Your company’s supply chain is one of its most important components—but that also makes it one of its most vulnerable components to loss. Understanding why your supply chain is so vulnerable can give you the insight you need to make it stronger, and ultimately improve your business’s bottom line.
Why the Supply Chain Is a Point of Vulnerability
Your supply chain is especially vulnerable for several reasons:
- Many moving parts. As explained by the Clunker Junker, “your supply chain depends on so many different moving parts, including costs, operations, and management for each of your different suppliers, all it takes is one issue to collapse the system.” Supply chains are vulnerable simply because there are so many different things that can go wrong with them.
- Large-scale operations. The larger your organization is, the larger and further reaching your supply chain is. You’ll be dealing with thousands, if not millions of dollars of transactions, so even a per-product cost increase of a few cents can have a drastic impact. Since supply chains are also responsible for forming your cost basis, this makes them even more important.
- In the words of Masaaki Imai, “It is impossible to improve any process until it is standardized. If the process is shifting from here to there, then any improvement will just be one more variation that is occasionally used and mostly ignored. One must standardize, and thus stabilize the process, before continuous improvement can be made.” Finding a way to make your supply chain completely consistent is exceptionally challenging, which means it’s hard to learn when and how it’s profitable.
- The cost of mistakes and hiccups. Deviations from your standard process can interfere with an entire shipment of goods, or an important timeline for your clients. And with so many hands in the ongoing movement of the supply chain, mistakes and hiccups are relatively common.
- The man-hours necessary to secure operations. Today’s world of big data and predictive analytics makes it easier to understand how your supply chain works (and how to improve it), but you’ll still need lots of man-hours tied up in the management process if you want to be successful. A handful of salaried employees can increase your supply chain costs further—but may be able to optimize to save money in excess of what you’re paying them.
How to Reduce Profitability Loss
So what strategies can you use to reduce the potential profitability loss in your supply chain?
- Choose the right people. Make sure you hire the right people to manage your supply chain. Ideally, they’ll have supply chain management experience and will be able to demonstrate—and measure—their results.
- Invest in long-term supplier relationships. Look for suppliers that you can build a long-term partnership with, rather than ones that simply offer a more attractive bottom line. The more consistent and the stronger your supplier relationships are, the more you can control your supply chain outcomes.
- Buy the right software. Finally, make sure you invest in the right supply chain management software. It should feature an easy-to-understand user interface (so it takes less time to train people), insights on hundreds of data points, and integrations with other systems you’re already using. Take a look at SAP’s supply chain management software if you’re interested in trying a new system and don’t know where to start.
Supply chain optimization should be one of your highest business priorities due to its sheer potential. Be as proactive as possible in your ongoing supply chain management.