Expert Insight: Guest Contribution

By Karin Bursa ,
VP of Marketing

Logility

Date: September 15, 2010

Supply Chain Comment: Three Steps to a Better Supply Chain


Three Areas That Should Be Examined And Evaluated On How Your Own Internal Processes Compare

Yes, a better supply chain is just three steps away. And, no, I am not going to try to sell you a companion book for $29.95 plus shipping and handling. It is no secret there is increasing pressure from customers, competitors, internal management, and others to create additional efficiency throughout the supply chain. After speaking with end-users from several industries and geographies, we uncovered three best practices for a more productive and cost effective supply chain.

1. Map and Model the Supply Chain as a Multi-Stage Network

You may say this sounds obvious. True, however our research indicates many are not doing this important step. The design and set-up of a supply chain dictates 80% of its costs, yet this critical cost-determining set-up is often made without the benefit of adequate modeling and analytical tools. We found that supply chain leaders modeled and visualized the supply chain as a graphical network and displayed the stages in the supply chain as network nodes with connectors denoting points where upstream stages supply each downstream stage. Each stage became a potential holding point for safety-stock inventory and can be connected to several upstream stages, such as multiple inputs for assembly, and several down-stream stages (for example, internal customers).

Each stage had two key characteristics. First, all stages operated with a common review period and observed demand from either an external customer or from its downstream stages, and placed orders on its suppliers to replenish the observed demand. The second is that each stage had direct costs associated which, in turn, drove the value of items held in inventory. These typically included material, labor and transportation costs.

 

2. Determine Optimized Safety Stock

Generalities and averages add cost and hide opportunities. Every node in your network should be individually optimized with a focus on benefits to the supply chain as a whole. When I discuss this with practitioners, many are surprised to learn they can remove or significantly lower safety stock from over half of their nodes and still increase customer service levels.

Inventory optimization has proven to be a key driver in striking a balance across the network. For most, the benefits included lower total safety stock cost to free up working capital and/or improved customer service levels with a minimum of inventory costs.

3. Collaborate Multiple users in the Supply Chain to Make Better Decisions

Many still operate in a siloed environment. To no fault of anyone in particular, it has become very difficult to break down these barriers and truly collaborate. As difficult as it might be, if you want to keep up and gain true visibility across your network, you need to step out of the silo for a broader view of the supply chain.

Our leaders were able to successfully accomplish this. They had access to common supply chain information. Discussions and decisions became fact-based rather than “gut feel’. Sales and operations planning (S&OP) meetings were more productive. Product and category managers, procurement departments and other groups within the organization understood how their practices impacted the overall success of the business. Executive managers gained clarity on how KPIs could be modified to better align supply chain behavior with business goals. Every decision at every level was made with greater confidence and consistent understanding.

Three tips. Three best practices. Three areas you should examine and evaluate how your own internal processes compare. There is no time for change like tomorrow, except today.

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About the Author

Karin L. Bursa is vice president of marketing at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has more than 22 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. For more information, please visit www.logility.com

 

Bursa Says:


After speaking with end-users from several industries and geographies, we uncovered three best practices for a more productive and cost effective supply chain.


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