The benefits of a reliable supply chain are numerous: increased production efficiency, optimized shipping, lower operating costs, better quality control, risk mitigation, improved cash flow, and many more. A supply chain can make or break your business – an inefficient one carries with it long lead times, inadequate production, and unhappy customers.
A lot of time and effort goes into establishing a good and dynamic supply chain. It takes planning, research, experience, knowledge, and resources to create and maintain all the trade routes that will benefit your business. Supply chain management (SCM) is one of the key aspects of running a company that deals with filling customer orders.
As we see more and more with the expansion of global trade, supply chain management (SCM) services are often outsourced to companies specializing in them. These companies deal with every aspect of the supply chain, from the supply chain planning phase to sourcing raw materials, industrial manufacturing, delivery and logistics, and finally, reverse logistics.
Supply chain service providers also help with establishing a dynamic supply chain model businesses sometimes need.
What is a supply chain model?
Supply chain models are part of the supply chain theory. They are a framework of sorts, a guideline on how to create a supply chain for a specific business. These models were developed to introduce order and organization to supply chains and make it easier to achieve business goals, decrease operating costs, and increase on-time delivery. An effective supply chain model is also beneficial in supply chain risk management.
There are six supply chain models, each designed to fit a different type of business.
- Continuous flow supply chain model
The first supply chain model is the most traditional one. It is useful for established companies to put out more or less the same finished product continually. If you don’t expect customer demand to vary in quality or quantity, a continuous flow model is the best solution.
- Fast supply chain model
Businesses that follow the latest trends and produce items with a short lifecycle should utilize the fast model. Its benefit is that it allows for quick output and seasonal shifts without compromising the efficiency or quality of the final product.
- Efficient supply chain model
End-to-end efficiency is the ultimate goal of the efficient model. If your business is in a highly competitive market, and the price is the only thing that makes you stand out, an efficient supply chain will work for you.
- Custom-configured supply chain model
If your finished product has multiple configurations during assembly, mixing, packaging, or printing, you could benefit from a custom-configured supply chain model. This one is a combination of the continuous flow model and the agile model, and it allows you to configure your final product according to each of your customer’s needs.
- Agile supply chain model
The agile model serves businesses that have “made to order” products. Each customer can uniquely specify what they want, and your business will be able to deliver without too many issues, thanks to this model. In the face of unpredictable demand, the agile model is an excellent option for you.
- Flexible supply chain model
Arguably the most adaptable of the supply chain models, the flexible model is perfect for unexpected demand. It is meant for businesses that have high demand peaks, followed by long periods of low demand. Service companies that handle unexpected situations or even emergencies usually employ this type of model.
Efficient and Responsive Models
Each of the six models described above can be sorted into two categories: efficiency supply chains and responsive supply chains.
The efficient group includes the fast model, the continuous flow model, and, unsurprisingly, the efficient model. These models focus on supply chain efficiencies– quickly manufacturing finished products from raw materials at a relatively low price. Issues they bring to the table are that they may not be cost-effective for every type of business and might cause an inventory surplus if you’re not careful.
In contrast, the responsive supply chain models are the agile model, the custom-configuration model, and the flexible model. They emphasize flexibility instead of efficiency and can rapidly respond to sudden increases in demand. However, human error is a significant factor in responsive models. If a business has undertrained staff, it may lead to disruptions in the supply chain.
The Best Supply Chain Model
You have to consider the type of business you’re running to choose the right model. However, you should also consider that most successful companies use one of these generic supply chain models with some modifications. The best supply chain models are hybrid ones – where you take a model that sounds like it would suit you and tailor it to your needs. Customized supply chains are the way forward.
To establish a supply chain model that works for you, use these key steps:
- Identify the critical elements of your customized supply chain. For a new business, this could be establishing relationships with suppliers, logistics providers, and manufacturers. A resilient supply chain is one with a high level of collaboration from all sides.
- Define the role of your supply chain and logistics manager. They need to understand the sales process, but also what components are required for manufacturing new products. Logistics managers need to be able to communicate openly in every phase of the process.
- Anticipate customer demand. Increase forecast accuracy levels if possible so that you don’t get taken by surprise when there’s a sudden increase or decrease in demand. Keep an eye on what your competitors are doing and stay ahead of the game.
- Establish resiliency and flexibility. Resiliency is the ability of your supply chain to respond to disruptions – to deal with the unexpected. Having multiple (backup) supplier options and perhaps a safety inventory stock could increase supply chain resiliency and improve your overall warehouse management. At the same time, you can develop flexibility, as part of your inventory management, by creating standardized processes and nurturing relationships with your suppliers, as mentioned above.
- Supply chain risk management. The three most common types of risks in a supply chain are natural disasters, operational risks, and political instability, if you are sourcing or delivering internationally. Try to identify where your supply chain is vulnerable and how you can prevent risks.
- Measure performance. Once you create an outline of your resilient supply chain model and put it into practice, keep an eye on the data coming in. Constant evaluation and adapting to new circumstances is the foundation of any solid supply chain strategy.
Supply Chain Service Providers
After a walk through the basics of supply chain theory, you can understand just how much it takes to develop a supply chain that won’t collapse somewhere along the way. If you’re not an expert in these matters, it is understandable that you feel overwhelmed with all the different aspects of a supply chain one has to juggle.
The good news is that you don’t have to do all of this yourself. Plenty of companies offer supply chain services to those who need them, and you can easily hire a logistics provider to handle things for you.
These providers can take on the burden of one or more segments of your value chain (such as industrial manufacturing, transportation management system, warehouse management, inventory management, and more). This third party company can take over the entirety of it, depending on what you need and what you can afford.
Companies that offer supply chain services are divided into three types:
- 3PL: A third-party logistics company provides clients with transportation services but also with some (or all) supply chain services, like handling the freight forwarder, customs brokerage, supply chain consulting, reverse logistics, network optimization, etc.
- 4PL: Unlike a 3PL provider, a fourth-party logistics provider regulates how the entire supply chain operates, not just parts of it. These companies have more of an administrative role, and they are responsible for optimizing your supply chain to the maximum. Since they have no assets of their own, 4PLs usually work together with 3PLs to provide clients with the best possible service.
- 5PL: Fifth-party providers are similar to 4PLs in that they handle the whole supply chain, but they also keep an eye on the operating costs and try to negotiate better rates with your suppliers.
Which logistics manager you decide on – if any – depends on the size of your budget. If you have a global company that can invest in a 5PL provider, it may work for you. But if you are a smaller business, a 4PL or maybe even a 3PL provider will be a good addition to your business process.
The Benefits of a Supply Chain Service Provider
Plenty of company executives are reluctant to hire an outside logistics provider to take over their supply chain. This is a natural reaction when we’re talking about something valuable and delicate as a supply chain. One wrong decision could cost a business weeks, if not months, of production.
If you’re unsure about hiring a third party to help you with your supply chain, keep in mind all the resources that these providers have. They usually have strong relationships with freight forwarders and suppliers, established processes that work seamlessly, and a network of experts in supply chain management, advanced technology, and all other means required to create a supply chain strategy that will revolutionize your business.
You may not have the time or the expertise to streamline your process, examine global supply chains, and keep an eye on every segment of your supply chain, including the data management system, supply chain operations, and customer demand. Hiring a reputable logistics company to step in and organize things for your business may be one of your company’s best decisions in the long run.
Digital Supply Chains
If you haven’t gone fully digital in your supply chain yet, it is only a matter of time. Most businesses nowadays use a combination of pen and paper and computers. However, soon enough, we’ll be faced with fully digitized supply chains that will lead us to a new logistics era.
Information will be more readily accessible and easily trackable in real time. If a problem in the value chain occurs, you will immediately be informed about it. Monitoring your suppliers, their efficiency, and the supply chain efficiencies of your own business process will be as easy as swiping through screens on a tablet. The industry isn’t at this stage yet, but we’re excited about everything that technology has to offer in supply chain management.
Knowing the generic six supply chain models is a good foundation for building your own supply chain. Consider the final product your company is manufacturing or selling and what you anticipate your customer demand to be. Find a model (or two) that best fits your business and start from there.
When customizing a supply chain model for your business, there are many factors to consider. Decide if you want an efficient or a responsive model, who your suppliers will be, what your supply chain and logistics manager should focus on. Set up a resilient model of appropriate flexibility that will withstand possible disruptions. Don’t forget that positive relationships with your suppliers are crucial in the risk mitigation process. Finally, establish the parameters you will follow to evaluate how well your supply chain works for you.
During this process of planning and revising, remember that you can always turn to a professional for help. 3PL, 4PL, and 5PL providers will save time that you can spend elsewhere by optimizing your supply chain for you. Even though it’s not easy, having someone else take the reins of a process that is so integral to your business may prove to be just what your company needs to thrive. Don’t be afraid to ask for help when you need it.
Redbird Logistics Services is at your disposal if you feel like you could use some assistance with your supply chain planning. We are a third-party logistics provider that proudly offers supply chain services. We can maximize efficiency in the whole supply chain or only specific parts of it, depending on your needs. With our real-time technology, you will have complete visibility of your supply chain so that you are always fully informed on what is going on. Don’t hesitate to reach out through our website if you’d like to learn more or get a quote for your business.
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