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Best practices for strategic supply chain management

strategic supply chain management

Shorter cash conversion cycles, faster speed to market and consumer preference may drive more manufacturing stateside.

The supply chain is a complex system involving several moving parts. Strategic supply chain management is vital to the profit and growth of your business and directly impacts all functions of your company. But how do you adapt to the changing trends in the supply chain?

Creating and optimizing your supply chain need not be a daunting task.

Actively managing your supply chain requires the internal optimization of business processes like strategic sourcing, inventory management, and vendor control. Your team must work to apply supply chain best practices, including supply chain risk mitigation, supply chain synchronization and environmental sustainability.

The demands on supply chain managers can be vast, but frameworks exist to help ensure your supply chain is running efficiently. The way you implement each strategy is as important as the strategy itself.

Strategic sourcing and the supply chain

Strategic sourcing can help free up capital that will allow your business to reallocate funds for other business expenditures. The first step in building a successful supply chain is to start with vendor sourcing. Before vetting potential vendors, evaluate your business’s needs and benchmark your existing sources within your supply chain.

Items to benchmark include delivery and transit time, batch order size, stock levels and costs. Once you’ve identified your existing sourcing benchmarks, you will be able to identify where changes need to take place and the gaps within your supply chain that your vendors can fill. Taking a deeper look at the numbers also will allow you to see where improvements can be made.

Vendor management best practices

Vendor management begins with the selection process. Laying a strong foundation for a working relationship with your vendors is vital, and communication will always be key.

Step 1: Research

When shopping for vendors, create a score sheet to help compare them side-by-side in order to find the best fit for your needs.

Items to include in your score sheet:

  • Transportation cost
  • Form of transportation
  • Shipping time
  • Turn time
  • Product format
  • Batch order size
  • Vendor capability
  • Payment term
  • Product pricing

Once you have created this score sheet, you’re ready to start eliminating candidates who do not meet all or most of your needs.

Step 2: Refine

The next step is to request product samples. Once you receive your samples, select three vendors who meet your quality standard, and set up a time to speak with each one individually. Clearly communicate your expectations from the beginning; open communication can prevent miscommunications and frustrations down the line.

Be courteous with any vendors you did not choose; they may not have been the right choice this time, but leave the door open to opportunities to work together in the future. You never know when you may have a chance to revisit those relationships.

Step 3: Negotiate

Once you have refined your selection to a single vendor, it is time to negotiate a contract. Before finalizing terms with your selected vendor, it’s a good idea to review your benchmarking and score sheet one more time to ensure that you’ve made a decision that best positions you for success.

When creating the vendor contract, remember that your vendor is your business partner; be sure to clearly define the terms of the contract and ensure that the language positions both parties to meet individual goals and objectives.

Inventory management

Knowing exactly where inventory is at any given time is critical for any retailer. According to Rayford Collins, supply chain optimization expert with the UPS Customer Solutions Group, you can expect closer collaboration with suppliers, improved visibility and predictive analysis to dramatically improve inventory management in nontraditional ways. "The idea is to treat product as inventory regardless of where it is located – before it is ever in the warehouse – and to make changes to the end destination while it is in transit,” says Collins. "You reduce everyone's inventory carrying cost, the operational cost of handling a product multiple times, and the cost of storing it."

Supply chain and the environment

Another important consideration when designing and optimizing your supply chain is its environmental impact. Sustainability and cost reduction no longer need to work independently of each other. Oftentimes, the more sustainable route is also the most cost-effective.

Modern supply chain strategies are proven to enhance a company’s profitability, customer experience, and environmental stewardship. “The greenest mile driven is the one you don’t drive at all. It’s also the most profitable mile,” says Stuart McAvoy, global director of supply chain optimization and sustainability at UPS.

When a mile must be traveled, make the most of it through a combination of streamlined travel patterns, multi-modal transportation options and alternative fuel and advanced technology vehicles.

For example, McAvoy says, one company decreased its carbon footprint by more than 30 percent, improved its customer service by 40 percent and decreased its transportation costs by 6 percent by adding another warehouses to its operations.

Mitigate supply chain risk

Take a proactive approach to creating a risk management plan. Identify potential risks, such as natural disaster zones, that can negatively impact your supply chain. By creating a risk mitigation plan, potential risks will have less impact on your business. Problems caught early can be managed successfully.

Items to include in your risk mitigation plan:

  • Insurance
  • Reserve inventory
  • Crisis team
  • Forward buying

How to synchronize your supply chain

The final step in building out a strategic supply chain management plan is to activate and continuously optimize it. A best practice for strategic supply chain management is to think of your entire supply chain as a collaborative effort and synchronize your supply chain from manufacturer to market.

While implementing strategic sourcing best practices, actively involve customers in the decision-making process. Your customers are a valuable resource for your benchmarking, so solicit feedback that ties back to your objectives. Follow this same strategy for your vendor and supplier management by maintaining open communication with your vendor(s) and supplier(s).

Creating and optimizing your supply chain need not be a daunting task. Following some basic best practices and continuously monitoring the flow of products into and out of your business can position you for long-term supply chain success.

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