Introduction
To produce anything, including services, you’ll need raw materials and equipment. The process through which you acquire these needs is your supply chain. Now, supply chain operations go beyond simply buying raw materials, it involves figuring out what you need, when you need it, how much you currently need or will need in the future, how long your current stock will last, when you should begin to make a new batch, how long it will take the needed materials to get to you, how long in advance you should place an order, who offers the highest quality of what you need, what is the cheapest possible price and if there any suitable alternatives.
What is Supply Chain Operations?
Simply put, supply chain operations includes every process that aids in either the management of the flow of goods and services, or the transformation of raw materials into finished goods. Ideal supply chain operations help you to maintain efficiency in your business, lower costs, improve product quality, strengthen customer and supplier relationships, enable you to keep up with demand, and so much more.
In this article, we’ll walk you through how to achieve that ideal supply chain operation level, phase by phase, so you can improve supply chain operations and reach the optimal point of supply chain management, greatly improving your business in the process.
6 Phases of Supply Chain Operations
There are six main phases of supply chain operations discussed and in each of them, we explain how to optimize it to enhance and improve your business.
Phase One: Procurement
The first phase, which is Procurement, is the actual buying of raw materials from suppliers. Here, we discuss techniques to help you identify and negotiate the best deals with suppliers and also how to manage your suppliers to ensure they always provide you with the best service. With practices such as demand forecasting and vendor management systems, you can optimize the procurement process.
Procurement in business conclusively involves making buying decisions on the instances of scarcity to ensure the purchaser receives goods, services or work at the most reasonably fair offer when factors such as quality, quantity, time and location are compared.
So, how can the procurement process be improved? Here are some of the best-proven techniques for you to follow:
- Forecasting Demand To Plan Future Operations
- Optimizing The Vendor Selection Process
- Negotiating Beneficial Deals With Vendors
- Contract Negotiations Strategies To Enhance The Procurement Process
- Regulate, Evaluate, Maintain And Manage Vendor Relationship
Phase Two: Material Management
The second phase, Material Management, involves the acquisition, storage, and inspection of purchased raw materials and equipment intended for use in the production process. This is the stage where faulty equipment or subpar raw materials are found and removed from the production line before they can cause significant damage. Here we discuss how to properly check for defects and what to do if they’re found. Proper documentation techniques, inspection techniques, and Vendor verification can significantly improve first yield pass and prevent defecting materials from entering the production process.
Inventory management and control goes hand in hand with material management because it helps keep track of raw material and specific products, which in turn minimizes costs to the organization and ensures maximum return on working capital. Let’s look at five steps you can use to optimize your inventory management.
Inventory Optimization: Five Steps to Improve Effectiveness
1. Assess inventory operation
The first step is a thorough examination of the inventory management process in order to determine its state. Identify and discuss with each stakeholder their roles in the process, obstacles they face and what improvements can be made to make their job more effective. Study the interworking relationship between different units in the process and see if there is clarity of roles or an overlapping of responsibilities.
The findings from this exercise should be documented. The documents should be able to reveal operational deficiencies, based on metrics like Planned vs. Actual Shelf Life (which measures the percentage difference in the planned storage duration and the actual storage duration of the company’s inventory). Comparing the firm’s inventory practices against those of the industry leaders through a third party will be useful for assessment.
2. Develop an inventory management plan
The assessment findings should be turned into an action plan. The Ideal inventory management plan should be able to lower the Carrying Cost of Inventory metric, which is the expenses incurred on storing inventory and its shipping, and ensure a good Total Inventory Value metric which can withstand supply chain or production fluctuations.
There should be quality control standards for the inventory management process along with operational definitions. The plan should also include action plans to reduce the Obsolete Inventory Maintenance metric, which is an indicator of the presence of obsolete products in storage. This should include setting up a cross-functional team that can come up with innovative ways of disposing of these items.
3. Put the plan into action
Executing the plan should be the next step. Monitoring of the inventory process and maintaining laid down quality control standards is crucial to its success. Management has to approve any exceptions from the plan only when necessary. There should be open communication and collaboration between all stakeholders in the inventory process, including suppliers.
The inventory management system should include a process that reviews stakeholder performance. The role of each unit in the inventory process should be clarified and responsibilities apportioned. Standardization of the inventory management system is necessary so that it is easy to execute, and tasks can be easily delegated.
4. Measure the performance against the plan
This is necessary to sustain improvements, as organizations cannot improve what they do not measure. Any action in the inventory process against the laid down plan should be investigated and corrected immediately. There should be a high level of inventory audits to ensure that effectiveness is maintained.
Ensure Improvement is Continuous
Opportunities to make the inventory process better should be sought to maintain its effectiveness and make it robust enough to meet unexpected emergencies like supply chain disruptions. Actions here should include constant review of the process, improving data analytics to ensure optimizing Just-in-Time delivery metric and minimize minimum stock orders. Other actions should be investigating deviations from laid down processes and codifying the solutions, improving employee operational knowledge, carrying out operational improvement schemes with suppliers, and lowering cycle and lead times in various areas.
Phase Three: Master Data Management (MDM)
The third phase, Master Data Management (MDM), is the effective management of data. The more you know about your business and your customers, the better equipped you are to satisfy them. MDM collates and organizes data, storing it effectively in such a way that is both easy to find and easy to verify, reducing the occurrence of error and improving your work time as this data is in a central location.
Data is perhaps the most significant asset for any business, its relevance has been emphasized in recent years as data is collected and analyzed in a bid to reach maximum productivity. As a business grows, so also does its data influx, product data, asset data, customer data, location data, etc., all of these can quickly become overwhelming, misleading and even damaging, if not managed correctly.
Why Master Data Management Lies At The Heart Of The Supply Chain
Every aspect of business today is dependent on data, and the supply chain is even more so. If compiled and utilized correctly, supply chain data gives insights that can help optimize proceedings. If incorrectly managed, inconsistent data and the inaccurate decisions they proffer are extremely costly and time-consuming. MDM improves the supply chain through
- Centralized data
- Smart management
- Forecasting and inventory management
- GDSN (Global Data Synchronization)
Phase Four: Manufacturing and Production
The fourth phase, Manufacturing and Production, as the name implies, involves the actual production and manufacturing process and it discusses which production techniques are the most efficient for your business and how to handle problems that may arise during the process such as equipment failure or product defects. Proper and frequent servicing of equipment, thorough inspection of materials before they are used and proper employee training are a few of the discussed techniques with which you can optimize the process.
The Five Steps of Effective Production Planning
1. Getting the Right Demand Forecasts
This is the foundation of every good production plan. It involves getting the right future projections for the demand of your products so that you can plan accordingly. Demand forecasting requires collaboration and data sharing between all the departments and units of the company. It also requires investing in effective data capture systems that also provide good data analytics since production investments will depend on accurate forecasting.
2. Mapping out the Production Plan
A production plan has to be drawn up to be able to produce the products to match the demand forecasts. This involves looking at the right quantity and combinations of resources (labor, machinery/equipment, and materials) that will enable the company to achieve the production target. A good production plan will incorporate possible scenarios and events that could interrupt the production sequence and provide possible solutions to take care of them.
3. The Right Combination of Resources
This process looks at getting the right total inventory value and overall equipment effectiveness to ensure there is no overstocking or under stocking. It is also crucial that the Pareto Approach is used to segment product lines through the revenue they contribute to the company. This approach will ensure the most effective allocation of resources to the appropriate product lines. This process also calls for effective collaboration and data sharing between the different departments in the company through the deployment of good Enterprise Resource Planning (ERP) system so that they can work together more efficiently.
4. Constant Monitoring and Control
It is very important to monitor the production process constantly. This process involves the setting up of a control system with laid-down requirements and KPIs to measure the process against predefined production targets. It is also important to have the chain of responsibilities defined with the workers responsible for clarified production processes identified. This monitoring process, which can be automated through the ERP system, should capture any impediment to the production process and appropriate action taken quickly to rectify the problem.
5. Re-evaluations, Adjustments and Changing Plans
Sometimes, it might not be possible to follow a laid down production plan to fruition. This state might be due to some factors like a high equipment failure rate, or an unfavorable average equipment life, which will result in a low machine utilization rate. The re-evaluation of the production plan is necessary at this stage. It’s also a reason why a good production plan should have mitigation factors and be flexible to have possible adjustments in the event of risk events. This situation will lead to changes in production scheduling and the targeted output.
Phase Five: Order Management
The fifth phase, Order Management, like MDM, is concerned with information. It has to do with the collection, verification, organization, and submission of all information required for the fulfillment of customer orders. Perfecting this phase means either eliminating or significantly reducing order errors and greatly improving upon customer satisfaction. Word of mouth referrals are still the most trusted advertising technique, with proper, efficient order management; your customer base will grow.
A company’s success begins and ends with its customer, and one of the most important enablers of customer’s satisfaction is the effectiveness and efficiency of business order management. In the order-to-cash process, customer order management is a key activity. An order accurately processed and within the promised time means a satisfied customer who will pay its invoice on time.
How to Optimize Order Processing
1. Avoid losing clients orders Typically for purposes of productivity and business knowledge, companies group their sales administration or customer service departments in different ways. You might end up with errors and delays. You might even end up losing the package and the trust of your client.
To avoid these types of unproductive tasks, it would help if companies automated their customer order routing processes.
2. Ensure All Fields Within The Order Submission Form Are Filled
The order processing function should only accept order submission forms (online or physical forms) that have been fully completed from the customers themselves or customer-facing representatives. Making all fields in the order form mandatory, then it will ensure that all necessary information is collected from the beginning.
3. Integrate Audit Processing Into The Customer Order Fulfillment Process
Ensuring the accuracy of orders is an important step in the order fulfilment process as it goes a long way in increasing customer’s satisfaction in your service. When audit processing can be incorporated into the customer order fulfilment process, it will ensure your employees are more accountable and your customer order fulfilment cycle time is reduced. This inventory management data accuracy can be achieved with the use of barcode technology and supplemented with the use of standardized quality control checklist to ensure an increased order fulfilment cycle time.
4. Make Digital Copies of Your Sales Orders
If you plan to optimize your order processing procedure, you should swap your paper sales copies for modern technology. According to the Gartner Group, 43 percent of SMEs would lose business, especially if they can’t retrieve lost data. Since data printed on damaged paper copies are irretrievable, this stat shows how paper sales copies can create bad business. Digital sales copies are easier to handle and can last for a lifetime. Besides, they stand as perfect ways to reduce any effects of paper use on the environment.
5. Proactively Communicate With Customers
As you deliver customers’ orders, make sure that you constantly communicate with them. Apart from maintaining steady contact, try to confirm the accuracy of the orders. These steps are crucial to entering correct orders and maintaining customer loyalty.
So what are the practical ways to achieve this feat? You can start by talking directly to the client that wants to make the order. Furthermore, automation of the communication process stands as an ideal way to process orders correctly.
6. Use sales order automation to improve your order-to-cash cycles
There are many problems with traditional customer order processing. For instance, it consumes time and is fraught with errors. When you automate the sales order process, your company records tremendous gains. These benefits include increased profits, productivity, and efficiency. To enjoy these benefits, think about choosing automated ideas that work suit your needs. For instance, small scale firms work better with Optical Resolution Technology as they have appropriate human resources to handle it while larger organizations thrive with non-OCR technology.
7. Check for Results and Continuously Optimize The Process
Optimization doesn’t just end with applying management solutions. Companies must also check for results and use them to develop efficient action plans. Key Performance Indicators – such as low team productivity, orders that fail to comply with time commitments and late orders – can help identify order management issues. Within a reasonable time frame, they can help move towards a perfect customer order rate metric. This rating stands as the composite score calculated by multiplying average on-time delivery rate (%), complete shipment rate (%), undamaged shipment rate (%), and correct documentation rate (%) for a certain period of time or group of shipments, as a percentage.
Phase Six: Distribution:
The final phase, Distribution, is concerned with everything from inventory management to the delivery of goods to the final consumer. In this phase, a course has to be plotted for the journey of produced goods, how they leave the manufacturing plant and what paths they take to get to the consumer, whether through middlemen, direct orders, etc., all these and more have to be considered. In this phase, we discuss best practices and processes to aid in the building of your own, tailored, efficient distribution network.
The distribution group handles all aspects of the flow of outgoing products to customers. The primary purpose of the group is to arrange and compile necessary goods and materials before dispatching them to customer(s) on a timely basis.
5 Steps to building your best distribution network
First, what is a distribution network? In simple terms, it’s logistics, getting goods and services from point A to B as fast, safe, and cheaply as possible. In a supply chain, it consists of a collection of intertwined storage facilities and transportation systems that are used to ensure the successful delivery of produced goods and services to the final consumers. An ideal distribution network is fast, reliable, and cost-saving, and it is these exact qualities that are fundamental in the quest to satisfy customers today, where long wait times or expensive products are simply unacceptable in a globally competitive market. How can you build a fast and reliable distribution network? By following these simple steps:
1. Outline clear goals
This is almost always the first step in business. When venturing into something new, setting attainable goals that clearly outline what you hope to achieve with the new venture is best practice. This way, progress can be tracked, and effectiveness can be measured, so after a set period of time, you can see if it’s working for you or not, and you can then decide to continue, modify or abandon your chosen network. When setting goals, it’s important that input is taken from all relevant sides, that is, customers, suppliers, company logisticians, etc., so you can tell which areas require improvement.
2. Collect, organize and analyze data
It is simply impossible to build a network or improve upon an existing one if there is no data to work with. Relevant data helps to answer many questions about the design of the network, and without it, building your network would be mostly down to guesswork, which in itself is inefficient. A conscious effort should be made to not only collect relevant, accurate data, but also to organize and analyze it efficiently.
2. Collect, organize and analyze data
It is simply impossible to build a network or improve upon an existing one if there is no data to work with. Relevant data helps to answer many questions about the design of the network, and without it, building your network would be mostly down to guesswork, which in itself is inefficient. A conscious effort should be made to not only collect relevant, accurate data, but also to organize and analyze it efficiently.
3. Set a baseline
Establishing a baseline, a fixed reference point, enables comparisons to be made against future scenarios. The performance of your network should be measured against this to determine either success or failure. Ensure that the baseline is accurately set up, as an inaccurate baseline may lead you to evaluate your network incorrectly. For example, if your company believes it spends a million dollars annually on energy costs, then the data collected and analyzed should be relatively close to $1 million. However, if the figures differ by a significant degree, work must be done to either get the figure the company expected or modify the baseline assumptions or both.
4. Analyze and Optimize Network
Analyzing or evaluating your network is important because, together with other steps such as setting goals and establishing a baseline, it helps you to determine the effectiveness of your network, and if any areas are subpar, you can find them and then figure out how to optimize them, thus improving your entire network.
When you analyze your network, be sure to decide what variables to use. Things like cost, time taken, and delivery reliability should all be considered. You can also determine the impact one variable might have on another.
5. Recommendation
This is where real-world expertise comes to play. While data models offer invaluable information and suggestions, it’s still up to you to make the real decisions. For example, while one location may be the cheapest to situate a distribution facility because of its proximity to your production facility or customers, another state may have better government incentives such as tax breaks or a better road network, which may outweigh the extra costs from being further away. Information and decisions like these come from actual, real-life understanding of business and cannot be substituted for models.
TFollowing these steps will ensure you build an accurate, efficient, cost-effective, fast, and reliable distribution network that can constantly be improved upon and help you grow your business.
Final Thoughts
All of these phases are related to each other, each phase leading to the next, and they must all be taken seriously, as each is incredibly important to the supply chain and the failure of any one of them can seriously harm a business. For more information on Supply Chain Operations, don’t forget to visit the Profit.co blog; and for a better way to focus, measure, and achieve your organization’s most important goals, check out our product page and
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