Supply chain

Good Practice recommendation

1. Hire supply chain professionals

Hiring the appropriate personnel is a crucial best practice within the realm of supply chain management.

The supply chain necessitates specific skills and relevant experience. Which aspect holds greater significance: having the right employees resulting in desired outcomes, or employing individuals based on different criteria and yielding unfavorable outcomes?

In my experience, the ideal departmental structure consists of:

A department head: possessing a comprehensive understanding of operations, budgets, the entire supply chain, as well as strong skills in MRP/ERP, and IT comprehension.
Secondary level leaders and specialized personnel: including logistics specialists, warehouse specialists, procurement specialists, demand/supply specialists, planning specialists, IT specialists, and more.
Skilled individuals: employees who have received training in the aforementioned domains.
Semi-skilled personnel: employees engaged in basic manual tasks.

Naturally, the specific requirements of a given company and its goals, as well as its size, may result in a tailored version of the above structure.

2. Organize constant training for all supply chain

We reside in an ever-changing world, where significant transformations have occurred across various fields over the past few decades.

A business that neglects the importance of training is destined for mediocrity.

This is the reason that a business should follow below points in training:

Supervision of training should be tailored to specific areas of expertise.
Training should be conducted regularly, encompassing new knowledge areas while revisiting established procedures, practices, and standardization.
The training program should include a section where employees can express their desired areas for additional training, allowing for identification of training gaps.
Following each training session, an examination should be administered, not for the purpose of grading or awarding prizes, but to gauge comprehension of the training topic.
Feedback on implementation should be provided subsequent to every training session.

4. Standardize supply chain processes

Process standardization refers to the organization, formalization, and documentation of various tasks, approaches, and administrative steps within a business. It involves defining a process's input, transformation steps, and output (delivery). This practice holds significant importance for several reasons.

Firstly, process standardization promotes consistency and uniformity within an organization. By establishing standardized procedures, businesses can ensure that tasks are executed in a consistent manner across different teams, departments, or locations. This consistency reduces errors, improves efficiency, and enhances overall productivity.

Secondly, process standardization facilitates effective communication and collaboration within an organization. When everyone follows the same documented processes, it becomes easier for employees to understand their roles, responsibilities, and expectations. This shared understanding fosters collaboration, streamlines workflows, and enables smoother coordination between team members.

Thirdly, process standardization enables scalability and adaptability. Standardized processes provide a solid foundation for growth and expansion. They can be replicated and scaled across different areas of the business, making it easier to onboard new employees, integrate acquisitions, or expand operations. Additionally, standardized processes can be modified and optimized as needed, allowing businesses to adapt to changing market conditions or improve efficiency over time.

Lastly, process standardization enhances quality control and risk management. By clearly defining and documenting processes, businesses can establish checkpoints, quality assurance measures, and performance metrics. This enables effective monitoring, evaluation, and continuous improvement of processes, ensuring that quality standards are met and risks are minimized.

In essence, process standardization promotes consistency, efficiency, collaboration, scalability, adaptability, quality control, and risk management within an organization. It is an essential practice for process optimization and should be embraced and implemented to drive organizational effectiveness.

Whenever I discuss standardization, I often use a simple real-life example that is easily understood by everyone.

A prime illustration of standardization is the electrical power system and its corresponding power connectors used in our homes.

In this example:

There is only one type of electrical power, which is AC 220V (in the EU).
The power connectors found throughout the house are of the same type, featuring a socket and a plug with three pins (null, phase, and ground).

Now, imagine a scenario where every electrical device requires a different type of power (some operating on 110V, some on 24V, some on 12V, some on 380V, etc.). Additionally, picture a situation where each device has a different type of connector.

The consequences of such a lack of standardization would be problematic. It would be incredibly inconvenient and impractical to use different power sources and connectors for each device. Compatibility issues would arise, making it difficult to connect devices, resulting in confusion, inefficiency, and potential safety hazards.

This simple example highlights the importance of standardization. It demonstrates how having a consistent type of input/output and uniformity in connectors within an organization or system is essential. Standardization is a fundamental aspect of process optimization and should be implemented and adhered to.

4. Organize supplier management

Managing a supplier involves several key steps:

Recording contact information.
Documenting company details.
Establishing and agreeing upon general collaboration conditions.
Discussing and reaching agreements on commercial conditions, including lead time, credit limit, and payment system.
Reviewing and agreeing upon a price list and any applicable discounts.

Additionally, it is essential to periodically assess suppliers to ensure they comply with agreed-upon conditions and address any collaboration issues. This assessment can be conducted through specific audits or by analyzing MRP/ERP data to generate an activity report.

Maintaining direct and personal contact with suppliers is crucial. Establishing a strong connection enables prompt responses to requests. In cases where the relationship with a supplier is distant, they may not be as responsive in critical situations. Direct contact ensures the availability of a dedicated person who understands and can support specific circumstances.

5. Protect the activity with contracts and diversification

In safeguarding the supply chain, I employ two strategies: supplier diversification and contracting.

Supplier diversification entails engaging multiple suppliers within a specific domain. This approach helps mitigate risks and dependencies associated with relying on a single supplier. On the other hand, contracting plays a crucial role in establishing stronger control over suppliers by establishing clear and specific agreements.

Contracting becomes particularly essential in certain situations. When a supplier holds exclusivity or provides a unique product or service that is not readily available in the market, a contract ensures that the supplier cannot unilaterally modify general conditions, price lists, lead times, or choose to cease supply without prior notification and company acceptance.

The significance of contracting is evident as it can be the difference between business salvation and disastrous consequences. A well-crafted contract can protect and support a business, while a subpar agreement may lead to unfavorable outcomes.

6. Organize purchasing in Volume and Long term

The importance of various indicators in a business often sparks discussions. Operations prioritize time, supply chain focuses on volumes, and logistics emphasizes weight. However, when considering the overall picture, time, volume, and weight ultimately contribute to costs, making total cost the most significant indicator.

To achieve long-term cost reduction, implementing a strategic purchasing approach is beneficial. By entering into a contract with a supplier that encompasses both volume and duration, it becomes possible to negotiate lower prices and minimize logistics expenses.

For optimal cost savings, a business should identify materials that can be procured in bulk, assess long-term requirements, calculate warehousing costs, and determine the optimal volume for procurement. By establishing long-term contracts (e.g., one year), businesses can ensure the best possible outcomes from their agreements.

7. Take constant data from sales, marketing, top management to be used in Trend analysis

When I need to start a business? When I need to grow a business? When I need to slow a business? When I need to close a business?

To understand the trend is the key to progress in business. On financial markets it is a saying that success is going with the trend.

Data management and data will be a separate chapter o this site, but all data reports have a precise purpose of giving info to the business on direction to go.

Trend analysis in supply chain management involves the examination of historical data and patterns to identify trends, make predictions, and gain insights for decision-making and planning purposes. It helps businesses understand the dynamics of their supply chain, anticipate future demand, and optimize their operations to meet customer expectations efficiently.

Here are some key areas where trend analysis is commonly applied in supply chain managemen

a. Demand forecasting: By analyzing historical sales data, market trends, customer behavior, and other relevant factors, businesses can forecast future demand for their products or services. This helps them adjust inventory levels, production schedules, and distribution strategies accordingly, minimizing stockouts or excess inventory.

b. Inventory management: Trend analysis aids in optimizing inventory levels by identifying patterns in demand, lead times, and seasonality. By understanding how demand fluctuates over time, businesses can adjust their inventory holding strategies, implement just-in-time practices, or negotiate better contracts with suppliers to reduce carrying costs.

c. Supplier management: Analyzing historical supplier performance data helps identify trends in areas such as delivery times, quality issues, and pricing fluctuations. This analysis enables businesses to make informed decisions about supplier selection, negotiate contracts, and manage supplier relationships more effectively.

d. Supply chain risk management: Trend analysis can help identify and mitigate potential risks in the supply chain. By analyzing historical data on disruptions, such as natural disasters, political instability, or supplier bankruptcies, businesses can develop contingency plans, diversify their supplier base, or implement risk mitigation strategies to ensure continuity in the face of uncertainties.

e. Transportation optimization: By analyzing historical transportation data, such as shipping routes, carrier performance, and fuel costs, businesses can identify trends and optimize their logistics operations. This analysis can lead to more efficient route planning, better carrier selection, and cost reduction opportunities.

f. Customer behavior analysis: Trend analysis can provide insights into customer preferences, buying patterns, and emerging market trends. By understanding customer behavior, businesses can tailor their products, services, and marketing strategies to meet evolving customer demands, improving customer satisfaction and retention.

g. Continuous improvement: By continuously analyzing trends in key performance indicators (KPIs) and supply chain metrics, businesses can identify areas for improvement. This analysis can drive process optimization, resource allocation, and strategic decision-making to enhance overall supply chain performance.

To conduct trend analysis, businesses typically leverage advanced analytics tools, statistical models, and data visualization techniques to identify patterns, trends, and outliers in the data. This helps them make data-driven decisions, optimize supply chain operations, and stay competitive in a rapidly changing business environment.

8. Review regular the Demand forecast and trends

Developing a habit of regularly reviewing trends in the supply chain is essential for businesses of all sizes. The purpose of this forecast review is to observe market trends and promptly react and adjust the supply chain accordingly. The review process should be organized and tailored to the specific needs and scale of the company. Here are some steps to establish a habit of reviewing trends in the supply chain:

a. Determine the review frequency: Depending on the industry, market dynamics, and the company's size, establish a regular review frequency that suits your business needs. This could be weekly, monthly, quarterly, or even more frequent intervals for industries with rapid changes.

b. Identify relevant data sources: Identify the key data sources that provide insights into market trends and demand patterns. These could include historical sales data, customer feedback, industry reports, market research, competitor analysis, and internal performance metrics. Ensure that the data sources are reliable and up-to-date.

c. Establish performance indicators: Define the key performance indicators (KPIs) that will be monitored during the trend review process. These KPIs should align with the company's strategic goals and supply chain objectives. Examples of KPIs could include sales growth, inventory turnover, customer satisfaction, on-time delivery rates, and supplier performance metrics.

d. Analyze trends and patterns: Utilize data analysis techniques and tools to examine the identified data sources. Look for trends, patterns, and anomalies that can provide valuable insights into market direction, customer behavior, and demand fluctuations. Consider using statistical methods, data visualization, and trend forecasting models to aid in the analysis process.

e. Evaluate the impact on the supply chain: Once trends and patterns are identified, assess their potential impact on the supply chain. Determine whether adjustments need to be made in terms of production levels, inventory management, procurement strategies, transportation planning, or supplier relationships. This evaluation should be based on the company's capabilities, resources, and strategic objectives.

f. Implement corrective actions: Based on the findings from the trend review, develop action plans to correct and align the supply chain with the market direction. This may involve adjusting production schedules, replenishing or reducing inventory levels, optimizing logistics and distribution networks, or exploring new sourcing options. Assign responsibilities and timelines for implementing these corrective actions.

g. Monitor and track progress: Continuously monitor the effectiveness of the corrective actions taken and track the impact on the supply chain performance. Regularly review the KPIs to assess whether the adjustments made have resulted in the desired outcomes. Make further refinements as necessary based on the ongoing analysis and market developments.

h. Foster a culture of continuous improvement: Encourage a culture of learning and continuous improvement within the organization. Share the findings from the trend reviews across relevant teams and departments, encouraging collaborative problem-solving and knowledge sharing. Foster a mindset of agility and adaptability to respond quickly to changing market trends.

By developing a habit of regularly reviewing trends in the supply chain and taking proactive actions based on the insights gained, businesses can ensure their supply chain remains aligned with the market direction, maintain a competitive edge, and effectively meet customer demands.

9. Optimize inventory management

Optimizing inventory management is a critical aspect of supply chain management that focuses on balancing inventory levels to meet customer demand while minimizing carrying costs and stockouts. Effective inventory optimization ensures that the right products are available in the right quantities at the right time. Here are some key principles and strategies for optimizing inventory management:

a. Demand forecasting: Accurate demand forecasting is crucial for inventory optimization. By analyzing historical sales data, market trends, customer behavior, and external factors, businesses can forecast future demand with greater precision. This enables them to align inventory levels to expected demand, reducing the risk of overstocking or stockouts.

b. ABC analysis: ABC analysis categorizes inventory items based on their value and usage frequency. Classifying items as A, B, or C based on their contribution to revenue or cost helps prioritize inventory management efforts. A-items (high-value, high-usage) require closer monitoring and tighter controls, while C-items (low-value, low-usage) may require less attention.

c. Safety stock management: Safety stock is a buffer inventory held to mitigate uncertainties in demand and supply. By setting appropriate safety stock levels based on demand variability, lead times, and desired service levels, businesses can ensure product availability while avoiding excessive safety stock that leads to higher carrying costs.

d. Just-in-time (JIT) and lean principles: JIT is a production and inventory management approach where inventory is acquired or produced just in time to meet customer demand. By minimizing excess inventory and reducing lead times, JIT helps optimize inventory levels, reduce carrying costs, and improve overall operational efficiency. Lean principles, such as eliminating waste and improving process flow, also contribute to efficient inventory management.

e. Vendor-managed inventory (VMI): In VMI arrangements, suppliers take responsibility for managing inventory levels at customer locations. This approach allows for closer collaboration and information sharing between suppliers and customers, leading to better demand forecasting, reduced stockouts, and improved inventory turns.

f. Economic order quantity (EOQ): EOQ is a mathematical model that calculates the optimal order quantity that minimizes total inventory costs. By considering factors such as ordering costs, carrying costs, and demand variability, businesses can determine the most cost-effective quantity to order and maintain.

g. Technology and automation: Inventory management software and technologies, such as enterprise resource planning (ERP) systems, warehouse management systems (WMS), and advanced analytics tools, can greatly enhance inventory optimization. These tools provide real-time visibility into inventory levels, demand patterns, and supplier performance, enabling more informed decision-making and efficient inventory management.

By implementing these inventory management strategies and leveraging technology and data-driven insights, businesses can optimize their inventory levels, reduce carrying costs, improve customer satisfaction, and enhance overall supply chain efficiency. Effective inventory management ensures that resources are efficiently allocated, leading to improved profitability and competitiveness.

10. Organize supply chain KPI's

Designing and organizing supply chain Key Performance Indicators (KPIs) is crucial for measuring the efficiency and effectiveness of your supply chain operations. While there are various KPIs you can track, the most important one is often the total cost, as it directly impacts your bottom line. Below, I'll outline a set of KPIs with a primary focus on total cost:

a. Total Cost (TC): This KPI represents the sum of all costs incurred throughout the supply chain process, including procurement, transportation, inventory carrying, warehousing, and distribution. Monitoring total cost helps identify areas where cost-saving measures can be implemented.

b. Cost of Goods Sold (COGS): COGS represents the direct costs associated with producing or purchasing the goods that a company sells. It includes raw materials, labor, and manufacturing overhead. Tracking COGS helps in understanding the cost structure and pricing decisions.

c. Inventory Turnover Ratio (ITR): ITR measures how many times inventory is sold and replaced within a specific period. A high ITR indicates efficient inventory management, minimizing holding costs and the risk of inventory obsolescence.

d. Fill Rate: Fill rate measures the percentage of customer orders that are completely filled without backorders or stockouts. A high fill rate signifies better customer satisfaction and reduced expedited shipping costs.

e. On-Time Delivery (OTD): OTD measures the percentage of orders delivered to customers on or before the promised delivery date. Improving OTD helps in reducing rush orders and penalties for late deliveries.

f. Supplier Performance: Track supplier-related metrics such as lead time, quality, and delivery accuracy. Good supplier performance leads to better cost negotiation and reduced production delays.

g. Transportation Cost per Unit Shipped: This KPI calculates the cost of transporting each unit of product from the supplier to the customer. Reducing transportation costs can significantly impact the total cost.

h. Perfect Order Rate (POR): POR reflects the percentage of orders that are error-free, including accurate documentation, packaging, and delivery. A high POR indicates efficient and cost-effective order processing.

i. Warehousing Cost per Unit Stored: Measure the cost incurred to store each unit of product in the warehouse. Efficient use of warehouse space and layout can help reduce warehousing costs.

j. Return Rate: The return rate measures the percentage of products returned by customers. A high return rate can indicate quality issues or inefficiencies in the supply chain.

k. Cash-to-Cash Cycle Time (C2C): C2C represents the time it takes to convert investments in inventory back into cash. Reducing the C2C cycle frees up working capital and reduces financing costs.

l. Forecast Accuracy: Compare actual demand with forecasted demand to identify potential inventory imbalances and unnecessary costs.

Remember that the specific KPIs you choose to track will depend on your industry, business goals, and supply chain complexity. Additionally, regularly analyzing the data and benchmarking against industry standards will help identify areas for improvement and cost optimization in your supply chain.

11. Use IT systems to organize activity

Using IT systems, such as Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP), can significantly enhance the organization and transparency of supply chain activities. These systems provide real-time data, automate processes, and facilitate seamless communication among various supply chain stakeholders. Below are some ways to leverage MRP/ERP to achieve these goals:

a. Inventory Management: MRP/ERP systems can optimize inventory levels by monitoring demand and supply in real-time. They can generate accurate demand forecasts, enabling businesses to maintain optimal inventory levels, reducing excess stock, and avoiding stockouts. This helps in minimizing carrying costs and maximizing working capital efficiency.

b. Order Processing and Tracking: With MRP/ERP, order processing becomes more efficient and transparent. Orders are automatically routed through the system, providing real-time status updates to all relevant stakeholders. This ensures timely order fulfillment and minimizes delays or errors.

c. Supplier Integration: MRP/ERP systems can be integrated with suppliers' systems, enabling seamless data exchange. This integration streamlines procurement processes, improves supplier collaboration, and ensures better visibility into supplier performance and lead times.

d. Demand and Supply Planning: MRP/ERP systems analyze historical data and market trends to provide accurate demand forecasts. This helps organizations plan production schedules, allocate resources efficiently, and proactively respond to fluctuations in demand.

e. Quality Control and Traceability: ERP systems can track the quality of raw materials and finished products throughout the supply chain. In case of quality issues, the system can trace the affected items back to their source, facilitating recalls and preventing widespread problems.

f. Real-time Analytics and Reporting: MRP/ERP systems offer robust reporting and analytics capabilities. Supply chain managers can access real-time data on key performance indicators (KPIs), such as inventory levels, lead times, and order status. This data-driven decision-making helps in identifying bottlenecks and opportunities for improvement.

g. Logistics Optimization: MRP/ERP systems can optimize logistics operations by calculating the most cost-effective and efficient transportation routes and carriers. This reduces transportation costs and improves delivery timelines.

h. Financial Integration: Integrating MRP/ERP with financial systems enables better cost tracking and financial transparency throughout the supply chain. This helps in understanding the true cost of production, transportation, and inventory management.

i. Collaboration and Communication: MRP/ERP systems provide a centralized platform for collaboration among different departments and supply chain partners. Improved communication enhances coordination and reduces lead times.

j. Compliance and Regulation: MRP/ERP systems can assist in maintaining compliance with industry regulations and standards. They can ensure adherence to legal requirements, safety regulations, and sustainability initiatives.

k. Risk Management: By having comprehensive data on the entire supply chain, businesses can identify potential risks and vulnerabilities. MRP/ERP systems facilitate proactive risk management and contingency planning.

Implementing MRP/ERP systems requires careful planning, training, and integration with existing systems. However, the benefits of increased transparency, streamlined processes, and data-driven decision-making make them essential tools for optimizing supply chain operations.

12. Organize Risk review

Organizing a risk review in the supply chain is crucial for identifying potential vulnerabilities and developing strategies to mitigate or manage those risks effectively. Here's a step-by-step guide to developing an effective risk review process:

a. Assemble a cross-functional team.

b. Define objectives for the risk review.

c. Identify potential risks in the supply chain.

d. Assess risk probability and impact.

e. Prioritize high-priority risks.

f. Develop risk mitigation strategies.

g. Allocate necessary resources for implementation.

h. Monitor and review regularly.

i. Foster strong supplier relationships.

j. Stay updated on industry trends and changes.

k. Learn from past incidents for improvement.

l. Document the entire risk review process.

The key is to involve a diverse team, identify risks, prioritize them, and develop strategies to mitigate or manage them effectively while staying proactive and adaptable. Regular monitoring and communication with suppliers are essential for maintaining a resilient supply chain.

13. Organize continuous improvement environment

Organizing a continuous improvement environment in the supply chain is vital for fostering innovation, increasing efficiency, and maintaining a competitive edge. Here's a detailed guide to creating such an environment:

Foster a culture of continuous improvement.
Set clear improvement objectives and KPIs.
Create cross-functional teams for diverse perspectives.
Analyze supply chain processes for inefficiencies.
Train employees in improvement methodologies.
Encourage idea sharing and feedback.
Test improvement ideas with pilot projects.
Collaborate with suppliers on improvement initiatives.
Utilize technology for real-time data and insights.
Review progress regularly and share lessons learned.
Recognize and reward successful improvements.
Embrace adaptability for ongoing evolution

By establishing a continuous improvement environment in the supply chain, organizations can drive positive change, optimize processes, and create a culture of innovation that ultimately leads to better overall performance and customer satisfaction.

14. Be focus on technology

Being focused on technology in the supply chain can significantly enhance efficiency, visibility, and decision-making capabilities. Here's a comprehensive development plan to leverage technology effectively:

Technology Needs Assessment: Conduct a thorough assessment of your supply chain's technology requirements. Identify pain points, areas for improvement, and specific challenges that technology can address.
Investment Strategy: Develop a clear investment strategy that aligns with your supply chain goals and budget. Prioritize critical areas for technology adoption, such as inventory management, demand forecasting, logistics tracking, and supplier collaboration.
Supply Chain Management Software: Implement a robust supply chain management (SCM) software that integrates all relevant data and processes. A comprehensive SCM system streamlines operations and provides real-time visibility into the entire supply chain.
IoT and Sensor Technology: Embrace Internet of Things (IoT) and sensor technology to gather data from various supply chain elements. These technologies enable real-time monitoring of assets, inventory, and environmental conditions.
Big Data and Analytics: Leverage big data and advanced analytics to gain valuable insights from vast amounts of supply chain data. Predictive analytics can help anticipate demand fluctuations, optimize inventory levels, and enhance overall decision-making.
Blockchain for Transparency: Explore the use of blockchain technology to enhance supply chain transparency, traceability, and authenticity. Blockchain can help verify product provenance, reduce fraud, and strengthen trust among stakeholders.
Artificial Intelligence (AI) and Machine Learning: Implement AI and machine learning algorithms to automate repetitive tasks, optimize routes, detect anomalies, and predict maintenance needs, thereby improving efficiency and reducing costs.
Cloud Computing: Utilize cloud-based solutions for scalability, flexibility, and cost-effectiveness. Cloud computing enables seamless collaboration, data sharing, and access to real-time information across geographically dispersed teams.
Digital Twins: Consider adopting digital twin technology to create virtual replicas of physical assets, facilities, or processes. Digital twins enable simulations and what-if scenarios for better decision-making and risk analysis.
Real-time Tracking and Visibility: Integrate GPS tracking and real-time visibility tools to monitor shipments and monitor inventory movement throughout the supply chain. This helps to identify delays and bottlenecks promptly.
Supplier Collaboration Platforms: Implement digital platforms that facilitate effective communication and collaboration with suppliers. These platforms can improve supplier performance and reduce lead times.
Cybersecurity Measures: Ensure robust cybersecurity measures are in place to protect sensitive supply chain data and prevent cyber threats that could disrupt operations.
Continuous Learning and Upgrades: Stay updated with emerging technologies and industry trends. Invest in continuous training for employees to maximize the benefits of technology adoption.
Performance Evaluation: Regularly evaluate the impact of technology on supply chain performance. Use feedback to refine strategies and address any shortcomings.

By focusing on technology in the supply chain, businesses can gain a competitive advantage, respond swiftly to market changes, and deliver superior customer experiences. Embracing technology as a strategic enabler ensures a resilient and efficient supply chain ecosystem.

Regenerate respons