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Supply Chain Management Strategy


Supply Chain Challenges

Supply Chain Management is still an evolving discipline. In some cases, technology is driving the evolution, such as integrated planning, using RFID for auto-identification or GPS for tracking shipments. Globalization and competition are also driving innovative new practices.

Environmental issues, government regulations and cultural differences are placing new constraints on the supply chain. Therefore, Individual planning and execution strategies need to be increasingly flexible, able to recognize new opportunities and adjust as SCM best practices evolve.

Multi-Year Strategies

SCM partner contracts (joint ventures, partnerships and outsourcing partners) and the investment in facilities, equipment and software are multi-year commitments.

When selecting supply chain partners (especially when their operations are overseas), it is important to identify and track hidden costs. Examples of hidden cost are quality control, longer lead times, higher safety stock levels, risk of writing off obsolete inventory, additional logistical expense, fluctuation in exchange rates, and new regulatory fees.

A supply chain best practice is to consider outsourcing non-mission critical activities that require a large investment in facilities and equipment, or when a contractor can provide a better service and/or at a lower cost.

Another long-term supply chain best practice is to get actively involved with the application software vendor in order to exhibit more influence with software enhancements and upgrades. Being involved includes participating in committees, joining user groups and attending conferences.

The customer value proposition is not going to significantly change year to year. SCM can contribute by aligning the supply chain to the value proposition, whether it is fast, low cost and predictable, custom solutions, or steady and dependable.

Annual Strategies

To keep Supply Chain Management synchronized with the rest of the organization, the annual SCM plan should be aligned with the business goals and objectives, including planned growth, planned events, new business initiatives and financial projections.

At an operational level, coordinating with sales & marketing on their annual plans, reviewing agreements with suppliers, assessing supplier quality and capacity, and an internal operational review can provide a better sense of what is required to keep supplies aligned with demand.

Annual planning is a good time to challenge old assumptions, especially high cost areas, such as a facilities, labor, equipment, and transportation. Relationships are dynamic and constantly changing; so this can be a good time to evaluate methods for measuring trading partner value. Another area to re-examine annually is management practices and how effectively they align and contribute to the business goals.

Another measurement is how well you compare with SCM best practices in your industry.

This is the time to explore new technologies and plan for new initiatives.

Operational Strategies

Supply Chain strategies can facilitate a single version of the truth for planning and forecasting, an increase in return from valued customers, the collaboration with key stakeholders and the unencumbered flow of products and information.

Planning & Forecasting

Supply Chain Management plans and forecasts should be done at a central planning department with the systems capable of integrating and consolidating plans and forecasts. The challenge for centralized planning is serving conflicting priorities and having the resources to meet the needs of different departments. Good systems should support recasting plans and forecasts by different groupings, and have the reporting tools to format and distribute the recast plans.

Valued Customers

Segmenting customers by profit, margin or volume helps determine the customers providing the most value. For example, high volume customers are needed, even though they are less profitable, so that you can maintain economies of scale. This allows for higher profits with smaller customers. Research can focus on high volume customers and smaller high margin customers. Using marketing research methods or Six Sigma’s "House of Quality", you can start to align your SCM with the values of your customers that drive the highest returns.

Another example of managing valued customers is retailers selling one product at a loss to increase traffic towards high margin products. For this to be profitable, the appropriate research should be done on which items will bring in which types of customers, the high margin items those customers will buy on impulse, and the net financial impact.


Suppliers can realize significant financial gains if they improve the accuracy of their sales forecast and reduce over/under production of their goods. The supplier can pass on part of the savings in the form of reduced prices. With a joint forecasting effort, forecasts improve. And with an agreement in place tying discounts to forecast accuracy, both parties improve their bottom line.

Flow of Goods and Information

Systems and procedures that provide an unencumbered flow of information and products are critical, because of organizational needs to shorten lead times, reduce cost and lower inventory levels. In addition to good IT systems that maintain robust data and information visibility, a structure is needed for critical processes that cross department boundaries and integrate with trading partners.

Logistical Execution Strategies

To optimize the execution of the S&OP plans, systems and processes need to coordinate resource requirements, schedule activities and monitor performance. Logistics systems should provide feedback to the operational planning process including the status of outstanding orders and goods in-transit.

Transportation Cost

Suppliers are not going to put forth the effort into reducing transportation cost when they see little benefit. If the supplier is coordinating and billing you for transportation, you can reduce your cost by taking control of transportation. If transportation cost is built into their pricing, prices will need to be re-negotiated without transportation. With the help of Transportation Management Software (TMS), transportation cost can be significantly cut with routing and load optimization.

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Supply Chain Software Guide



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