benefits of effective global supply chain management
Today’s global supply chains are increasingly complex, making a data-driven approach
to supply chain management a must. Data-driven SCM provides visibility from end to end for
monitoring the flow of information, services and goods from procurement to manufacturing
and delivery to the end consumer. Data isn’t the only driver of effective supply chain
management; other factors such as good vendor and supplier relationships, effective cost
control, securing the right logistics partners and adopting innovative supply chain
technologies make a big impact, too.
Supply chain optimization isn’t a simple undertaking, but effective SCM offers numerous
benefits that improve the bottom line. Here’s a look at eight of the most important benefits
of effective supply chain management.
Better collaboration
Information flow is a prominent challenge for companies. According to Oracle, 76% of
companies lack an automated flow of information across the supply chain, and half of
companies say fragmented information results in lost sales opportunities. Integrated
software solutions remove bottlenecks and allow for the seamless sharing of information,
providing a big-picture view of the supply chain from end to end. Thanks to improved access
to data, supply chain leaders have the information they need, in context, to make more
informed decisions.
Improved quality control
Quality control issues follow the rule of 10, explains Arshad Hafeez, Global Expert for
Supply Chain Management and Quality Control, SCM-Group Function (GF) in an article for
CIO Review. According to the rule of 10, the cost to replace or repair an item increases by
tenfold at each step of the progression, resulting in significant costs for companies when
quality issues arise.
Companies that have greater control over not only their direct suppliers but also their
suppliers’ suppliers benefit from improved quality control. Implementing standard minimum
quality criteria, for instance, enables direct suppliers to identify and partner with secondary
suppliers that meet those requirements. Likewise, process guidelines can help suppliers
comply with your company’s quality requirements. Some companies go beyond simply
providing criteria, conducting periodic audits or requesting documentation verifying
suppliers’ compliance steps. Hafeez recommends implementing a Management Operating
System (MOS) for monitoring key performance indicators including:
On-time delivery
Scrap rates, reworks and similar issues at suppliers
Final product quality (as received by end customers)
Time for complaint resolution
Findings from supplier quality assessments
By analyzing performance data, companies can partner with the highest-performing
vendors and suppliers to maintain strict quality control.
Having real-time data on the availability of raw materials and manufacturing delays
allows companies to implement backup plans, such as sourcing materials from a backup
supplier, preventing further delays. Without real-time data, companies often don’t have
time to initiate plan B, resulting in issues such as out-of-stock inventory or late shipments to
end consumers.
Implementing smart automation solutions also results in higher efficiency. Healing
Hands Scrubs, for example, implemented 6 River Systems’ collaborative mobile robots,
doubling productivity and reducing unnecessary walking by 75%. Investing in the right
automation solutions and leveraging data to minimize delays supports a positive customer
experience and boosts your company’s reputation.
Keeping up with demand
“If consumer sales increase by 5 percent in a given week, a retailer could end up
ordering 7 percent more product in response to the increase and a feeling that demand will
continue,” according to a report by VISA. “The next link in the chain, observing what appears
to be a 7 percent increase in demand, then orders a larger increase on his supplier.
Eventually the factory may observe an inflated 20 percent increase in orders.”
Known as the bullwhip effect, this phenomenon often results from delays in
communicating supply and demand changes. Supply chain leaders with access to real-time,
accurate information and integrated data can better predict demand and readily respond to
changing market conditions to avoid challenges like the bullwhip effect.
Shipping optimization
According to Logistics Management’s The State of Logistics Report, freight
transportation costs increased by 7% from 2016 to 2017, while private and dedicated
trucking costs increased by 9.5%. Less-than-truckload costs rose by 6.6%, and full truckload
costs rose by 6.4%. Due to rising costs, shipping optimization is a priority for supply chain
leaders. Identifying the most efficient shipping methods for small parcels, large bulk orders
and other shipping scenarios helps companies get orders to customers faster while
minimizing costs. Not only do those cost savings boost the company’s bottom line, but
savings can be passed on to consumers as well to improve customer satisfaction.
Reduced overhead costs
With more accurate demand predictions, companies can reduce the overhead costs
associated with storing slow-moving inventory by stocking less low-velocity inventory to
make room for higher-velocity, revenue-producing inventory. Warehouse fulfillment
costs contribute significantly to overhead. Reduce these costs by optimizing your warehouse
layout, adopting the right automation solutions to improve productivity and implementing a
better inventory management system.
Identifying unnecessary spend is another way to achieve leaner operations. If you’re
facing high logistics costs, for instance, switching to another provider offering the same
service level and quality at a lower cost is a quick win.
Improved risk mitigation
Analyzing big-picture and granular supply chain data can reveal potential risks, enabling
companies to put backup plans in place to readily respond to unexpected circumstances. By
taking proactive action, rather than reacting to supply chain disruptions, quality control
issues or other concerns as they arise, companies can avoid negative impacts.
Understanding risks also helps companies achieve leaner operations. For instance, 87% of
companies believe they could reduce inventory by 22% if they had a better understanding of
risks in their supply chains.
Improved cash flow
The importance and benefits of supply chain management systems discussed above
allow companies to make smarter decisions, choose the right partners, accurately predict
and respond to market and demand changes and reduce supply chain disruptions, but that’s
not all: they also improve the company’s bottom line. For example, working with reliable
suppliers not only means fewer disruptions and more satisfied customers, but it also
improves cash flow by allowing you to invoice (and get paid for products and services)
sooner. Implementing more cost-effective solutions to eliminate wasteful spend and
reducing overhead costs also contribute to positive cash flow.
Supply chain disruptions have a domino effect, impacting every juncture throughout the
supply chain, but the same is true for the positives: effective supply chain management has
direct and secondary effects that support the efficient, seamless flow of information, goods
and services from procurement through final delivery.
