The 1st myth when starting to look at the ‘Supply Chain’ is the belief that this activity comes down to the placing of orders with suppliers for the required product or service. Unfortunately if this is the case then the chances of having a sustainable & cost effective supply chain process are highly unlikely. It is not just about buying ‘bits’.
One of the most common questions I get: ‘when should we start thinking about the supply chain” is asked when it’s too late. Let us look at the definition of ‘Supply Chain Management’ that I currently use. Having worked across many different sectors, whether they be a product related or a service related, some specifics may be different, but the principles are very much still the same.
The definition that I use is as follows:
Supply Chain Management (SCM), is the execution process from the identification of the demand through to its delivery to point of use! It is the activity that ensures good parts or a good service is supplied to the end user/customer who firstly wants to receive the delivery & secondly has a need that it will satisfy.
As such the wide ranging activities that are involved in managing an effective supply chain process I would give some examples of below: Note: see illustration for further details – these are all supply chain activities.
| Identify demand for the product or service concept |
Design something that satisfies a need & people will buy. |
| Design product for ease of manufacture & for the supply chain with the most appropriate choice of material with suitable tolerances etc |
Do not design over complicated products or services that cannot be produced or use expensive materials that are not readily available |
| Ensure you can plan activity to satisfy the market in an effective way |
Ensure you understand the full cost profile of your business |
| Carry out effective product/service trials for early market feedback |
Establish effective internal ordering & credit controls |
| Have supplier assurance metrics in place to ensure quality of supply |
Design the delivery process that suits both supplier & customer |
Each of these (above) items may not all be applicable, but the principle is that the process needs to be connected, or integrated. Decisions made in isolation will drive cost & inefficiency elsewhere. You need a balanced joined up approach.
In addition, choose supply partners who can add value to your business, not just through the supply of the base product or service, someone who preferably has a genuine interest & mutual benefit in working with you. A supplier who will engage early in the design/development process & who will still offer a competitive total price. Also remember that in the eyes of your customers, YOU are responsible for YOUR supplier’s delivery, so selection is critical. It is YOUR reputation.
The 2nd Supply Chain Myth that I refer to is: Cheapest price does not always relate to best overall price/cost. This is something you need to be aware of in dealing with your customer base where you need to understand the buyer’s behaviour, motivation and incentivisation of both the individual or the group that is controlling the buying process. In relation to your suppliers, sometimes paying a higher buy price leads to an overall lower total cost. Buy price does not necessarily take account of all freight, packaging, customs, finance, quality, warranty costs etc.
A good example of this relates to buying parts from a low cost economy. By going to a far off geography the buy price may be cheaper, but when you take cognisance of the other costs that will hit you indirectly, and the increased difficulty in managing the communication with increased distance then please ensure within the analysis that you take all costs into consideration and make the decision that is right for you. Make the right decision for the right reasons.
For an effective supply chain start thinking of the overall process as part of the initial product or service development, which goes right through to the execution delivery & that from a cost/price decision look at the total cost profile & the collective impact.
For more information or to discuss in more detail, please contact Kenny Wiggins on: Mail – Kenny.wiggins@driven2deliver.com : Cell - +44 (0) 7771 930479
