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Supply Chain Basics


If you’re a supply chain professional, the tips and guidance in this post will probably not be new to you. On the other hand, if you’re a business leader who must try to juggle supply chain effectiveness with that of marketing, sales, or manufacture, the following sections highlight the supply chain basics that your company must get right in order to maximise revenue and profit.


Eric Allison Quote

Without sufficient attention to these elements, your company will find it harder and harder to compete against the growing number of organisations taking a strategic supply chain stance.


At least if you have the following 12 supply chain basics right, your revenue and growth plans are less likely to be thwarted by excessive cost-to-serve, product availability issues, or customer frustrations.

To make it easier to for you to evaluate your supply chain essentials, this post is complemented by a 70-point checklist, which you can download in just a few moments and run through with your management colleagues.


Does Your Company Have These 12 Supply Chain Basics Under Control?


1. Supply Chain Strategy


Logistics Bureau Supply Chain Strategy Survey


You might expect that an article section on supply chain strategy would contain some pretty complicated concepts and ideas. If so, prepare to be surprised, because it doesn’t get any more basic than this:


Your company must have a documented and commonly understood supply chain strategy.


“What?” I hear you cry. “Isn’t that obvious?” Well actually, to many companies it’s not. There are still a vast number of sales and manufacturing organisations out there that have never defined exactly how their supply chain will support their business.

If you’re not snorting in indignation right now, my guess is that yours is one of those companies. If so, my advice is to set your people to work on defining a clear supply chain strategy—a strategy which:

  • Is aligned with your overall business strategy
  • Includes goals which, if met, will contribute to successful execution of your business strategy
  • Is cascaded down through your functional hierarchies by way of aligned functional, team and individual performance objectives, measurements, and incentives

If you don’t have a supply chain strategy in place, get one. As long as you develop it in alignment with your main business aims, it’s going to make your company more successful—I promise.


2. Customer Service

There can be few companies today that don’t see customer service as a business fundamental, but did you know that it’s actually one of the most important supply chain basics too?


Kate Zabriskie Customer Service Quote


Some businesses overlook just how important their supply chain is to customer satisfaction. It’s not unusual for example, for companies to measure their supply chain performance only on the basis of financial metrics like supply chain cost per order.


On the other hand, progressive companies have learned how to leverage their supply chain as a customer service enhancer.


If you want to make a customer-centric shift in your supply chain, you should at the very least implement some service-related key performance indicators, which might comprise:

  • Orders delivered on time
  • Orders delivered in full
  • Orders input correctly at point of capture
  • Order picking accuracy
  • Invoicing accuracy

Other important customer service supply chain basics include casting the net out regularly for customer feedback, and training employees in customer service skills—even those employees who are not customer-facing.


3. Distribution Network Design

Correcting poor network design is one of those supply chain basics to which there might not be a simple solution. This applies particularly to companies that have never really considered supply chain strategy or looked at the effectiveness of their distribution networks.

Distribution network optimisation requires specialised resources and analytic skills, so it’s easy to see why it doesn’t always place high on management agendas.


Not enough retail distribution centres

That said, companies that haven’t optimised their distribution networks are missing a golden opportunity, because network design optimisation can yield impressive savings and improve the customer experience.


Even if your company has performed a network design review at some point in the past, these projects are typically executed as one-time affairs. If your customer base, product range, or business scale has changed since optimisation was carried out, there’s a good chance that your distribution network is no longer as effective as it was.

You’ll probably need some external help to model your distribution network and identify how to optimise it, but that doesn’t make it any less fundamental to business success. Maintaining an optimal network design is a supply chain basic—ignoring its importance could cost your company millions of dollars a year—seriously!


4. Inbound Goods Receiving

Now we move on to look at one of the most important functional supply chain basics: goods receiving in your distribution centre. If your company doesn’t get this part right, you can experience high labour costs, inventory shrinkage, damage, and supply chain bottlenecks that impact customer service.


Receiving time improvement through RFID

Goods-in receiving is one of the most vital processes in your distribution centre, and hence deserves a focus on effective management.


All inbound shipments should be checked against delivery documentation and purchase orders. You want to know that you have received exactly what was ordered, both in terms of quality and quantity, and that damaged or otherwise defective goods and materials never make it into your warehouse inventory.

The inbound shipments themselves should ideally be preceded by advanced shipping notifications, sent electronically from your suppliers. ASNs provide your goods receivers with the knowledge they need to plan the inbound workload, unload deliveries efficiently, and monitor inventory accurately as it enters your internal supply chain.


5. Inventory Management in the Warehouse

Inventory management begins with sourcing and cuts across purchasing and logistics functions. The point at which inventory physically enters into your company’s control is when it’s received and checked into your warehouse or distribution centre. From then until it arrives on the premises of your end-customers, there’s no shortage of ways to get stung by ineffective management.


Working Capital


Inventory ties up working capital, so the last thing you want is to have too much of it. At the same time, the last thing your customers want to hear about is stock-outs or other problems with product availability. Warehouse inventory management impacts both sides of the equation, influencing the quantities of buffer inventory held and customer confidence in your ability to supply.


Among the supply chain basis relating to inventory management, precedence should be given to accurate and regular inventory counts.


Gone are the days when a once or twice-yearly full inventory was sufficient and frankly, it never was an efficient way to count. If your company hasn’t yet switched to a perpetual inventory process with cycle counting, now is the time to do it. Not only will your counts be more accurate and result in fewer write-offs, you’ll no longer have to bring in staff at weekend overtime rates to get the count completed.


6. Warehouse Layout

Your distribution network isn’t the only part of your supply chain that fares better when optimised. The physical flow of materials through your warehouse will cost less and generate less waste if you optimise your warehouse space.

Apart from making as much use of horizontal and vertical space as possible, the paths through which materials travel from goods receipt, through storage and picking, to the dispatch area, should be organised to minimise travel.


Ernest Hemingway Movement Quote


Whether cross-docking pallets or performing single-item picking, your warehouse workforce should cover the minimum distances possible to get the job done. Transport and travel within your warehouses adds no value and although eliminating it all is simply not possible, it can be minimised with careful planning and optimisation of the warehouse layout.


Like many of the supply chain basis already mentioned, the need to optimise warehouse layout is nothing more than common sense.


At the same time, it’s surprising how often companies just don’t get around to warehouse layout optimisation. Even if they do, it might well be something that gets done once and then left for some years before being thought about again. Don’t fall into that trap. The less efficient your warehouse layout becomes over time, the more it will cost to run.


7. Warehouse Management

Even if you have a well laid-out warehouse, DC optimisation doesn’t stop there. Effective management of day-to-day warehouse activities is another of the supply chain basics which can’t be taken for granted. Unless your warehouse is very heavily automated, its efficiency is in the hands of the warehouse management team and workforce.


Stephen Covey Leadership Quote


Running an effective warehouse is dependent upon solid leadership and management, employee engagement, and perhaps most importantly, smart process development. In fact, warehouse processes are perhaps the most important enablers for a successful operation.

Logistics leaders sometimes make the mistake of beating warehouse teams up when performance doesn’t come up to scratch, without first taking a good look at the processes in place. If you have inefficient processes, even the best and brightest of warehouse managers won’t be able to lift performance beyond a certain point.


Try to use automation as much as possible in your warehouses, especially for process management. A warehouse management system (WMS) should be considered a must-have, even for a smaller business.


If at all practicable, your WMS should have a scanning solution enabled to reduce or eliminate manual data entry. Scanners should be connected to fork-lift-mounted and hand-held data terminals … and paperwork should be considered anathema.

There is much more to consider in running an efficient warehouse; far too much to mention here. However you will find some more key warehouse management points to investigate in the downloadable 70-point Supply Chain Basics Checklist that accompanies this article.


8. Warehouse Material Handling Equipment (MHE)

Information technology helps greatly in achieving warehouse process efficiency, but it can’t actually help operatives perform the heavy physical tasks required in logistics. For that you need MHE—an expensive supply chain basic indeed.

If yours is a larger company, millions of dollars will probably have been spent on fork trucks, pallet jacks and an array of other mechanical handling equipment … all of which must be selected, maintained, and managed properly if it’s to provide lifetime ROI.


2013 Europe Industrial Truck Statistics


Key points to focus on in MHE management include:

  • Training MHE operators to perform regular preventative maintenance
  • Keeping to the maintenance schedules recommended by MHE manufacturers
  • Investing in the right balance of MHE for a given facility
  • Maximising MHE utilisation
  • Enforcing strict policies regarding authorised use of MHE by trained operatives

If you pay attention to these points, you should avoid being caught out by cost issues and delays caused by unscheduled MHE downtime, incidents, accidents and inadequate resources.


9. Road Transport/Distribution

Transport and distribution is one of the most vital supply chain basics for any sales or manufacturing business. For one thing, you must use assets effectively to ensure customers are supplied and satisfied. For another, transport personnel are customer-facing, so you need to ensure they always represent your company in the best possible manner.


Driver inside truck

The customer-facing aspect becomes even more challenging when you use outsourced transport resources, since you must be able to rely on providers to treat customers as you wish.


With an in-house fleet you have a little more control, but remember that you are dealing with a workforce which isn’t under your managers’ noses, so training, policies and procedures must be in place and you must be careful to hire the right people to execute customer delivery duties.

In fact, care is really the general watchword in customer distribution. You must take care to employ the right internal resources, to select the right 3PL partners, and protect your business from risk with comprehensive service level agreements.

Whether you choose to insource or outsource will come down to the specific needs of your company, but either way, it’s easy to make mistakes in the management of transport and distribution. Keep a tight rein on this aspect of supply chain management, as it’s the one area that can most directly impact customer perception.


10. Supplier Performance

Without your suppliers, the performance of your warehouses, transportation, inventory management or any of the other supply chain basics really wouldn’t matter too much. No suppliers—no supply chain. Your suppliers matter, and so does their performance.


W. Edwards Deming supplier quote

Some companies still make the mistake of managing purchases on a purely transactional basis, focusing on price as a main priority.


That may be fine for generic purchases and office supplies, but not for those goods which are essential to meet product demand. For these companies, the awareness hasn’t dawned that companies no longer compete against one another—it’s the supply chains that are in competition. Every partner in your supply chain; a customer, a service provider, a supplier, plays a part in your company’s fortunes.

It’s for that reason that suppliers should be properly segmented in terms of their importance to your business. Your most important suppliers are worthy of close strategic alliances to minimise risk and realise opportunities from which each party can benefit. In these relationships, value is most important, not price.

Alliance can lead to reliance though, so managing the performance of strategic suppliers is critical. It may be a tired slogan these days, but “you can’t improve what you don’t measure” is still as true today as the day the phrase was coined.


11. Supplier Relationship Management: Is it Really a Supply Chain Basic?

If you use relevant and meaningful KPIs to monitor the performance of your key suppliers, you can often see problems developing before they start to have any significant impact. Performance monitoring reveals opportunities for improvement too.

Remember though, that supplier improvement is best approached from a collaborative perspective, which is where relationship management comes in.


Supplier and Customer

Take the big stick out every time standards slip a little, and you will soon find your company at the bottom of the supplier’s list of priority customers – not a good place to be if times get hard.


On the other hand, if you work strategically with suppliers and share some responsibility for performance improvement, your supply chain can gain a competitive advantage, benefitting you, your suppliers, and most importantly, your customers.

There might once have been a time when supply chain collaboration with external partners would be considered an advanced management approach, but believe me, today it sits firmly among the supply chain basics.


12. Measure All Your Supply Chain Basics

Performance measurement and KPIs have already received one or two mentions in this post, but monitoring and measurement are such crucial supply chain basics that really, the topic deserves a little more elaboration. It’s also something which companies often get wrong, either by measuring the wrong things, having too many complex metrics in place, or by placing too much emphasis on functional KPIS, which can generate conflicting priorities within supply chain teams.


Supply Chain Strategy and Business Target


The major requisites for effective supply chain performance monitoring include:

  • Starting with a benchmarking exercise to understand performance relative to the industry average and best-in-class companies.
  • Creating a customised set of KPIs that will drive relevant improvements
  • Tying employee performance management and incentives to the KPIs
  • Providing clear visibility of KPI results for everyone in supply chain-related functions

KPI visibility is particularly important. It doesn’t matter if you use perpetually scrolling electronic boards, or just pin the results up on a notice board. The important thing is to highlight performance results at every opportunity, which of course also means celebrating success when improvements are achieved and recognising behaviours which drive those improvements.


Stay on Top of Supply Chain Basics

It might be a bit of a misnomer to use the term “supply chain basics”, because there really is a lot to think about and get to grips with. Of course your company will almost certainly have some of them under control and may even have matured to a higher level of sophistication. Still, there will probably be some areas that need work.


The purpose of this article is really to draw attention to each of the fundamentals and give you the opportunity to reflect on whether you need to address some of them.


The checklist which accompanies this blog post includes 70 points for addressing and improving the supply chain basics. Its content is more comprehensive than the guidance provided here, and the format makes it easy to ask the most important questions and record the answers.

So why not download this useful free tool and run a quick check on the supply chain basics in your sales or manufacturing organisation? It could be the first step toward some valuable cost savings and performance improvements.

Download Free Tool


Contact Rob O'Byrne
Best Regards,
Rob O’Byrne
Email: [email protected]
Phone: +61 417 417 307
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