Key Considerations in Optimizing Supply Chain Management
In our previous chapter, “How to Control Your Margin Slippage,” we addressed how changes in financial processes, operations and costing systems can help alleviate margin slippage. Now we’ll take a closer look at ways to minimize total operating expenses to maximize gross profits, including inventory management, centralized purchasing, risk management and managing your supplier relationships.
It’s a challenge for every supply chain management organization. How do you improve fulfillment rates and product availability while simultaneously reducing your inventory? By addressing the following questions, your will be able to find the right balance for your organization.
- What are your trigger actions for restocking inventory?
- What are your desired levels of inventory?
- Are you taking advantage of order cycles?
- What are you doing to protect against stockouts?
- What is the right level of safety stock so that you can prevent stockouts during emergencies?
Those who can achieve the right balance will be well-positioned to improve margins and realize greater profitability. Tools, such as a materials requirement planning (MRP) worksheet can help you judge how much inventory you need to meet sales demand without relying on safety stock.
As your company grows, whether by product line, geographic expansion or acquisition, it’s not uncommon to experience fragmentation when various divisions act autonomously. The result can lead to a fragmented spend, and when that occurs, it can be difficult to achieve any type of cost savings.
Conversely, by centralizing your purchasing, you can achieve price savings and product standardization across the organization. Buying in bulk strengthens your hand in negotiations by giving you far greater purchase power. When one headquarters location makes purchases for all its “satellite” division, you can achieve real cost savings for the organization.
Another important factor in preserving optimal supply chain continuity is risk management. Whether through unexpected economic events or through supply constraints, your organization must have a plan in place to identify, assess, mitigate and respond. A supply chain risk management (SCRM) plan will help reduce vulnerability to your operation through continuous risk assessment. Through such a plan, you’ll be able to:
- Identify potential risks to your supply operation
- Assess the situation
- Find ways to mitigate the situation
- Continue to monitor until you’re back to regular operations
Depending on your unique needs, your SCRM can be adjusted to cover your organization’s specific vulnerabilities so that all eventualities are covered. Risk assessments and audits can go a long way in ensuring business continuity.
The goods and services your suppliers provide are essential to the success of your organization. Yet, some organizations fall short when it comes to managing these important third-party relationships. Long supplier relationships typically yield the greatest efficiencies to your organization—they must be managed strategically. Strategic supplier relationship management (SRM) will help you streamline the processes between your organization and its customers.
By addressing the four topics covered above, you can begin to achieve greater efficiencies in your supply chain operations. Just be sure you don’t fall into the “we’ve always done it this way” mindset. The processes outlined above calls for continuous review with an eye on optimizing the supply chain.
Looking to take the next steps in your manufacturing business? Contact Jon Shoop at [email protected].