Improving the Supply Chain

Certain businesses have long supply chains that branch out all over the world which makes optimising the supply chain tricky. However, most of the time businesses can take certain actions to improve their supply chains. Let's take a look.

Influences on the choice of suppliers

Depending on a company, there can be various needs and preferences regarding suppliers. Below you will find factors that can influence the choice of suppliers.

Cost

A key factor when it comes to choosing a supplier is price. Regardless of how profitable a business is, it will always try to find the cheapest supplier possible. It is because the cheaper supplier, the higher the profit margins for a company. Large enterprises making large orders are oftentimes able to dictate prices to suppliers. This is because their purchases tend to make up a bulk of suppliers’ output. The opposite situation occurs by smaller firms make smaller orders and have limited purchasing power. Here suppliers are typically those who can impose prices.

Quality

Even though the Cost may play a key role in choosing suppliers, quality matters as well. The cheapest suppliers might be offering low-quality products which later on will cause more problems than benefits. That is why it is essential to make sure that the quality of products purchased by a company is at least satisfying.

Reliability

There might be suppliers offering good quality products at a low price. However, what if the products are not delivered on time? Delay in delivering certain products can stop the entire manufacturing process and result in not delivering a product to the final consumer on time. For this reason, it is crucial to choose a reliable supplier.

Flexibility

There are some businesses that need to respond to change very quickly to supply an erratic demand. For example, businesses selling clothes have to respond to weather and new fashion trends. Therefore, they need suppliers with a Capacity to cope with the rush, widely varying orders, and a short lead time (time between placing an order and receiving a delivery).

Frequency

Some companies require products to be delivered frequently. For example, firms selling food items typically need suppliers that are able to produce and deliver on a daily basis. Moreover, such firms tend to use just-in-time (JIT) production systems which require deliveries even multiple times a day so that they do not have to hold products in stock.

Payment

In some cases, suppliers give credit to their customers. For example, large companies such as Sainsbury’s do not have to pay upfront which gives them time to sell products and consequently, pay suppliers later. However, regarding start-ups and smaller enterprises, they are usually not given credit as they have not yet proved to be able to survive and pay their bills.

Value and ways of improving the supply chain

A good supply chain should be offering good quality products and services at an affordable price. Additionally, it should be flexible, quick and reliable. Therefore, flexibility, speed of response and dependability are the key areas of improvement in the supply chain.

Flexibility

Owing to flexibility, production can be modified cost-effectively, in a way that customised products are not much more expensive than mass-produced alternatives. Additionally, if a supplier is flexible, customers are willing to pay a higher price.

There are several types of flexibility that can be improved:

• Product flexibility - switching production from one product to another. This can be achieved by designing production lines that can be quickly modified to change the end product.

• Volume flexibility - changing the level of output to match the customer demand. This can be achieved by maintaining high levels of spare Capacity. However, it can increase unit costs which can be avoided by Outsourcing.

• Delivery flexibility - changing the time and volume of deliveries. This can be achieved only if a workforce is flexible and is provided with the necessary equipment to do so.

• Mix flexibility - providing a range version of the same basic product. This can be achieved by a modifiable production, a good database and a flexible workforce.

Another way to improve flexibility is to implement mass customisation.

Speed of response and dependability

Dependability has a wider meaning. It can refer to the reliability of a product or to whether a supplier is reliable i.e. if it manufactures and delivers a product on time.

Speed of response and dependability can be improved by:

• a reliable and integrated information technology system enabling recognising and maintaining customer requirements which can be easily accessed by all staff involved,

• a flexible workforce able to prioritise tasks and adjust their work,

• a close relationship with all the organisations involved in production such as suppliers and distributors,

• continuous improvement by setting challenging but achievable goals.

Supply and demand

In many cases, demand for certain goods and services may fluctuate. This can be because of new trends, weather, marketing, and competition.

That is why a supplier should be prepared for fluctuating demand and be ready to cope with change. There are two ways in which suppliers deal with demand variations:

• Matching production to sales - producing more units when demand is high and less than demand is low

• Constant production - producing all year round no matter demand variations

Companies that produce according to demand tend to have very low profits when demand is low. However, they rarely overproduce and their products are fresh and of good quality. Regarding constant production, they typically have a lower Cost per unit and lower labour costs as they operate twelve months a year.

Other ways to supply demand

• Outsourcing - when a supplier does not have the capacity to produce demanded products, it can hire an outside company to produce them for it

• Temporary and part-time employees - during a period of higher demand, a supplier can increase its labour capacity by hiring temporary and part-time workers

• Producing to order - a supplier can use a strategy in which it manufactures a product only when it has been ordered by a customer

Improving reliability in the supply chain

Supply chain reliability is a degree to which both customer and supplier can depend on the supply chain. Supply chain reliability enhances its productivity and cuts costs. Below you will find some ways to improve the supply chain reliability.

Continuous improvement

To successfully run a supply chain, it needs to be continuously improved. In doing so, businesses should constantly monitor all their operations and use small, endless efforts to solve existing supply chain problems.

Transparency

It is worth using systems such as ERP (Enterprise Resource Planning). The system helps businesses to control the amount of Inventory and save time. It also helps to avoid situations in which some units are forgotten or just disappear by physical inventory count.

Automatic purchases

Systems should be updated and extended to enable automated purchasing. The system should be set out in a way so that it automatically places orders with dealers when Inventory levels drop below a specific level. The automatic purchasing system will save businesses spend time on monitoring the Inventory level and allow employees to focus on their other duties.

Innovative data

Having access to accurate data and reports will give businesses a reliable insight into the supply chain health of a manufacturing business. It is worth using IoT (Internet of Things) devices with a reliable system such as ERP since it allows instant access to inventory, purchasing, and production data for critical decision-making purposes.