Now more than ever, businesses must improve the efficiency of their supply chain in order to maintain a competitive advantage. All too often companies target storage, handling and transport to reduce costs, but this is just the tip of the iceberg when aiming for a truly effective end-to-end supply chain.
Reducing operating costs in storage, handling and transport will be effective to a point, but the overall supply chain could still be inherently inefficient. Market-leading companies are applying new technologies and innovative methods to optimise inventory planning and procurement to improve product availability, reduce inventory and enhance service. Identifying latency and seeking improvements in areas such as lead times, will lead to a more agile supply chain, that is more responsive to customer demand.
Estimating future demand is one of the most difficult, but also the most valuable challenges when optimising a supply chain. As companies try to find the balance between service delivery and cash flow, knowing what stock to hold for slow, intermittent and fast demand items can have a significant impact on profitability.
Companies should first differentiate between slow, intermittent and fast moving items, which will vary between organisations. For an automotive supplier, slow moving items could include those that have been bought once in the last six months, whereas intermittent stock would be items ordered every two months.
Standard computer algorithms don’t provide the necessary differentiation between categories of items, and very different procedures have to be used for slow moving stock due to the nature of the demand, as conventional forecasting algorithms simply don’t work.
It is vitally important to embrace the ever-changing nature of a part through its life cycle. For example, within the automotive aftermarket, there is often clear demand increase once the parc includes large numbers of vehicles with more than 50,000 miles on the clock. In this situation it is important to successfully manage the transition of a part from slow moving to fast moving in order to maintain service levels.
Effective procurement can have a significant impact on supply chain performance and is still grossly underestimated. It is important that organisations are aware that collaborating with suppliers and generating insight from procurement to final delivery can have a major impact on supply chain performance.
By focusing on this, a great deal can be gained from improved productivity, to efficiency and cost savings. Effective procurement can help a company to detect delivery risks, optimise workflow and prevent bottlenecks in the production process.
However, procurement is not only responsible for good price agreements, it also helps to improve collaboration between supplier and client, which should include soliciting feedback regarding objectives and strategies from customers. Obtaining relevant information from functional areas such as operations, finance and accounting, quality assurance and maintenance will ensure not only availability of supplies, but will also result in streamlined processes, lower total cost and enhanced responsiveness to the customers’ needs.
Effective procurement shifts an organisation’s focus from looking only at the purchase price, to understanding the total cost of owning a product or service. Procurement teams are abandoning the outdated practice of receiving multiple bids and selecting a supplier simply on price. Instead, they are considering many other factors that affect the total cost of the product such as operations, maintenance, environmental training, warehousing, quality and transportation costs.
Identifying the total cost of ownership requires collaboration and input between both the buyer and the seller, and looking at the procurement of a product or service.
Effective procurement is critical to a successful end-to-end supply chain. Companies should involve business units, suppliers and customers, while understanding what is most important to each stakeholder, before modifying procurement and supply chain processes to meet these needs.
A supply chain is far more than a simple combination of purchasing, operations and logistics. It is no longer sufficient to maintain an efficient supply chain that keeps inventory levels low and manufacturing lean. The path to a truly effective end-to-end supply chain starts with real-time visibility, accurate forecasts, enhanced supplier engagement and collaboration across the entire organisation.
Martin Warington is the business development director of TVS Supply Chain Solutions, a global provider of end-to-end supply chain services for the automotive, utilities, beverage, industrial and defence markets.