3 signs you need to fix your supply chain

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Inventories are well piled up on warehouse racks

Supply Chain Management has gained much prominence as a means for firms to deal with intense competition across all industry segments and relate with more value-conscious customers.

In companies where growth has remained flat or turned into negative territory, Supply Chain Management has enabled executives to streamline operations and serve customers with greater responsiveness and efficiency.

In Southeast Asia where economic growth is relatively better than the worldwide average, business leaders place much focus on improving their supply chain structures, systems and organizations. Small, medium, and large firms in Asia have been particularly successful in procurement, manufacturing, and logistics versus their counterparts in other parts of the globe.

Experiences among firms vary, however, and challenges remain.

In many cases, the challenges come in the form of delayed deliveries, higher-than-expected inventories, and inadequate capacities. We will look at three (3) signs that one’s supply chain may be in need of significant fixing.

HIGHER SAVINGS ISN’T TRANSLATING TO HIGHER PROFITS

Some executives scratch their heads as to why their firms don’t realize higher profits despite implementing lower-cost initiatives.  For example, some executives make deals with vendors that result in much lower prices for raw materials that should positively affect their firms’ gross profits. Yet, the savings don’t seem to happen outright and executives become frustrated. Often the reason is vendors who win such bids for lower prices also lower their quality to just meet minimum specifications or tie in conditions that purchase orders should be delivered in bulk or higher quantities. Lower quality and bulk purchases almost always mean higher scrap or obsolescence that can negate a firm’s bottom line, not to mention the higher expenses for additional storage space and material handling.

LOTS OF “SURPRISES”

As one executive said, “There will always be problems but I hate surprises.” Some firms have the habit of launching new products on the assumption of conservative demand. Some managers often want to play safe that they don’t overestimate demand on the fear the new product won’t sell more than they targeted. When the demand does exceed expectations, the executives applaud the success of the new product but then almost immediately receive surprise after surprise that there aren’t enough raw materials and that production capacity is insufficient. All these because the firm’s strategies underestimated demand.  No one likes surprises especially those that result in undelivered sales or higher un-budgeted expenses.

EXCEPTIONAL DEPARTMENTAL PERFORMANCE BUT POOR CUSTOMER SERVICE LEVELS

Customers are not aware or are not interested if you meet your department’s objectives nor not. What matters to them is that their orders are delivered on time and complete. The Purchasing group might meet their annual savings goals, Manufacturing could hit their productivity targets, and the Logistics group might attain their delivery expense objectives but if the customer did not receive their orders as specified then the Supply Chain organization simply has failed. Everyone in the supply chain shares the purpose of delivering products to the customers at the right quantity, quality, and when they need it.   Meeting internal departmental targets must have a direct positive impact on this overall purpose. And not only is delivering to customers effectively a supply chain mission, it is also the mission of the firm as a whole. Sales, Marketing, Finance, Human Resources, and Research & Development are part and parcel of this basic business endeavour.

Companies will continue to rely on their Supply Chains to drive growth and profitability. Challenges constantly keep firms on their toes and provide executives the signs towards fixing their operations to meet customer needs. Lacklustre profits despite perceived high savings, lots of “surprises,” and customer dissatisfaction despite seemingly significant achievements within departments are indicators that there is something that needs to be addressed in one’s supply chain.

It is time for firms to review and re-design their internal supply chains and put focus on increasing the operating capabilities of their organizations to provide the needed competitive edge.

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