8 key benefits of effective supply chain management

8 key benefits of effective supply chain management

John Gomez Last Updated: July 9th, 2019

Today’s global supply chains are increasingly complex, making a data-driven approach to supply chain management a must. Data-driven SCM provides visibility from end to end for monitoring the flow of information, services and goods from procurement to manufacturing and delivery to the end consumer. Data isn’t the only driver of effective supply chain management; other factors such as good vendor and supplier relationships, effective cost control, securing the right logistics partners and adopting innovative supply chain technologies make a big impact, too.

Supply chain optimization isn’t a simple undertaking, but effective SCM offers numerous benefits that improve the bottom line. Here’s a look at eight of the most important benefits of effective supply chain management.

8 key benefits of effective supply chain management

Better collaboration

Information flow is a prominent challenge for companies. According to Oracle, 76% of companies lack an automated flow of information across the supply chain, and half of companies say fragmented information results in lost sales opportunities. Integrated software solutions remove bottlenecks and allow for the seamless sharing of information, providing a big-picture view of the supply chain from end to end. Thanks to improved access to data, supply chain leaders have the information they need, in context, to make more informed decisions.

Improved quality control

Quality control issues follow the rule of 10, explains Arshad Hafeez, Global Expert for Supply Chain Management and Quality Control, SCM-Group Function (GF) in an article for CIO Review. According to the rule of 10, the cost to replace or repair an item increases by tenfold at each step of the progression, resulting in significant costs for companies when quality issues arise.

Companies that have greater control over not only their direct suppliers but also their suppliers’ suppliers benefit from improved quality control. Implementing standard minimum quality criteria, for instance, enables direct suppliers to identify and partner with secondary suppliers that meet those requirements. Likewise, process guidelines can help suppliers comply with your company’s quality requirements. Some companies go beyond simply providing criteria, conducting periodic audits or requesting documentation verifying suppliers’ compliance steps. Hafeez recommends implementing a Management Operating System (MOS) for monitoring key performance indicators including:

  • On-time delivery
  • Scrap rates, reworks and similar issues at suppliers
  • Final product quality (as received by end customers)
  • Time for complaint resolution
  • Findings from supplier quality assessments

By analyzing performance data, companies can partner with the highest-performing vendors and suppliers to maintain strict quality control.

Higher efficiency rate

Key benefits of effective supply chain management

Having real-time data on the availability of raw materials and manufacturing delays allows companies to implement backup plans, such as sourcing materials from a backup supplier, preventing further delays. Without real-time data, companies often don’t have time to initiate plan B, resulting in issues such as out-of-stock inventory or late shipments to end consumers.

Implementing smart automation solutions also results in higher efficiency. Healing Hands Scrubs, for example, implemented 6 River Systems’ collaborative mobile robots, doubling productivity and reducing unnecessary walking by 75%. Investing in the right automation solutions and leveraging data to minimize delays supports a positive customer experience and boosts your company’s reputation.

Keeping up with demand

“If consumer sales increase by 5 percent in a given week, a retailer could end up ordering 7 percent more product in response to the increase and a feeling that demand will continue,” according to a report by VISA. “The next link in the chain, observing what appears to be a 7 percent increase in demand, then orders a larger increase on his supplier. Eventually the factory may observe an inflated 20 percent increase in orders.”

Known as the bullwhip effect, this phenomenon often results from delays in communicating supply and demand changes. Supply chain leaders with access to real-time, accurate information and integrated data can better predict demand and readily respond to changing market conditions to avoid challenges like the bullwhip effect.

Shipping optimization

According to Logistics Management’s The State of Logistics Report, freight transportation costs increased by 7% from 2016 to 2017, while private and dedicated trucking costs increased by 9.5%. Less-than-truckload costs rose by 6.6%, and full truckload costs rose by 6.4%. Due to rising costs, shipping optimization is a priority for supply chain leaders. Identifying the most efficient shipping methods for small parcels, large bulk orders and other shipping scenarios helps companies get orders to customers faster while minimizing costs. Not only do those cost savings boost the company’s bottom line, but savings can be passed on to consumers as well to improve customer satisfaction.

Reduced overhead costs

With more accurate demand predictions, companies can reduce the overhead costs associated with storing slow-moving inventory by stocking less low-velocity inventory to make room for higher-velocity, revenue-producing inventory. Warehouse fulfillment costs contribute significantly to overhead. Reduce these costs by optimizing your warehouse layout, adopting the right automation solutions to improve productivity and implementing a better inventory management system.

Identifying unnecessary spend is another way to achieve leaner operations. If you’re facing high logistics costs, for instance, switching to another provider offering the same service level and quality at a lower cost is a quick win.

Improved risk mitigation

Analyzing big-picture and granular supply chain data can reveal potential risks, enabling companies to put backup plans in place to readily respond to unexpected circumstances. By taking proactive action, rather than reacting to supply chain disruptions, quality control issues or other concerns as they arise, companies can avoid negative impacts. Understanding risks also helps companies achieve leaner operations. For instance, 87% of companies believe they could reduce inventory by 22% if they had a better understanding of risks in their supply chains.

Improved cash flow

The benefits discussed above allow companies to make smarter decisions, choose the right partners, accurately predict and respond to market and demand changes and reduce supply chain disruptions, but that’s not all: they also improve the company’s bottom line. For example, working with reliable suppliers not only means fewer disruptions and more satisfied customers, but it also improves cash flow by allowing you to invoice (and get paid for products and services) sooner. Implementing more cost-effective solutions to eliminate wasteful spend and reducing overhead costs also contribute to positive cash flow.

Supply chain disruptions have a domino effect, impacting every juncture throughout the supply chain, but the same is true for the positives: effective supply chain management has direct and secondary effects that support the efficient, seamless flow of information, goods and services from procurement through final delivery.