The supply chains at most organizations have become longer over time and contain more partners than ever before.
These longer supply chains are the result of vertical integration strategies yielding to first outsourcing and then off-shoring. In addition, organizations continue to add more products, more suppliers and more plants or distribution centers. They have also evolved their customer and product mixes, implemented new postponement or replenishment strategies, or simply scaled in volume, leading to a significant change in the structure of their supply chains.
As the assumptions used in the initial supply chain model change over time, its model and processes are not likely to keep pace with the changes. What was once a smooth and efficient supply chain can begin to show weak performance metrics. As organizations seek to improve their supply chain metrics, the key question is what best practices they should adopt.
Based on the experience of Bristlecone with its customers, here is a list of 10 SAP supply chain management best practices that an organization should implement as it seeks to improve its performance metrics.
1. Create a consensus demand plan: An organization can get consensus on market requirements and business assumptions by incorporating new product introductions, product retirement, upcoming promotions, financial projections, investor commitments and sales forecasts into the demand planning process, and creating a consensus plan around it. Without building consensus, everyone has a different perspective of customer demand and it becomes difficult to synchronize demand and supply .
2. Ensure supply demand synchronization: By using techniques such as Sales & Operations Planning (S&OP), as well as creating a supply plan that maps to demand while also incorporating key constraints, a company can ensure that it will be able to meet its delivery commitments without incurring expediting costs or higher inventory. Such capability not only reduces costs, but increases customer loyalty.
3. Streamline supplier interactions: By providing suppliers ongoing visibility into their forecast and consumption plans, as well as current inventory status and planned receipts, manufacturers can get their suppliers to improve replenishment lead time and become more responsive to their changing needs. It also allows them to implement programs such as Vendor-Managed Inventory (VMI), cut costs through reduction in inventory and safety stock, reduction in overtimes or expediting costs.
4. Get visibility into supply chain events: Traditional supply chains are evolving into a worldwide network of suppliers and manufacturing or distribution facilities. Such an environment requires stakeholders to share any shipment or material information such as plans, current status or exceptions with each other in a timely manner in order to improve overall supply chain performance. Without the ability to provide such levels of visibility to each other, each stakeholder ends up continuously reacting to unplanned surprises with limited time to act, not to mention carrying extra inventory to compensate for such surprises. Visibility into shipments and material-related information promotes faster decision-making within the supply chain and enables each stakeholder to proactively respond to issues. Supply Chain Event Management (SCEM) addresses these requirements.
5. Automate trade compliance: As organizations grow in scale through new products and expanded geographical markets, or setting up plants in other countries, or turning to offshore suppliers, manual methods of managing the export and import compliance process become exponentially more complex and time-consuming. Even significant increases in headcount may not resolve the issues. Streamlining the export and import management process brings benefits such as significant cost savings, improved productivity, fewer shipment delays and reduced risk of penalties and fines due to non-compliance.
6. Rationalize the supply base: By reducing the number of suppliers, procurement managers can take spending on a category that is currently scattered among multiple suppliers and award that volume of spending to a smaller number of suppliers to gain volume discounts. Rationalizing the supply base also reduces complexity associated with new part introduction and simplifies supply collaboration.
7. Integrate engineering and sourcing into supply chain management: New product introduction (NPI) and sourcing are key elements of effective supply chain management (SCM). Without expertly incorporating NPI into the supply chain planning process, a manufacturer runs the risk of inventory write-offs or shortages of critical components. Similarly, the sourcing process should incorporate requirements such as ability to deliver in the right replenishment model, responsiveness and flexibility to react to sudden changes in business needs.
8. Continuously measure key performance metrics: One best practice is getting visibility into key supply chain performance metrics on an ongoing basis and using that information to continuously improve the supply chain. SAP's upcoming supply chain performance management solution will help close the loop for its customers.
9. Focus on time and inventory: While one can focus on improving multiple aspects of the supply chain, the greatest impact can be had by focusing on continuously improving on two fronts: increasing the velocity of process and information flow and focusing on activities and actions that can reduce inventory within the system.
10. Deploy an integrated solution: When the supply chain capabilities of ERP systems were not as mature as they are today, best-of-breed solutions were the preferred approach. However using such systems created information integration issues. Today, I recommend that companies evaluate supply chain systems from their ERP vendors before looking at other options.
These 10 best practices can allow manufacturers to increase the efficiency and effectiveness of their supply chains.
More on SAP supply chain management:
- The benefits of SAP supply chain management (SCM)
- SAP SCM software and RFID FAQs and trends
- Deriving more value from an SAP SCM implementation with BI and analytics
- Effective supply chain management is all about visibility
- About the author: Anil Gupta is vice president of marketing at Bristlecone, a consulting firm focused on supply chain management. .
This was first published in October 2008