Friday, September 21, 2018Canada's Leading Online Business Magazine

Supply Chain Capabilities

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By Rick Cleveland, P.Log, President, Altered Perspectives

Consider this: 51 of the top 100 economies of the world are corporations, not countries. When C-level executives were polled as to their view of supply chain management, over 60 per cent responded that supply chain is a market strategy and customer service competitive differentiator. That surely implies that supply chain capability is seen as strategic to business competitiveness.

If you want to know what’s happening in the exciting world of international business, you can open any of the major trade magazines and read about Supply Chain innovations being implemented in one multi-billion dollar organization or another. This is great reference material if you’re leading one of those companies and want to know what you need to do next to compete.

We are a nation that is built on small and medium-sized enterprises. We are beauty salons, automotive repair shops, convenience stores, small restaurants and franchises. We may be interested in what the innovators are doing, but because of the scope and scale, it may not be applicable to our businesses.  Regardless, we need to survive and thrive. Can we derive value from learning what the big players are doing? Our solutions may be different, but the concepts from which they are derived should be the same.

Management ensures supply

Supply Chain Management is about the efficient flow of cash, information, products and services, among channel partners. It is about supplying a buyer with a product at the right place/price/time etc., recognizing that the money to fund this is “locked” until the agreed credit or payment term is matured. It’s all about cash and profit; value for the customer and asset productivity. The assets in question may be more than just the items on your balance sheet; they should include processes and people.

From this list of Supply Chain Initiatives that have improved the stock returns of the global corporations, we should find applications to our smaller businesses:

- Standardization—cartons, racking, processes, etc.
- Automation—elimination of touch points
- Sales & Operations Planning processes
- Collaboration and consolidation—data sharing across the wider  supply chain
- Designing the right supply chain for your product offering—optimization

Standardization

Standardization, for example, allows for efficient handling of product. In its simplest form, a beauty salon has a menu of options from which the customer selects a desired service. Different stations in the shop cater to different service requirements (a haircut vs. a manicure).  If a manicure is selected, the beautician knows where to find the cleaning agents, polishes, cotton balls, etc. This process is expedited because the polish is available in standard size bottles which fit in the holding tray for ease of application without spill. Imagine if each brand and each colour had a different size and shape of bottle; product that can’t sit in the tray properly would frequently spill, costing the business money.

Once you have that concept of efficiency of standardization in your mind, you can find ways to apply it to your business whether it’s a restaurant, a repair shop, or custom furniture manufacturing. For most SMEs, the biggest savings in standardization will come in the form of inventory control. Having standard racking that is efficient and effective provides you with more flexibility, meaning you can adjust your inventory without having to expand your storage space. Knowing where you can find the inventory when you need it, and when to buy more, is a critical component to asset productivity.

Automation

This leads us to the second bullet point: automation. Automation in car assembly and warehousing is obvious. There are great advantages to conveyors moving product without human assistance, reading bar codes and sorting for efficient delivery to customers at speeds, and with accuracy, that we could never achieve manually; but how do we apply this concept to an SME. Using a simple inventory system, and scanning products correctly, is the easiest application of automation. One of the biggest cost drains for an SME is inaccurate inventory. Purchasing more of a product that is sitting on a shelf in the back, gathering dust, is a waste of money that could be invested elsewhere. Not having the product because you sold the last box and didn’t replenish it is even worse. 

Proper use of bar codes, scanning inventory in upon receipt and out with each sale, allows the system to track it. You don’t have to waste time physically counting how much product you have to purchase if your system can pull it for you. Let the system show you how much you’ve sold in the last month, quarter or year, and how much is on hand. Most importantly, train your staff not to scan one item and multiply by 5 because they’re the same price point. It’s entirely possible that they are different colours or sizes. I tried to purchase a particular clothing article for my wife at Christmas. The system showed 16 on hand of her size, but -16 of the other sizes. The reality was that there was none in stock. The clerks had just rung up items based on price points instead of inventory draw.

This is a critical flaw in retail management and costs stores millions of dollars in lost sales annually. If you’re going to use automation to improve your efficiency, make sure you know what you are recording. This data capture is vital to your company’s health and allows you to make good decisions if it’s done correctly.

Sales and Operations Planning

Sales and Operations Planning, our third bullet, is used in global organizations to ensure efficient planning of purchases and manufacturing, minimizing waste and maximizing sales. In an SME environment, it can help you plan and manage your cash flow. In its simplest form, S&OP is estimating your demand (budget for the next month, quarter, etc) and identifying your capacity to meet that demand (inventory on hand, opportunity to supply more at a reasonable cost, etc).

Capturing accurate sales and inventory data is the first step. If your sales budget calls for $100,000 in the next quarter but your cash flow only allows you to purchase enough product to support $80,000, then you know you’re going to have a shortfall. Good supply chain management practices involve finding ways to close this gap. It could be negotiating special terms with suppliers to fund your inventory for longer; it could be finding alternate sources of supply or cash in the form of a bank loan. It could even mean knowing when not to have a sale so you don’t disappoint customers but adjust your budget instead. The key is having good information, and the better your information is, the better your negotiations will be with suppliers (and customers). Sometimes a short-term shortfall can be overcome with simple collaboration; our next bullet point.

Collaboration and consolidation

Collaboration in the supply chain is about minimizing costs of the total supply chain and maximizing consumer satisfaction. For instance, if you have a retail operation, you may convince your supplier to give you longer payment terms. They might be willing if you are offering more consistent demand planning information to them, or something that allows them to manage their inventory better, which in turn saves them more than your extended terms will cost them. Another option might be to go to daily deliveries instead of weekly, or have your supplier deliver direct to your customers instead of to you, which frees up your inventory space for other items that may have a larger profit margin. For collaboration of this nature, there has to be trust in the relationship. If you have a good S&OP process, you can demonstrate your ability to predict cash flow which helps to build trust with your suppliers.  They know that yours is a well managed business so they are more likely to work with you on unusual initiatives in Supply Chain Management.

Design

This last option leads us into my final bullet point: Designing the right supply chain for your needs.  Campbell’s Soup is going to use a supply chain that is consistent and low cost. Apple is going to use one that is highly flexible and built around new product introductions with fast demand changes as consumer excitement builds and then dwindles. You may have both types of product offerings in your business, and you may require more than one supply chain to manage them.

The greatest innovation in Supply Chain in the last 20 years wasn’t bar coding, or automated warehouses, or anything related to computers.  It was advances in education that has made the difference. There are courses available at the MBA level or for front line employees who need the absolute basics. Organizations such as The Logistics Institute provide training at all levels of the organization whether it’s an SME or a multi-national business, regardless of whether you count stock in a backroom or you’re an executive in a boardroom. This training leads to professional certification, for those who choose it, which provides access to a community of thought leaders in supply chain who are willing to share ideas and best practices in new and interesting ways.

It is by tapping into these thought leaders that we can find ways to grow our SMEs into global businesses. Globalization is not as frightening as it may seem, but there are risks that need to be managed. Most companies begin by importing or exporting their products; small, simple steps to larger markets (whether customers or suppliers). There are government regulations to follow, and many businesses that specialize in helping SMEs to make the transition. Applying the same principles as outlined above can help an SME to grow in a controlled way. Standardize the processes and packaging so special handling equipment does not become a surprise expense. Automate what you can and capture as much data as possible. Those T-shirts from China may be made from cotton grown in India, and that can have an impact on your import quota and claims on product country of origin. Balance your supply and demand needs to ensure cash flow can cover off such concerns as foreign exchange rate fluctuations, surprise duties and taxes, up-front payment for product, loss due to piracy and cost recovery for ships that encounter mechanical problems en route.

There are many hidden costs that can surprise you, so you have to ensure your profit margin is high enough to cover the risk; especially when your supplier is overseas. If there is a contract dispute, you’ll need to know which country’s laws will be used to interpret and resolve the dispute. Collaboration and information sharing is a great start to mitigating the risk. Partnering with third party specialists in freight forwarding and customs brokerage is certainly a good first step.

Canada’s economy is driven by Small and Medium Enterprises. The potential to grow is there, and the support is available. Globalization is not a myth; it is an opportunity that should be entertained. Canada’s workforce is highly educated, mobile and resourceful. Any company looking to expand should tap into the many resources, including government and bank assistance as well as professional supply chain associations. The risks are many, but the opportunities are well worth the effort.  

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