10 Best Practices for Supply Chain Management
Successfully managing a supply chain may be the most difficult aspect of your business, yet, it stands as one of the most crucial. Your supply chain management could be the difference between substantial growth or the gradual dwindling of business.
Historically, supply chain management was only concerned with moving items from Point A to Point B. Today, companies must break down their supply chain in an ever-growing competitive market. Successful supply chain management is no longer bound only to delivering a shipment, but doing so in a qualitative manner while simultaneously lowering the associated costs. Transportation spend management has emerged as a vital aspect of any supply chain that could effectively change the course of your company’s growth.
We’ll guide you through the most important practices for successful supply chain management that we’ve identified at Trax.
- Set up a supply chain council
- Establish a supply chain structure
- Leverage technology
- Create alliances
- Focus on the total cost of ownership
- Strategically source suppliers
- Move contract management to the supply chain
- Optimize inventory for reduced cost
- Establish regular reviews
- Set control and risk levels
- Mature Your Transportation Company
1. Set up a supply chain council
One of the most important factors to consider with your supply chain is to ensure that your company’s objectives, strategies, mission, and vision are met by your supply chain. A disparity between the visions of corporate management and supply chain management can lead to loss of profit, time, and effort across the company. A simple solution is to set up a supply chain council.
A supply chain council helps to structure your supply chain through a macro view of your company’s needs and operations. A diverse council can take into consideration the needs of all the departments and functions of a company and make informed decisions that positively affect all aspects of a company. Such a council often consists of key players: the supply chain head, corporate executives, department directors, business unit heads, and influential leaders within the company.
Although supply chain management is one of the most flexible and critical parts of any company operation, a supply chain may suffer from a company’s inability to comprehend the importance of advanced supply chain management. A strategic council aids in providing higher management with a better view of the supply chain’s effects.
A council helps boost a company’s bottom line through advanced cost analysis. This allows the company to make decisions based on data rather than speculations and gut instincts. The more advanced the supply chain’s tools, the better view that the council has on the costs the company or their departments incur.
For example, transportation spend management helps companies directly understand the cost of delivery, so sales can better analyze the profit margin and reconsider their POS. The more mature your transportation spend management, the more diverse and valuable insights your supply chain council gains into increasing your bottom line. Take the Trax Transportation Spend Management (TSM) Maturity Model. This is a framework that provides a roadmap for large, global transportation enterprises to go from a lack of visibility and control to a fully optimized transportation supply chain that is based on accurate detailed data.
2. Establish a supply chain structure
In order to optimize processes and streamline a supply chain, a solid foundation must be in place. The success of a supply chain mirrors the integrity of its structure. A company must know what it requires from a supply chain in order to structure it in a way to best meet your company’s needs.
Many companies prefer a centralized supply chain management methodology, while others see decentralization as a method to success. Many dynamic and modern companies, however, have conceived a hybrid approach—centralized strategy and decision-making and decentralized operations and workloads. This offers a more flexible and adaptive structure.
A hybrid system offers dynamic benefits. First, it allows supply chain management to better collaborate with corporate management and, ultimately, align the supply chain with corporate goals and objectives. Second, decentralizing operations utilizes the experience and real-time response of workers in the field. This system makes it easier to deal with unexpected problems and/or new developments.
Once a structure is set in place, hiring and recruitment must then take center stage. Many companies now place purchasing, procurement, planning, contract management, and logistics under the supply chain head. In order to optimize your supply chain structure, it’s crucial to instate the right people in your council.
3. Leverage technology
Adopting technology into supply chain processes is no longer considered proactive, but a standard operation. The trick is to choose a platform that meets your needs. Reshaping your supply chain structure to work around the platform can seriously hurt your company.
Platforms, such as ERPs and SAPs, are a great tool to streamline processes, increase visibility, minimize paperwork, and automate certain activities. Transportation management systems and transportation spend management systems are ideal tools for the bigger picture in your supply chain—they help increase efficiency, reduce risk, and provide data-driven insights into business decisions. A strong platform helps streamline supply chain management and works in tandem with your company’s strategy.
Some of the most potent tech a company can utilize concerns increasing clarity of data and costs. Many transportation spend management, data management, rate management, and cost allocation platforms provide decision-makers with a clear view of where and how they spend money throughout their supply chain.
At Trax, we’ve seen that choosing a platform that not only meets your needs but can integrate with vendors or clients helps mature your supply chain to the next level. For example, platforms that can automate purchase orders, depending on a set methodology, and send it directly to a vendor reduces lead time and frees up resources for other tasks.
4. Create alliances
One of the most important factors in managing a supply chain is having collaborative partners. Establishing a healthy relationship comes from a strong foundation of communication, common goals, increased transparency, and mutual collaboration. Without these alliances, your supply chain management can become a losing uphill battle that suffers in efficiency and profitability, and can even be detrimental to your own customers’ experiences (through late or damaged deliveries).
To aid in strengthening a relationship, define a set of measurable objectives for continuous improvement, as well as a clear issue resolution plan. Tools like carrier scorecards are an excellent way to track performance, highlight and communicate any issues, and much more, helping to mature your company’s transportation spend.
For example, at Trax, we believe that a collaborative relationship between the shipper, carrier, and Trax, helps all partners perform better and provide superior customer service. Let’s say that customers complain of damaged shipments. Because of the collaborative carrier-shipper relationship, the shipper can bring this issue to the carrier’s attention. After discussion and investigation, it turns out that the shipper has a weakness in the packaging process that’s resulting in easily damaged shipments. Without this collaborative relationship, the packaging issue may have taken months to identify, costing the shipper lost revenue and customers, as well as damage to the brand reputation.
5. Focus on the total cost of ownership
Progressive companies are shifting to focus on the total cost of ownership (TCO) rather than limiting their view to purchase costs. Considering that the acquisition costs normally amount to less than half of the total cost, it’s logical for companies to consider TCO instead.
TCO offers a unique view that enables companies to break down costs and profit margins to the most minuscule of details. The more managers and/or department heads involved in the process, the more accurate the data is—another good reason to set up a supply chain council.
Going a step further from internal input, buyers and sellers can work together to reduce TCO. At Trax, we’ve found this to often be one of the most efficient cost-cutting policies that large companies can implement.
Prioritizing TCO may seem like a foreign concept to some corporations, as the spotlight is often on cutting direct costs rather than focusing on value. Yet, focusing on working with selected investors that can help reduce cost significantly through either quality, timeliness, risk management, or otherwise can be much more fruitful than sending out the traditional tender.
6. Strategically source suppliers
Shifting focus to TCO rather than the bottom line on a bid requires you to look for suppliers who share the same mindset. Factors other than price can have a huge impact throughout the entire process, either lowering or raising costs significantly. For example, suppliers who provide low costs but come with low quality can result in refunds (lost money) or lost sales—in the end, costing you a lot of money.
Operating, training, maintenance, warehousing (especially if goods need special warehousing), quality levels, and transportation are all costs that must be considered.
Creating a dynamic procurement department that can source a strong partner equipped with the right mindset can help offset some costs. This helps make the entire process more lucrative in the long run.
7. Move contract management to the supply chain
Centralizing contracts in the supply chain can be one of the most effective practices in contract management. When contracts are scattered throughout multiple divisions, such as finance, legal, purchasing, or operations, it can lead to overlooking important factors or worse—losing entire contracts.
Having the supply chain management division handle all contracts ensures more compliance, better contract standardization, and a more detailed perspective. Signing, maintaining, and revising contracts becomes more streamlined and efficient.
In addition, centralizing contracts to the supply chain division gives leaders the ability to leverage the company’s overall spend in services, which can lead to greater savings and minimized costs, as well as improved risk mitigation.
8. Optimize inventory for reduced cost
Inventory management is often a disregarded, yet integral, part of supply chain cost management. Warehousing practices vary in such a way that it’s difficult for companies to pinpoint the best strategy while positively impacting the bottom line.
The cost of holding inventory can reach up to a colossal 40% of the original acquisition cost. Hence, competitive companies find ways to better manage inventory strategies in order to lower the TCO and increase profit margins.
Toyota is a great example of the need for mature transportation spend management. The company has a renowned just-in-time inventory and manufacturing process. Toyota doesn’t hold inventory at all. Parts arrive and go directly to manufacturing, and then products are released to the market. Zero inventory, zero cost. Without the mature transportation management element, there’s a large risk to Toyota—spot freight rates, high claims volumes, late deliveries, accessorial charges, and other factors that could easily result in severe financial losses. Mature transportation spend management makes Toyota’s extremely optimized, low-cost inventory process possible.
9. Establish regular reviews
It’s crucial to constantly monitor and evaluate your supply chain in order to maintain a high standard. Regular reviews and consistent data collection and analysis not only help finetune your supply chain management, but it gives the visibility you need to mitigate future risk.
For example, Trax’s Transportation Spend Management (TSM) Maturity Model is a framework that provides a roadmap for large, global enterprises to go from a lack of visibility and control to a fully optimized transportation supply chain through detailed, accurate data. As companies mature in transportation spend and utilize tools, such as carrier scorecards or forecasting and budgeting, your ability to be proactive rather than reactive exponentially increases. Evolving through the maturation of efficiency optimization, financial optimization, etc., provides insights into risks and allows for data-informed business decisions now and in the future.
10. Set control and risk levels
Identifying risk factors throughout the supply chain process can transform your processes to be more flexible and prepared to deal with any issues that may arise.
One of the main areas where risk should be identified is in the sourcing decision process, as many external factors play a part in increasing risk. To mitigate risk in sourcing:
- Identify risks and adopt methodologies that help identify them throughout the entire sourcing process.
- Analyze risk probabilities and effects.
- Evaluate the cost and financial impacts incurred if a risk was to happen.
- Grade or evaluate risks to prioritize them for the scrutiny and frequency in which they should be monitored.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.