3 essentials for creating a stronger supply chain

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Strengthening a supply chain can ensure long-term benefits. Here are three aspects of an effective supply chain that can lead to success.

“Supply chain” refers to your suppliers and their suppliers, and your customers and their customers.

Every great manufacturer does a good job of working both directions to understand and improve so that all can benefit. Many struggling companies buy and sell things but don’t look outside themselves to get better.

While a fine place to start, that is a shortsighted decision, frequently made by small companies that don’t want to invest in professional supply chain management personnel or the effort required.

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But strengthening a supply chain can ensure long-term benefits. Here are three aspects of an effective supply chain that can lead to success:

1. Cost management

This is the most obvious place to start, but cost management is in no way synonymous with lowest price. If your team is still beating up suppliers and moving to save a penny, you’ve missed the point.

The concept of total cost of ownership (TCO) has been around for years, and should be understood by both management and your supply chain personnel. Price, inventory, manufacturing uptime and lead times are four TCO components that must be understood to truly manage costs. When you’ve got that one mastered, move along to reducing total supply chain cost (TSCC), which is where real cost management creates success.

Local optimization does not create global optimization, so it’s critical for companies to look at handoffs and cross-company processes to ensure the entire chain in both directions is becoming more competitive.

2. Manage risk

Price and TCO don’t matter if a key supplier goes under or if material supplies dry up and you can’t get something critical to your products. They also don’t matter if you’ve missed a regulation change that puts your company in violation.

Managing risk throughout the supply chain is a responsibility that someone must accept. Your supply chain resources are the obvious choice, but if you don’t make it a priority, they won’t either.

3. Competitive advantage

As you work internally to improve your competitive capabilities, look to your suppliers and customers to help you become better. If they do not bring competitive advantage, are they the right partners for you? If they are the right partner, but do not improve your competitive position, what can you do to help them become stronger? Are you bringing competitive advantage to your customers?

Your partners should reduce your time to market, and provide expertise to improve your designs. You should also be able to do the same for them.

If you and your supply chain are not improving together, you are declining together. Do not let your supply chain bring you down because you were only looking at the weight of your own link.