potential issues before they impact on the business and enable the correct course of action and infrastructure to be implemented with the benefit of a longer term planning horizon.