Any business that handles filling customer orders cannot function without a supply chain. The process of transforming raw materials into a finished product and then delivering it to the right customer is integral to any company that wishes to increase their profit and expand their business.
A successful supply chain management solution has to be prompt, accurate, and cost-effective. If your lead times are unreasonable, your inventory cannot support the demand, and your data management system is lacking (only to name a few possible flaws of a supply chain), you cannot expect your business to thrive. Supply chain optimization is crucial for improving cash flow and fostering development.
Of course, implementing the right supply chain solutions is not an easy task. It requires knowledge, experience, collaboration, and constant vigilance to ensure that what you have set up is working for you. In this ultimate guide to supply chain management solutions, we will introduce you to the basics of supply chain management and what you need to know to create a solution that will be the perfect fit for your business.
Let’s start with the questions you need to answer before you begin the supply chain process planning phase.
Retail or Manufacturing?
Is your business selling finished goods or manufacturing products from raw materials or components? Or a bit of both?
Retailers and manufacturers have different supply chain process needs – the former have to restock their inventory with finished goods, while the latter need to source raw materials or bring in components required for the manufacturing process. Retail supply chains are mostly driven by consumer demand. Manufacturing supply chains also need to account for labor and machine efficiency to determine their peak performance levels.
When your business deals with both sides, this type of supply chain is called an end-to-end supply chain – a process that goes from raw materials all the way to the finished product delivered straight into the customer’s hands.
Where your typical customer is located is crucial to your supply chain process strategy. Are you a small business that delivers locally? Or are you aiming for global shipping, covering most (if not all) corners of the world?
Global delivery requires an assessment of the global supply chain network. If parts of your supply chain are international, you need to familiarize yourself with customs, freight forwarding, and local taxes and regulations. On the other hand, if customers are coming to your location to pick their order up, you need to put an emphasis on inventory management systems so that no order slips by you.
Knowing how long it will take for the materials, components, or products to arrive from your suppliers is one component of an effective supply chain. If you have long lead times from suppliers, you need to have a well-stocked inventory with relatively low turns. Fast delivery also requires a high inventory volume.
However, a high inventory volume with high turnover is a good option if you’re dealing with perishable goods, such as frozen foods or produce. That way, you can easily replace any that may have gone bad.
Developing Your Supply Chain Solution
Once you have all the answers to the above questions (whether you’re a retailer, a manufacturer, or both, where your usual customers are, and what your lead times will be), you can start developing your supply chain solution. It might be beneficial to learn about the six different types of supply chain models in theory, but it isn’t a must.
The first step is effective supply chain planning. This is the stage of supply chain management where you expand on the previous questions and decide whether you will:
- Manufacture a product or component domestically or internationally
- Buy a product or component from a domestic or international supplier
There are other elements to consider as well, such as potential manufacture outsourcing, delivery models, what transportation management system you will use, what the design of your warehouses will be, truck leasing, and how all of this ties into global supply routes. For any warehouse manager planning to incorporate software solutions into supply chain management, now is the time to select which one they’d like to try.
While you’re planning the supply chain, never lose sight of your business process and goals. Different supply chain types support different business types, and you don’t want to end up with an inflexible supply chain that won’t provide you with the freedom to pivot if your production needs it.
Don’t forget to incorporate monitoring methods and to review each element of the supply chain. Data collection and analysis will help you reduce costs and increase efficiency as time goes on.
After you plan the outline of your effective supply chain, add details about sourcing raw materials or components that you need. Optimizing cost and availability is vital at this stage. You don’t want to end up with goods that you bought for too much money or can no longer sell because the consumer demand for them doesn’t exist anymore. Knowing how much of something to buy (its quantity) is just as important as knowing its price – too much or too little product can cost you in the long run.
When it comes to suppliers and supply chain partners, the options are endless. You will need to do extensive research to find companies that you want to work with and that seem reliable and trustworthy to integrate into your supply chain. From that point on, work on developing strong relationships with your suppliers – mitigating risk and lowering costs is directly influenced by how well you work with your trading partners.
Processes that you shouldn’t overlook in sourcing are inventory management, receiving orders, authorizing payments, and managing assets. Create processes for tracking each supplier’s performance and whether or not they are helping or harming your business.
In the third step, if you are a manufacturer, you should organize all the production activities to increase the product flow. Receiving components or materials, assembling the product, quality control, packaging, and scheduling for delivery belong in this stage.
The supply chain’s efficiency is put to the test; you will quickly find a flaw in the procurement (sourcing) stage of the supply chain if you find that your production cannot function at its peak because of a lack of materials or components. (Or, in contrast, if you have a surplus of incoming goods that your manufacturing processes cannot use right away.)
If you’re not a manufacturer, you may still need to handle some elements of this stage, such as testing your products for quality, packaging them, and scheduling them for delivery to your customers.
Delivery and Logistics
At this point in the supply chain, the product is ready for delivery. Customer orders have to be coordinated and dispatched, invoices sent out, and payments collected. Everything related to storing and transporting the final product falls into this segment, including warehousing and distribution strategies. More than any other, this step may require a consultation or the hiring of third-party logistics companies.
Reverse logistics is a technical term to describe product returns. If for any reason, the customer isn’t satisfied with the product or it is scheduled for return, reverse logistics comes into play as the last element in a supply chain.
In this step, your business needs to authorize the return, assess the returned product’s condition, and either replace it or provide the customer with a refund. Establishing an easy return policy that doesn’t require much effort (or money) from your customers should be the primary goal here. Even if they didn’t like the product, they likely won’t be frustrated if it isn’t a big hassle to return it.
If you’re not confident in your supply chain management and technical skills, there is always an option to outsource this part of the business to a third-party company. 3PL, 4PL, and 5PL providers all offer supply chain services that you might benefit from, depending on your company’s size and budget. Let’s look at the differences among these and how they might help you run your supply chain without any trouble.
- 1PL: First-party logistics means there are only two sides of the supply chain: the manufacturer or supplier and the buyer. They have their own cargo, goods, and often even transportation they can use. No middlemen are involved in this type of logistics.
- 2PL: Going a step further, second-party logistics providers own ships or have contracts with air freight companies to transport goods. These are often used for international shipping of wholesale goods or heavy cargo.
- 3PL: One of the most common logistics providers, third-party logistics companies, manage transportation but also handle other types of services. These services can be warehousing, supply chain management, terminal operations, freight brokerage, and more.
- 4PL: Fourth-party logistics companies step in and take over the entire supply chain so that you can direct your attention elsewhere. These are lead logistics providers, usually working closely with 3PL companies to ensure the supply chain’s maximum efficiency. They handle the entirety of the supply chain logistics and act more like an administrator of all the logistics processes.
- 5PL: Fifth-party providers are similar to 4PLs, only they also look for ways to reduce costs and negotiate better rates with the suppliers. They are focused not only on the supply chain but on your business goals as well.
It is up to you to decide which type of logistics provider you go for. Consider your budget limitations and whether you can invest in a third-party company to run things for you. Maybe you don’t have to outsource the management of your whole supply chain, but only some parts of it. Supply chain service providers can really help turn things around for any business.
Supply Chain Characteristics
A successful supply chain should be:
- Visible. Supply chain visibility represents how well-informed you are about what is going on in any part of your supply chain – and how easily you can access this information. This is especially important if someone else is running things for you. Your business cannot grow without proper business intelligence, including real-time supply chain information.
- Resilient. The ability of the supply chain to respond to sudden disruptions quickly is a measure of its resilience. You cannot predict every single risk event that might happen (if we’ve learned anything from the COVID-19 world health crisis), but you can prepare for the most usual disruptions by increasing your supply chain’s resilience.
- Collaborative. Having positive relationships with your suppliers is essential for a steady supply chain. This will ensure that you are always getting the best possible service and that you are also immediately informed if there are any issues. Actively engage with your supply chain partners and make sure there are no misunderstandings on either end.
- Flexible. Supply chain flexibility may not be for everyone, but it wouldn’t be wrong to consider it. If you’d like to be able to quickly adjust production levels, the purchase of raw materials, and transport capacity, you may want to look into a type of supply chain that is more flexible than the traditional ones.
Creating your supply chain solution takes time and effort. Research and planning are important, especially when you are deciding which suppliers to reach out to. Don’t forget to start at the top: define your regular customer, the type of business you run, and the type of product you’re moving. Once you have that, you can get into the planning, sourcing, the manufacturing process, delivery and logistics, and possibly reverse logistics. Take it one step at a time to not be overwhelmed, especially if you’re already an established business.
If this ultimate guide to supply chain solutions is too much for you to handle on your own, you can always turn to professionals. Companies specialized supply chain services are ready to help you whenever you need them, and it may be a good idea to let them handle a few segments of your supply chain, if not all of it.
Redbird Logistics Services is a third-party logistics provider that can do just that for you. We would love to help you solve your supply chain management system problems and provide you with a significant competitive advantage. Please contact us on our website if you have any questions or would like to get a quote. We’re looking forward to hearing from you!