Pay Attention to These Six Issues for an Optimized Supply Chain
Updated: Oct 6, 2021
Keeping your supply chain performing well is crucial to the success of distribution businesses. There are many factors at play - some you can’t control and others that you can. Here’s some issues that deserve your attention:
1: Inventory Management is a must-have
Your sales team closes a big deal for a new construction Crane with the condition that the buyer needs delivery by next month. Your supply chain manager orders all the parts. However, as the deadline looms, the assembly team discovers a few faulty parts that hold up production. Everyone scrambles to get the job done…but alas - they fail to meet the deadline.
One of the most crucial decisions supply chain managers face is how much inventory to order – it takes a unique mix of skills to figure that out. Managers try not to spend too much money while not creating a shortage in inventory. At the same time, they need to know what orders are outstanding, and how much inventory is available. It gets even more complicated when seasonality comes into play.
Here’s where automation can save the day. Instead of clogging up your Supply Chain manager’s head, let your business system handle it. A good Distribution ERP will keep track of what you have, what you promised, and what you need to order. In a fast-paced business where customers can change their mind, may cancel the order, or add more items to the order, your business system should reflect those changes on the spot.
2: Last-mile delivery must be tackled
Delivering your products into your customers hands (last mile logistics) is the focus for many retailers. Amazon has made this their biggest differentiator – sometimes delivering the same day as you place the order.
What is last mile delivery? It is transportation from a distributor to the final delivery destination. The key is to deliver the right product, to the correct customer for an affordable cost and right on time.
Seasonality puts pressure on the entire supply chain. Unexpected quantities during the holidays can exceed the last mile delivery companies’ ability to deliver. This may mean a stockpile of orders sitting at the e-commerce warehouse docks. And who gets the blame? The eCommerce warehouse, not the delivery company.
Keeping track of your last mile delivery partner’s capacity becomes a priority. A robust supply chain business system can monitor 3rd party logistics to ease the pain during high-volume seasons.
3: Unexpected events can cost you millions
Global supply chain managers must anticipate and identify potential risks that cause delivery disruptions. One thing leads to another. A Typhoon in Asia can disrupt production of parts which, in turn, affects the manufacturer and distributor. This can cost late delivery fees, revised schedules and can lead to layoffs during the disruption.
Identifying potential risks and taking steps to keep a surplus of your key components on-hand is something the supply chain manager must consider.
4: Be nice to customs officials or pay the price
If you are shipping internationally, your products my need to clear customs in multiple countries, each with its own set of laws and fees. It’s not hard to see how disruptions and delays can cause tempers to flare and a give a bad rap to the customs process.
Your company representative needs to tread lightly, because it can be costly if government relationships take a negative turn. It can be long-lasting and impact your ability to move goods.
Some companies have tried to bribe or give a “commission” to speed things along. This is specifically outlawed in the US – other countries who we compete with may not adhere to bribery laws and gain an advantage.
5: It’s all about documentation
The supply chain requires documentation to move together with the goods. It is a complex process that some have tried to solve with digital document sharing. However, some digital tools may not be compatible, and users may not be trained how to use the devices. Maintaining a “paper trail” addresses supply chain problems and helps resolve most delivery disputes. New technology like blockchain may alleviate the problem with encrypted digital documentation traveling at lightning speed.
Supply chain managers are not technology wizards but need to understand the flow of communication and documentation. Close partnership with their company’s IT team can help them make wise decisions.
6: Diversify the way you transport goods
Transporting by sea, air, rail, and truck are commonly used in the supply chain. Anything can happen with accidents and breakdowns that are difficult to predict. Soon, data programs will be able to predict accident probabilities, but in the meantime, the supply manager needs to consider unforeseen bottlenecks to make sure delivery is not interrupted. Some managers diversify the modes of transportation to reduce the risk of being dependent on one mode of delivery and mitigate the impact on the supply chain.
Some key metrics to track:
Perfect Order Measurement: The percentage of error-free orders.
Cash to Cash Cycle Time: The number of days between paying for materials and getting paid for the product.
Customer Order Cycle Time: Measures how long it takes to deliver a customer order after the purchase order (PO) is received.
Fill Rate: The percentage of a customer’s order filled on the first shipment. This metric can be represented as the percentage of items, SKUs, or order value included with the first shipment.
Supply Chain Cycle Time: The time it would take to fill a customer order if inventory levels were zero.
Inventory Days of Supply: The number of days it would take to run out of supply if not replenished.
Freight Bill Accuracy: The percentage of error-free freight bills.
Freight Cost Per Unit: Usually measured as the cost of freight per item or SKU.
Inventory Turnover: The number of times that a company’s inventory cycles per year.
Days Sales Outstanding: A measure of how quickly revenue is collected from customers.
Average Payment Period for Production Materials: The average time from receipt of materials and payment for those materials.
On-Time Shipping Rate: The percentage of items, SKUs, or order value that arrives on or before the requested ship date.
Inventory Turnover Ratio (ITR): ITR helps us to measure the number of times we sell or turn our average inventory kept in the warehouse.
Turn-Earn Index (TEI): TEI helps us to combine the gross margin and turnover.
Days of Supply (DOS): DOS is the most common KPI used by managers in measuring the efficiency in supply chain.
Inventory Velocity (IV): IV is the percentage of the inventory we are projecting will be consumed within the next period.
In summary, having the right technology to keep your supply chain optimized is essential. Selecting the right automation can make or break a distributor’s ability to thrive in a complex environment.
About the Author: Business Management International (BMI) is dedicated to bringing business technology to companies to help them compete. We're not afraid to offer radically excellent customer service and proudly offer #MicrosoftDynamics365BusinessCentral and #Acumatica to solve real-world business problems. www.bmiusa.com.