Supply Chain Excellence is a complex subject with a lot of moving parts. In this blog, I will try to address many of the components that the business entity and its supply chain must do well in order to achieve excellence.
Total Cost – This includes not only the delivered cost of the item being purchased, but also all other associated costs involved in the transaction such as purchase orders, payment, as well as inventory. In order to assess excellence in this area, the total transactional cost should be benchmarked against other comparable suppliers.
Delivery – This is simple, yet complex. Search for suppliers that can get you what you need, when you need it, and do it right 100% of the time. The ideal scenario is to have all transactions occur electronically based on a pull system originating in your factory. The item(s) are replenished in minutes rather than hours, days, or weeks. You may be thinking that this means your suppliers should be located close to the business. This is not necessarily the case, as you see described in “Inventory” below.
Quality – The excellence goal here is 100% first pass yield, complete order fulfillment from supplier inventory, and no mistakes. In the real world there will occur some errors from time to time. How easy is it to resolve these errors and or returns with your supplier? Effortless is the goal.
Inventory – In the lean world, we would want our suppliers to either consign inventory, vendor managed inventory onsite, or at the very least, participate in a Kanban program with shipments triggered by a digital signal from a pull system in the factory. In any case, Marketing must supply the vendor with accurate forecasts of demand so that the supplier can be prepared to meet demand increases/decreases.
Bar coding – All suppliers should be willing participants. This makes warehousing, inventory transactions, and logistics management much leaner.
Digital transactions – All transactions such as purchase orders, releases, and invoicing should be done digitally. Any paper involved is muda (waste).
Transparency – Your suppliers should have transparency to your system so they can see demand and inventory usage for the items they supply to you. The business should have transparency to its suppliers’ inventory, as well as real time order status.
Number of suppliers – In every business that I have been in, there have been an excessive number of suppliers employed. When asked why, the reasons were far too many to list. My experience was that we had reduction and consolidation opportunities in the range of 50-75%. Here might be a good rule of thumb. If the business leader can’t visit 90% of the unit’s suppliers in a year’s time, you need to reduce until that can be done with ease. Otherwise, all the excellence initiatives listed in this blog will be impossible to accomplish due to lack of scale.
Partnering – Your suppliers should be active members/participants of new product development, innovation, cost reduction, and speed of delivery teams. If they are not, you are not achieving the excellence standard in supply chain management.
Linking your supply base to your business strategy – You should include your key suppliers in your strategic planning sessions. Otherwise, how will you know whether this key component of the value chain is with you and can deliver what is needed to execute the strategy?
In-source versus out-source – Here are a few guidelines.
- Is the process or function strategic to the business?
- Does the process or task provide the entity with a strategic advantage?
- Does the business want to upgrade performance in a certain area of the value stream to differentiate it from competition?
- Is the process a core competency of the organization?
If the answer to any of these questions is NO, then outsourcing should be considered.
Supply Chain Management function should be a direct report to the President/CEO/Owner of the business because that is where the biggest spend of the company usually resides.
If you are not at the excellence standard as defined in this blog, let’s have a discussion about how I might be able to assist. Contact me at firstname.lastname@example.org, or 815-988-4562.
February 5, 2020