Regularly devote time and resources to supply chain improvement.
How long has it been since you assessed the effectiveness of your supply chain? If you’re just keeping up with operations, you are missing valuable opportunities to use your supply chain to competitive advantage. It’s easy to miss these opportunities unless you’re intentionally devoting a percentage of the organization’s time and resources toward periodic assessments and improvement.
Do a thorough analysis of your procurement categories.
The first step in assessing your supply chain’s effectiveness is to analyze supply categories against a common set of attributes—spend amount, spend increase over time, number of vendors, agreement type, quality factors such as number of recalls, etc. This analysis will highlight areas where you can make quick improvements, which often result in cost savings to fund larger initiatives. An outside expert can save valuable time in doing the analysis and quickly pointing out areas ripe for improvement.
Look at total cost.
Any assessment of supply chain should look not only at price, but total cost—including direct, indirect, and operations spending. Direct spending shows up on the purchase order. Indirect spending doesn’t go through the procurement process but still impacts it. This can be spending on quality issues, delays, increased utility or energy costs, rework, and waste, such as when material goes obsolete or expires. Operations costs include running warehouses and managing inventory logistics. An outside perspective can help identify blind spots in your analysis.
Link supply chain management to strategy.
A proactive supply chain management system has a strong link to company strategy. The best procurement personnel will notice a vendor’s new technology or capability that could help advance company strategy. Top companies will not only signal a new direction to employees but also ask what suppliers, experts, or ideas the company can tap into for help with the initiative. In both cases, the people who work on supply chain relationships are helping move company strategy forward. Incentivize this link via a reward system that encourages contributions to strategic intent.
Look for strategic partners among suppliers and incentivize them effectively.
Identify the key suppliers that have the most impact on your competitive advantage. Choose long-term suppliers that are most important to your strategic intent in terms of quality, price, indirect costs, and service. Choose incentives built into agreements that make them care more about you than their other customers—especially your competitors. Such incentives might include payment terms, length of contract, or even profit participation. This is an extremely powerful and cost-effective tool.