Supply Chain Management’s Three Foundational Elements
The three pillars (or fundamentals) of effective supply chain management knowledge are strategy, service, and cost. A structure shouldn’t be built on top of crooked pillars, as any architect will tell you. In this article, we’ll concentrate on how to align the three supply chain pillars and the benefits of doing so.
The Benefits of Cooperation
Your supply chain operation must be coordinated in terms of strategy, service, and financial components to support your company’s overall business strategy, goal, and objectives.
This alignment needs to be your top supply chain management goal if you want to gain the endorsement (and possibly even admiration) of the C-suite.
- Strategy and cost coordination results in satisfied shareholders.
- For your clients, cost and service alignment is good news.
- Service and strategy alignment helps your managers and staff stay focused.
Your executive team has every reason to be pleased with the way you are doing things once shareholders, clients, and internal stakeholders are all aware of what your supply chain is about and how it helps them.
Kerala offers numerous courses in supply chain management and logistics. You can learn more about supply chain management by enrolling in one of the supply chain management courses offered in Kerala.
But if, for the time being, you’re only interested in learning about the problems and their effects, let’s move on to discussing how you can make sure that each of the three supply chain excellence pillars is aligned.
What Does It Take To Align The Three Pillars?
The First Pillar: Supply Chain Service Alignment.
Since customer service is where the customers that matter most to your business will focus their attention, we’ll start there. The correct service at the appropriate price is what your customers really want. After we take a closer look at the cost component, let’s think about what it takes to align the supply chain management’s service pillar.
It’s not that difficult, but the three component areas of inventory, policies, and planning need to be laser-focused. Let’s examine each of these service components in greater depth.
Let’s be clear about one thing: The customers of your firm don’t give a damn about the internal costs of your inventory. They do give consideration to the cost per unit of finished items they purchase as well as their accessibility.
Therefore, from the standpoint of inventory, providing good service entails keeping enough stock on hand to fulfil your customers’ commitments. Having too much inventory, however, will have a negative influence on your operational costs in a number of ways, which may subsequently have an impact on the rates your customers pay.
To achieve availability and cost requirements, it is vital to balance inventory levels and deployment strategy. Policies and planning, the other two aspects of service stated earlier, must be taken into consideration in order to achieve this equilibrium.
Although the subject of policies can come across as stuffy and formal, it’s a crucial part of supply chain management that should never be disregarded. Particularly for inventory management, effective policies are essential.
The availability of your products is somewhat guaranteed by your inventory policies. Policies pertaining to various aspects of service provision, such as flawless order fulfilment (on-time, in-full) give clarity on the standards of service that consumers can anticipate (and perhaps the options available for a premium).
Let’s use an example where your business’s customer service guarantee states that orders will be delivered to clients within 24 hours. In this situation, your supply chain service strategy must be able to deliver on that promise, potentially by mandating the automated usage of expedited last-mile delivery in reaction to supply delays upstream.
Effective planning will ensure that the utilisation of expedited delivery (and the expense connected with it) is minimised in the aforementioned case. From this illustration, it is clear that planning is essential for coordinating the service and financial pillars of excellence in supply chain management.
In the pursuit of supply chain management excellence, planning and policy are intertwined. For instance, it’s crucial to carefully plan the creation of policies to make sure they meet the needs of your company and its clients.
Pillar 2: Supply Chain Financial Alignment
You and your team should concentrate on costs and financial performance in four crucial areas in order to align the financial pillar of supply chain excellence, namely:
- Distribution network costs
- Warehouse operational costs
- Costs associated with transportation
- Procurement costs
Each of these cost considerations is important to consider carefully if you want your supply chain to successfully serve your company.
Distribution Network Costs
Having the correct number of warehouses and/or distribution centres in the right places is essential for creating a cost-effective distribution network. The trade-off between warehousing and transportation expenses is another factor. Let’s focus on the “distribution nodes” for the moment and discuss transportation later.
These nodes must be positioned to:
- Minimize warehouse and inventory costs, as well as the cost of outbound shipments, for your supply chain to support your business.
- Avoid using too much internal transportation, and make sure you can keep your company’s promise to its clients.
- A surplus of nodes will increase warehousing costs and inventory levels. If there are too few, both service quality and transportation costs will suffer.
Therefore, optimization is the key. Finding the least expensive method to fully and consistently fulfil your company’s customer promise is more important than simply having the lowest cost in your distribution network.
Financial alignment can be further improved by paying close attention to what happens inside your distribution centres and warehouses, even if your network has the ideal number of distribution nodes in the ideal locations.
Every warehouse in your network needs to have a layout that is cost-effectively optimised. To maximise performance, warehouse operations should also be analysed and continually improved.
Simply put, your throughput will increase and your costs will decrease the more waste you can remove from your warehouses, such as travel, motion, waiting, over-processing, and inventory damage/loss.
Costs of Transportation
The quantity and location of your facilities have a significant impact on the cost of transportation throughout your supply chain. You’ll save money on transportation if you efficiently optimise the supply chain network of your business.
There are other steps you may take in this situation to enhance your transportation cost profile. Whether you run your own fleet or hire outside transportation professionals will affect a lot of things.
Although it must be mentioned that this is not a sure solution, several businesses have effectively decreased transportation costs and enhanced service by migrating from internal to outsourced distribution methods. The choice to outsource logistics must be made after careful consideration.
If you already employ third-party logistics, it is worthwhile to evaluate the present cost-effectiveness of your plan—possibly by posing
- Can the rate structure for transportation be made better?
- Efficacious partnership management?
- Use of the most effective forms of transportation?
- Could your clientele be divided into groups according to the different levels of delivery service?
A continuous improvement approach will nearly always reveal cost-reduction options as well as opportunities to gradually increase profitability and improve customer experience, regardless of whether transportation is outsourced or kept in-house.
The key is to constantly evaluate if your current practises are still the best ones for your company.
The financial alignment of the supply chain is greatly influenced by procurement. This does not imply that your business should go for the lowest unit price feasible for every good or commodity it buys.
Instead, getting the most out of every supplier relationship should be the main procurement priority. This can be achieved by classifying incoming supplies based on their strategic importance and managing supplier relationships accordingly.
Try looking for ways to harmonise the procurement process’s cost at the same time. Utilize technology in procurement whenever possible to simplify procedures and lower the cost of each supplier/buyer transaction.
Additionally, effective supplier relationship management will assist in this area by promoting cooperative efforts to lower transaction costs for your business and its most crucial suppliers from a strategic standpoint.
Pillar 3: Supply Chain Strategy Alignment
So far, we’ve discussed a variety of supply chain functional areas and the significance of ensuring that they are in line with your company’s objectives. You could be excused for assuming that most businesses are dedicated to excellent performance in these areas since none of it requires rocket science. They most likely are, in reality.
Regardless of the thoroughness with which improvement is pursued, strategic misalignment makes supply chain service and cost performance a product of luck as much as judgement. Your supply chain strategy needs to be understood by everyone, developed continuously, and regularly calibrated to maintain relevance if you want to be successful.
Supply Chain Strategy Clarity
While senior leadership should think about strategy formulation and calibration, lower management levels and the general staff should be aware of the essential components of supply chain strategy
They convey strategy in a style that makes it simple for delivery drivers, office workers, buyers, manufacturing technicians, and other functional personnel to support the plan and carry out their responsibilities in its execution.
Therefore, before you can coordinate your supply chain strategy, you must determine whether everyone in your organisation is aware of the strategic objectives and imperatives. Do they all understand how each of their actions helps the overall plan?
If not, you’ll need to put a communication plan into place to increase clarity across all levels and departments.
Construction of a Supply Chain Strategy
The concept of continuous improvement has been brought up several times in this article, and your supply chain strategy is no exception. You cannot simply set up your supply chain strategy and forget about it.
Keep in mind that your company’s business strategy may change over time, and outside forces may also cause your supply chain plan to change course. Nothing remains the same for very long, thus to keep up with the changes, your supply chain strategy must constantly be under improvement.
Supply Chain Strategy Adjustment
It will be difficult to determine how well your strategy is currently serving the business and even more difficult to implement solutions that priorities quality if, for instance, your strategic focus has changed over time from cost-reduction to a more service-oriented model but your KPI suite is still heavily weighted toward financial measures.
Align Your Way to Excellence in the Supply Chain
It all boils down to service, strategy, and financial congruence. When it comes down to it, supply chain management is really just a matter of concentrating on the interests of customers, internal stakeholders, and shareholders. When the three supply chain pillars are perfectly aligned, those needs are met.
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