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Improving supply chain performance

supply chain
(Image credit: Image source: Shutterstock/KAMONRAT)

The supply-chain for any business is not a simple, linear chain of activities; it is a dynamic network of integrated processes, technology, and people. With many CEOs not considering supply-chains until something monumental goes wrong, organizations need to develop coherent strategies and make data-driven decisions to improve supply-chain performance. Achieving excellence in supply chain management can deliver sustainable growth and superior financial results. 

The essential starting point for a supply-chain review is to confirm how current supply chain performance is driving financial outcomes. Taking a systematic, structured approach that aligns key operational performance measures to return on investment (ROI) is fundamental. It can show how the day-to-day operations of your business determine financial results.  

With clear, fact-based insight and understanding, a tailored transformation program can be developed that targets the most beneficial actions. Supply-chain is inarguably an untapped opportunity for many companies, with most companies not looking at their supply chains and reaping these benefits until something goes wrong. Understanding how operational performance can drive competitive advantage and disrupt markets in the face of uncertainty, turbulence and increasingly demanding customers is a challenge. But now, more than ever, is the time to optimize.

How can companies do this?  

Businesses need consider a three-stage process: a health check, diagnostics and transformation. The health check aligns operational performance to ROI to systematically qualify opportunities and define improvement priorities. It should scale the opportunity offered by supply chain transformation. Diagnostics then identify, in detail, the necessary changes to process, organization, technology, and infrastructure to reset capabilities. A transformation program should combine the data-driven analytics from the diagnostic phase with clear insight to the key drivers of financial performance to develop a targeted change program. 

Benchmarking using innovative analysis that sets current performance against market competitors can form a strategic ‘call to action’ for a business. Aligning a data-driven review of how the supply chain is working, and its potential, with the business strategy ensures the coherence of improvement actions; applying a ‘joined up approach’ to a ‘joined up’ situation.

The role of the customer  

Customer expectations have increased considerably and they expect retailers to have stock of what they want, when they want, or they will move onto competitors. If they order items online, they expect prompt, on-time delivery and easy return processes for unwanted purchases. Many manufacturers are dependent on just-in-time manufacturing strategies that require delivery of components not only on time but also not before time, and in exactly the required quantity. Good customer experience is crucial, as well as understanding what they value the most and how they measure your business is key to any re-design of the supply chain operation as well as highlighting opportunities and risks.  

The ability to capture and apply information from across the supply-chain network has been greatly enhanced by technology. However, information, not just data, really flows when based on trust. Actions will not become synchronized across the supply network unless data are shared on a timely basis and transparency to levels several steps forward and backward in the network are offered. Building collaborative relationships is fundamental and is more about mindset than technology and involves identifying and sharing opportunities to create mutual benefits and recognizing that costs inevitably flow and circulate in the network.

How to optimize your businesses costs 

People are at the center of any successful supply chain design and strategy. Even if someone does not work directly in supply-chain, there is a need for them to understand that their commercial and financial decisions will still impact supply-chain. Through using advanced analytics and by putting people and design at the core of its supply-chain, companies can reduce costs while simultaneously improving supply-chain performance. Companies that develop coherent strategies and make data-driven decisions to improve supply-chain performance can, in doing so, improve organizational profitability.  

This is why effective supply-chain optimization is a crucially important aspect of operational performance. Design has a critical role in shaping product costs (and supply-chain management costs) as well as ensuring material and component costs are truly value aligned; value being determined by the customer and their willingness to recognize this in the price paid.

Understanding your supply-chain costs  

The process related costs of planning, sourcing and logistics operations are often overlooked. In many instances, simply identifying and analyzing these ‘indirect’ costs will reveal significant opportunities for improvement. Understanding total cost to serve allows your business to make the most informed decisions and seek cost reductions that are sustainable. Simply passing cost around the supply network will not, ultimately, deliver savings and may hamper collaboration and limit the ability of a network to compete with others.  

Driving working capital efficiency  

Few aspects of a business will operate in isolation; delivering customer orders and getting paid certainly do not. Assessing trends in the cash-to-cash cycle can indicate issues in supply-chain operations and an in-depth review by channel, customer and supplier will bring the transparency needed to target improvements. Inventory management is fundamentally dependent on cross-functional processes; decisions on core parameters and ways of working have strategic implications. 

Focusing the business for supply chain excellence  

Management KPIs and incentives need to be aligned to support coherent supply-chain management. The quality of customer relationships has an impact on the information flow in the supply-chain with more timely and accurate demand plans requiring less inventory in the form of safety stock to meet customer requirements. Taking a systematic, structured approach to understanding how supply- chain operations drive financial results will allow your business to manage trade-offs, identify opportunities and prioritize actions. 

Calum Lewis, Founder and Principal Consultant, OP2MA

Calum Lewis is the founder of OP2MA, an innovative consultancy that focuses on transforming supply chains for sustainable growth. Calum has extensive experience in leading businesses and delivering exceptional operational and financial performance. With the LEGO Group, he embedded best practice supply chain management to drive five-fold sales growth to £300m.