There are some key questions about Supply Chain Strategy that businesses of all sizes need the answers to – whether they have heard them before or not it is important to always remember the basics.
The supply chain encompasses sourcing and procurement of raw materials, inbound logistics to the processing and production plants, warehousing and distribution of finished goods to the final customer.
Supply Chain Management and optimisation is the strategic coordination of the business functions (finance, administration, purchasing, production & manufacturing, logistics, sales and marketing) within a company with the aim of achieving the most efficient movement and storage of goods from point of origin to point of consumption.
What are the key mistakes that organisations make where supply chains are concerned?
Many organisations fail to truly coordinate their supply chains and often ‘sub optimise’ by treating each function as a silo e.g. targeting reductions in finished goods inventory without balancing the implications on economic production batch sizes, or bulk purchasing raw materials without considering the impact on working capital. Consequently, where one cost is driven down, another is increased.
During good economic growth businesses can prosper and grow financially focusing on sales and revenue, without perhaps the operational focus to ensure that best supply chain practice is implemented as the business grows. It is only when the growth slows down and the business is analysed in more detail that one realises that the supply chain has become fractured, cumbersome and expensive. This is a potentially very damaging situation for smaller businesses that have grown quickly without true understanding of the impact on to their costs.
Does a business need to reach a certain size and critical mass before it is worth investing in an outside organisation taking a strategic look at their supply chain management?