3 Ways to Optimize the Performance of Supply Chain Management

Ryan Lynch More From This Author

Wed, Dec 4, 2019

supply-chain-managementAmazon is setting an almost unmatchable pace for fulfillment and delivery and everyone else—with far fewer resources--is just trying to catch up. If you’re overseeing a supply chain, you’re familiar with the drill: you’re expected to decrease your delivery time while still cutting costs. As a result, you’re constantly on the look-out for ways to optimize your business.

If you want to save money and improve your efficiency at the same time, there are three main ways to optimize the performance of your supply chain management:

  • Risk Mitigation
  • Strategical outsourcing
  • Setting and managing performance standards

We’ll outline tactics you can use to optimize each area. Read on!

Risk Mitigation

Managers and overseers know that they need to protect their supply chain from major (and costly) disruptions. Modern global supply chains are vulnerable to all sorts of risks: from operational accidents to natural disasters (manmade and natural alike).

There are five risk mitigation tactics that supply chain managers can consider when planning for--or combating—a disruptive event or disaster.

1. Stockpile inventory.
Be sure that you keep up an inventory higher than operationally necessary as a buffer against potential short-term disruptions, such as machine failure, or long-term disruptions, such as natural or man-made disasters. This is obviously a costly strategy, so to optimize your supply chain inventory, be sure to include forecasting and demand planning

2. Diversify the supply base.
If your sourcing activities are divided up between multiple suppliers, then you are protected if an issue arises at one of your suppliers. You’ll need to consider the cost of this strategy against the value of the disruption impact.

3. Develop backup suppliers.
Identify and develop a relationship with an acceptable supplier, and create an agreement with them that stipulates that they will reserve production capacity for you, should the need arise. This is typically a cheaper option than diversifying your supply base.

4. Manage product demand.
If the previous three supply-side options are too costly, an alternative is to manage product demand through switching and rationing.

5. Strengthen the core supply chain.
By stress testing the operation and planning and practicing disruption responses, a company can more effectively identify and eliminate weaknesses or disruptions, instead of having to respond to them in the moment.

Using one or more of these strategies will help you implement maximum supply chain protection, which is critical in cementing a long-term strategic advantage against your competition and promoting long-term profitability.

Strategically Outsource

A recent study shows that 90% of manufacturing companies report outsourcing some aspect of their supply chain operation or management; not only that, but thirty percent of companies outsource 40% or more of their manufacturing, and fifty-five percent outsource at least 40% of their logistics.

One reason for outsourcing is the potential cost savings. But there are plenty of other reasons to strategically outsource. These include:

  • The benefits of outsourcing services that are not core to the business and are therefore a distraction to management
  • The company’s operations are rapidly expanding, and outsourcing allows the company to access more space and technology
  • The company needs flexibility and a variable cost structure (either in resource numbers or type)
  • The company needs access to specialized skills, equipment, or technology that it does not want to invest in directly

A successful and strategic outsourcing relationship isn’t just a benefit to both parties: it’s also a benefit to the customer, who gets consistent and comprehensive service at an appropriate cost.

Two areas that are consistently outsourced are either external logistics or internal facility material handling. First, many companies have chosen to go the third-party logistics (3PL) route for at least part of their supply chain’s distribution. Learn more about how to decide if 3PL outsourcing is right for you here.

The second area facilities can consider outsourcing is their material handling equipment management. Concentric routinely provides GuaranteedPOWER® services, including onsite technicians, to take customers out of the forklift and AGV power business—while delivering them a fixed cost at typically a 30% lower TCO than they spend today.

Set and Manage Performance Standards

Metrics drive behavior. That’s why it’s so important to set and manage performance standards -- you need a way of assessing whether your growth strategies are being implemented successfully. To assess performance standards, it’s important to choose the right metric to track.

To establish metrics for your supply chain, start by following these guidelines:

1. Managers should ensure that they understand your organization’s key objectives. Those objectives will be translated into measurable metrics, will then drive performance objectives for individuals in the facility.

2. Match each objective with a specific goal. For example, you might have a cost reduction goal, an inventory goal, a new product introduction goal, or a quality goal. Once that metric is defined, carefully define the exact, specific data that will be used to track it.

3. Be sure that your perspective is balanced. Look at things from a financial perspective, from internal and external perspectives, from an operational excellence perspective, and from an innovation perspective.

4. Establish who will track, communicate, and bear ultimate responsibility for each matric. Be sure that everyone involved knows how often their data should be reported.

5. Set targets for improvement. Aim high -- you should be looking at best-in-class competitors for your benchmarks.

When it comes to optimizing the performance of your supply chain management, one aspect that frequently gets overlooked in the search to cut costs is forklift power management. Because forklift power is so often overlooked as part of the supply chain and has stayed relatively static over time, it’s almost always an area where your costs can actually be minimized. Companies that employ Lean Six Sigma methodology typically find this a great area to explore.

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