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7 golden rules of supply chain management

By Professor Richard Wilding OBE
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Supply chain resilience has been sorely tested by Covid-19. As the repercussions from the pandemic continue to ricochet around the globe and the conflict in Ukraine combined with international sanctions on Russia compound what were already challenging conditions, supply chains are under immense pressure.

 

Despite the challenges, there is an ongoing imperative for businesses to continue to provide the goods and services that keep the world turning. But that can be difficult or next to impossible if your supply chain is creaking, or worse, falls apart. Every single part of the journey is potentially vulnerable to disruption, and they are all parts of a whole – meaning that if one part of the chain goes down, it immediately impacts the whole operation.

How do you mitigate that risk and ensure you maintain the flow of supplies to your business so you can do your best for your customers?

 

1.  Collaborate

Supply chain management is actually about managing relationships with all key stakeholders, with the aim of providing value for the final customer by reducing cost for the supply chain as a whole.

If you’re managing stock processes, or inventory or logistics, you have particular methods and computer software to make sure everything runs smoothly. Most businesses have performance metrics to measure everything – except relationships. Yet that’s an essential part of the chain, without which none of the other things can happen.

The international standard ISO 44001: Collaborative Business Relationships sets out the processes that can really make a difference to those vital connections. By exploring this accreditation businesses can develop robust practices which will strengthen relationships and in turn build supply chain resilience.

 

2.  Location, location, location

You need to know where your suppliers and your customers are geographically so that when a disruption occurs you have more chance of seeing it coming. Using that knowledge alongside technologies such as geo-tracking software can also help you plan alternatives.

Awareness of local situations that are impacting your suppliers or your customers, including economic situations that you think may affect a region, such as the lockdown restrictions currently shutting factories and ports in China, the conflict and sanctions impacting eastern Europe and Russia, or natural events such as extreme weather conditions, all help you work out alternatives and plan accordingly.

 

3.  Know how you create value

This sounds like a more general strategic action, but it underpins the effectiveness of your supply chain as identifying and understanding how you create value helps you physically deliver it.

There are four elements in value creation:

  • Processes,
  • Infrastructure and equipment,
  • Information systems,
  • People.

If one of them gets disrupted, you need to know how you can still deliver the value – and the knock-on effects that will have.

Over recent years we have seen sustained and ongoing shop closures, starting pre-pandemic and then exacerbated by lockdowns. That’s a disruption to your infrastructure, so you sell online, but you need to understand the impact on the other three elements.

 

4.  Understand your capabilities

What are you really good at? What is your key competence? And how can you use it to maintain your supply chain? Capabilities enable you to adapt, and we have seen that those businesses that understood their capability were able to adapt and survive the pandemic better.

From brewers and distillers making hand sanitiser, to pubs and restaurants offering takeaway food or electrical engineering companies making components for respirators, they all identified their skills and adapted them to the situation.

 

5.  Time and transparency

Time is a critical dimension of the supply chain and you need to understand its value. We plot process against time, cost against time, demand against time. How do you measure the value of time spent? Does it physically change the product or service? Is that change something the customer will value? Might they pay more for it? And can you use that time to get the product right first time?

Using time rather than cost as a lens to view processes can lead to greater transparency. Time is the same for everyone and it helps to understand demand.

However, if you don’t value time properly, and therefore you don’t have transparency, you lose the third T, which is …

 

6.  … Trust

Without trust, people do crazy things, and it’s the same if you’re making business decisions. If you think you need 1,000 items but then decide, ‘just to be safe I’ll order 1,200’ that’s immediately increasing volatility, affecting demand and impacting the entire chain.

A recent example was the UK fuel crisis, driven not by a shortage of fuel but by a combination of HGV driver shortages, logistics issues and then massively exacerbated by panic buying at the pumps. The public was alarmed by leaked political reports in the media, didn’t trust that the petrol stations would have enough fuel and didn’t trust politicians telling them the supply chains were OK.

In situations like that, it’s helpful for the businesses to be transparent, to open a window on their operations, for example by posting pictures showing tankers on the road. When the trust increases, behaviours will go back to normal and supply chains will settle down.

 

7.  Understand your cost to serve

How much does it really cost to serve your customers? Let’s say you are a retailer that’s gone online; it affects all your margins, especially if you then do home delivery.

You need to average out your costs and ensure it’s worth your while – the hours, the fuel, the lorries, the staff to deliver your goods all adds on around 20% to the cost of each item. If you offer free delivery, the price to deliver every item averages out the same – so it will cost you the same to deliver an 8ft whiteboard as it will a pen.

So you need to work out why you’re doing it, if you do it for every item and where that service fits in with your overall strategic goals. Is it worth it?

 

Summary

Essentially the key to successful supply chain management is understanding how it fits in with your business’s overall goals. Supply chain is not separate, it is an integral function that impacts and is impacted by every part of your business.

 

Find out about our Supply Chain Management programme or download the brochure:
 
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Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield has been appointed as the new Chairman of The Chartered Institute of Logistics and Transport in the UK (CILT). Richard has been a member of the Institute since 1992 and a board member since 2011.  He has been a valued member of the Institute’s board and in recent times has been a steering Committee Member of the CILT Logistics Research Network as well as the Co-Chairman of the CILT Leaders in Supply Chain Forum.  Richard has extensive logistics and supply chain experience and will help drive the growth of the Institute’s profile as the leading logistics and transport professional body.
 

Tags: supply chain management, logistics, article

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