Strategic Importance of the Supply Chain

Supply chain management is important because it can help achieve several business
objectives. For instance, controlling manufacturing processes can improve product quality,
reducing the risk of recalls and lawsuits while helping to build a strong consumer brand.
At the same time, controls over shipping procedures can improve customer service by
avoiding costly shortages or periods of inventory oversupply.

Overall, supply chain management provides several opportunities for companies to improve
their profit margins, and is especially important for companies with large and international
operations. Creating a solid supply chain strategy can help steer your business towards
smoother transportation.

Six Supply-Chain Strategies

It’s no secret that today’s supply chains have become more complex than ever, with
socioeconomic and market dynamics underscoring organizations’ need to respond to an
outside-in, demand-driven world.

But companies must now factor in a host of new variables, such as rising protectionism and
nationalism across the political landscape. This is forcing many to reexamine their business-
continuity risks and embrace new sourcing strategies. Here are six supply-chain strategies
designed to help enterprises thrive in the current environment.

Strategy No. 1: Adopt a demand-driven planning and business operating model based on
real-time demand insights and demand shaping. Demand-prediction capabilities continue to
mature as supply chain management teams utilize ever-more powerful digital tools. Artificial
intelligence technologies and internet of things (IoT) networks have gotten even better, allowing
SCM teams to take action more quickly, and automatically adjust their supply chains based on
real-time insights to match expected demand.

The cloud continues to play a growing role in the new supply chain. More companies are
moving data and apps to the cloud, allowing the creation of unified data models that are
augmented by external sources. This is driving a new level of predictive capability and planning
accuracy not available just two years ago.

Validating the trend, more companies are seeing their supply-chain modernization investments
bear fruit. Based on our recent research, companies utilizing the cloud improved delivery
performance and increased revenues by 20%-30% on average. They also cut logistics costs by
5%-25% and slashed inventories, lowering working-capital requirements by 25%-60%. Asset
utilization jumped by 30-35%.

Strategy No. 2: Build an adaptive and agile supply chain with rapid planning and
integrated production. Agility is still the name of the game this year when it comes to supply-
chain management. In fact, companies are getting even better at aligning planning with
manufacturing, driving greater operational speed and flexibility.
Yet a fully integrated solution still seems beyond the reach of some companies. A 2014 study
found that 55% of businesses have only “modestly integrated planning across the company.” A
mere 9% said they had a “highly integrated supply-chain planning environment.” Companies still
struggle with these issues to this day.

The problem might be the sheer volume of data and analytics required to properly integrate
planning with execution in real time. But this barrier is now falling, with the introduction of cloud-
based platforms that link financial and materials-planning tasks to business-execution activities
such as procurement, manufacturing, and inventory management — and do it directly across a
common online interface. For the first time, companies can create a zero latency plan-to-
produce process, allowing them to act faster and adapt seamlessly to the dynamics of their
markets.

Strategy No. 3: Optimize product design and management for supply, manufacturing, and
sustainability, to accelerate profitable innovation. The days when companies ran product
development and supply-chain planning as separate functions are coming to an end. To stay
competitive, the tradition of “throwing product designs over the wall” to supply chain planners —
the ones who figure out how to source and build the products — is no longer fast or efficient
enough.

Consider the market for mobile phones, where competition is driving manufacturers to develop
and launch new models every year. Increasingly the only way to do this is by merging design
teams with supply-chain planners on a single (usually cloud-based) platform. These new
collaborative systems, as well as smart procurement practices such as supplier prequalification,
can help product developers source the right components up front, based on factors such as
parts availability, quality, and cost.

Our research shows that when done right, integrating design and supply-chain planning process
can lead to 10%-20% faster time to market, 10%-20% greater product revenue, and 10%-25%
reduced scrap and rework expenses.

Strategy No. 4: Align your supply chain with business goals by integrating sales and
operations planning with corporate business planning. Business risks for companies have
risen significantly in the last couple of years. From Brexit to tariff wars, leaders are facing a
growing array of market uncertainties. This is why companies need to integrate their tactical
sales and operations planning (S&OP) programs with their strategic budget and forecasting
efforts. The goal is to create a planning capability that translates macro business priorities and
risks into a set of on-the-ground execution tasks that are continually updated to reflect changing
market conditions.

Integrating business planning, S&OP, and supply-and-demand planning improves business

agility by creating an efficient closed loop from planning to execution to performance
management.

Strategy No. 5: Embed sustainability into supply chain operations. Sustainability in all its
forms, both social and environmental, has joined growth and profitability as a top priority in the
C-suite. And for good reason: sustainability and the bottom line are no longer mutually
exclusive. Just this past year, the Business Roundtable released its Statement on the Purpose
of a Corporation, declaring that sustainability should be a key priority for companies, in addition
to generating profits for shareholders.

Putting a spotlight on sustainability places a new focus on supply-chain practices, many of

which can have a sizeable impact on environmental health in areas ranging from carbon
emissions to industrial waste and pollution. Today there are myriad strategies companies can
use to optimize their supply chains for sustainability:

 Supply-chain teams can develop long-term targets that improve key measures of
sustainability such as the company’s carbon footprint, energy usage, and recycling
efforts.
 Teams can deploy new technologies to ensure responsible environmental practices such
as optimizing truck routes to reduce fuel consumption and carbon emissions across the
supply chain.
 Companies can move to a shared data model to provide the end-to-end visibility and
real-time insights needed to optimize supply chains and ensure they are sustainable.

Strategy No. 6: Adopt emerging technologies to ensure a reliable and predictable

supply. Businesses need a buffer to deal with unexpected shifts in demand, but too much
inventory can raise costs. By improving demand accuracy, new technology can reduce
inventory requirements and speed reaction times, creating a nimbler and more reliable supply
network.

With today’s global trade volatility and ongoing tariff wars, it’s essential to make the right
decisions about where to source materials, make products, and deliver goods in order to
minimize costs and ensure compliance.

What’s also new is that AI, machine learning, and IoT are no longer just buzzwords. Today
they’re market-proven technologies that are streamlining supply chains and driving business
agility in companies worldwide. With these capabilities now being built directly into cloud
solutions, customers can harness their potential right out of the box. This means you can get
started with truly business-changing technologies without the need to invest in complex projects
or costly, hard-to-find skillsets.

Steps in Vendor Selection

Step 1: Define and Analyze Business Requirements

What is the organization asking a third party to provide? A good start would be to assemble an
evaluation team that is knowledgeable in the vendor selection process and has a clear
understanding of what the business is all about. The evaluation team should be able to:

 Define the product, material or service that is needed;

 Define the Technical and Business Requirements;
 Define the Vendor Requirements (i.e. the features the organization is looking for in a
vendor), and
 Publish a Requirements Document.
The evaluation team should also try to collect as much information as possible, identify and
interview stakeholders and users, review existing internal materials such as reports, and
statistics as well as gather technical information including standards and descriptions of the
current technical environment.

Step 2: Identify Third Party Vendor Candidates

After the evaluation team has published a requirements document it must now compile a list of
possible vendors. The team should send each one a Request for Information (RFI) and conduct
a team evaluation process.  A short list of vendors is then created.

Step 3: Develop Evaluation Criteria (with weighting)

In this third step, the team would construct an evaluation model that weighs a requirement
against its value and priority. For example, if the vendor meets a requirement with a score of 7
(on a scale of 1 to 10) and the priority of that requirement is 5 (on a scale of 1 to 5), then the
response can be scored by 35. This helps to amplify the differences among vendors.

Step 4: Conduct Vendor Briefings

Once the team has developed evaluation criteria with weighting and further narrowed down
possible vendor candidates, it’s time to set up an initial meeting with each potential vendor to
discuss stated requirements and ensure a common understanding.

Step 5: Evaluate Vendors and Schedule Demos

After completion of vendor briefings, the team should be better equipped to evaluate potential
vendors. Selected vendors should provide a solution overview to the organization’s current
business and technological requirements, fees, benefits derived from using a particular vendor,
etc.  In addition, vendors are requested to provide a “demo” to showcase the capabilities of their
solution. Demos are a valuable way to get more information and also evaluate intangible
aspects of a vendor. It is critical to check the vendor’s references as a part of the evaluation
process (site visits are also strongly recommended).

Step 6: Complete Vendor Selection

Primary and Secondary Options:

At the conclusion of the evaluation process, the team will identify a primary option (the winner)
and a secondary alternative.

Step 7: Complete Contracting with Vendor

This step includes identifying a clear set of objectives, deliverables, timeframes, and budgets for
the project with the vendor. These should be clearly written in the terms of the contract. One of
the most important factors in the vendor selection process is to develop a contract negotiation
strategy. A successful contract negotiation simply means that both parties will search for
positives that will benefit the two parties in every aspect while they achieve a fair and equitable
deal.

It is important to be clear about all the important prerequisites, terms and conditions of the
contract and to provide precise information on what goods and/or services the vendor should
provide. Vendor’s compensation should be clearly stated; the total cost, the schedule for
payment and financing terms. There should also be acknowledgement of the following: Effective
dates/Renewal dates/Completion dates/Termination dates.

Key Challenges Faced by Logistics Managers

1. Fuel Costs

One of the biggest logistics challenges of the past years is the cost of fuel. Higher fuel
prices will significantly affect the cost of wages and transportation for shippers.

2. Business Process Improvement

Staying on top of new advances in business processes is another challenge to keep an
eye out for this year. As new opportunities arise, it will serve to your advantage to adapt
and implement these changes to offer better service and to increase efficiency within
your operations. However, this can be costly and challenging without the right
assistance. A 3PL provider or fourth-party logistics (4PL) company will work as an
extension of your business to help you repair any broken or weak links in your supply
chain. They will help you improve your process by offering planning, strategy, and
services that work in your favor.

3. Better Customer Service

Today’s customers expect certain features when they order from your online store. They
want to receive tracking information and real-time updates to keep them aware of where
their order is along the shipping and delivery journey. They also want the option to pay
for faster shipping, such as two-day or same-day shipping. Anything more than this is
considered unacceptable and may deter customers from following through with the
purchase. A 3PL provider can help you achieve full visibility throughout your supply
chain so you can provide your customers with the information they need.

4. Manpower Management
Another challenge in today’s logistics industry is managing manpower. Dealing with
your warehouse staff, drivers, transporters, etc. are some of the most vital requirements
that should be handled in a respectful and efficient way. Your team needs to have the
ability to communicate at any point in time to ensure coordination and a smoother
movement of your goods. Logistics companies can help you manage your employees
better by providing managers in major locations, quality communication, and scheduling
solutions.

5. Environmental Issues
Reducing greenhouse gas emissions is one of the major goals for many companies this
year, especially after numerous studies have shown the negative impact big business
supply chains have on the environment. Companies that adapt and reduce their carbon
footprints succeed better because both partners and consumers are more aware than
ever before. Choosing a 3PL that strives to find ways to reduce gas emissions and
waste will serve you well. Solutions include using geographical positioning systems
(GPS) to find more efficient routes to ship and deliver, or recycling materials from
returned goods to put back into manufacturing, instead of disposing them as waste.

6. Technology Development
The cost of adapting to new technology used in the supply chain is high, but it is a
requirement to survive in the competitive industry. A 3PL partner will resolve this issue,
as many of these organizations are already equipped with the necessary technology to
increase efficiency. Some of these technologies include radiofrequency identification for
barcoding and scanning (RFID), communication tech like electronic data interchange
(EDI) and GPS, and material handling technology. Implementing these technologies on
your own is extremely expensive, which is why you would benefit from partnering with a
3PL provider.

7. Reverse Logistics
Reverse logistics is required by every e-commerce business. Customers need a way to
return items they’ve purchased if they are dissatisfied with them, and this process needs
to run smoothly. Without an efficient reverse logistics platform, you can turn off
customers and prevent them from ever buying from you again. However, a reverse
logistics strategy can be challenging and costly, without the right support. A 3PL
provider can help you face these challenges with their preexisting robust solutions. They
can help you process returns in a timely manner to satisfy your customers, and can help
you decide what to do with returned items to prevent revenue loss. These solutions may
include repackaging unused items for resale or refurbishing items to sell at a discounted
price.

8. Inventory Control and Visibility

Knowing what inventory you have on hand, and where it is located at any moment are
the primary aspects of inventory visibility. This aspect is critical to every e-commerce
and retail business, but gaining this visibility and control can be challenging. A 3PL
provider can provide you with this visibility through their use of technology in the
warehouse. They can help you make more efficient use of your time, improve
predictability of inventory movement, increase security and quality control, and more.