What are the Quick Wins in Supply Chain Management?

Author: Dr Keith McNeil

Supply Chain Management (SCM) can be simply defined as aligning the cross-functional processes of your supplier, your customer and your own business to deliver higher levels of customer service at minimal cost.  You could be forgiven for thinking it is all about installing enterprise resource planning systems (ERP) and decision support tools such as optimisation technology, sales forecasting and planning and scheduling systems.  These systems generate most of the public face of SCM but your business can go quite a long way down the path towards world-class SCM without huge technology expenditure.  Why not get some quick wins before embarking on the costs of installing expensive systems?

Here are some simple first steps for you to take.

1.      Measure your delivery performance level accurately as Delivered in Full, On-time, In-Specification (DIFOTIS).  Are you kidding yourself about how good you are?  Do you measure delivery against the initial request time of the customer or against when you finally decided you could deliver?  Do you track back into the business and understand what is driving each of the components of in full, on-time and in specification?  Even if you were achieving 95% on each of the sub-components of DIFOTIS, your overall achievement is 0.95 times 0.95 times 0.95.  That is 85%. Sobering isn’t it? But think of the opportunity of raising it.

2.      Drive towards total inventory accuracy.  Are your stock figures accurate and do you know where it is?  Are you cycle counting regularly?  As sure as night follows day, you cannot deliver superior customer service if your inventory accuracy is poor.

3.      Classify your SKU range as A, B, and C items.  What customer service level do you wish to support for each?  What is the cost of manufacture and delivery in each category?  Plot cumulative sales revenue against each SKU and plot according to a Pareto distribution.  Are you getting 80% revenue from 20% of SKU’s.  Is there an opportunity to rationalise the large number of SKU’s that provide a relatively small increase in sales?  “Cut the tail” in your business.

4.      Flow chart business processes.  Eliminate non-value adding time.  This greatly increases the ability of your business to respond to variability in sales and reduced order time.

5.       Measure these and ensure you understand what each is telling you.  DIFOTIS, sales forecast accuracy, inventory turnover, cost to deliver and order to cash cycle time.

6.      Establish a Sales and Operations Planning Process.  Balance supply and demand each month.  Have an agreed production, sales and distribution plan each month.  Formally review progress against the plan.  Don’t worry if it is not a good plan to start with.  As you understand why there is deviation against the plan, this leads to focus on the quality of inputs to the plan.  A great way to improve business.

Do these steps well and you will be rewarded with improved performance, higher customer service and improved margins.  Perhaps enough to invest in more sophisticated technology, but only if it is required.