12 Essentials of Supply-Chain Management

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Over the years, I have had the opportunity to manage diverse suppliers and supply-chain teams all over the world with both large and small companies. I have also had the privilege of teaching supply-chain and operations to both students and practitioners, which has generated productive dialog on the importance of the supply-chain. Although I have added to and tweaked these 12 points over the last several years, I have found that these points are critical in managing a new supply chain. Here is a brief guide to the 12 essentials of managing an end-to-end supply-chain from raw materials to the end channel:

1) The supply-chain matters: Often the suppply-chain is left to the last possible minute during product designs, marketing programs, and customer meetings. Don’t forget that the product still needs to be designed, built, and shipped or served to the customer if the company is going to make money. The supply-chain matters!

2) Understand your end customer (aka value chain management): A lot of times supply chain professionals will forget about what the customer’s needs are and leave it up to the marketing and sales departments to take care of it. An essential part of supply-chain management is to understand the end customer within the marketing channel. How will the customer want to receive the goods or services? Will special packaging be needed or will the item be displayed on store shelves? The customer is the key focus on ensuring an efficient supply-chain. This is why “Value Chain Management” is slowly replacing the term supply-chain management.  If the customer is forgotten in the supply-chain, you might as well get rid of it since it is disconnected from the actual demand source. Supply-demand optimization is needed to ensure customer decisions are considered for when positioning inventory and setting pricing.

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3) Understand your product, service, or technology: One often hears in supply-chain management that it is really about shipping widgets and one widget is no different than another. This urban myth is far from the truth. Some items may need to be refrigerated, other products may need special care and handling, while some services may be digital. Understanding your product, service, or technology is key to creating a successful supply-chain.

4) Get out of the office: Don’t just stay at your desk to manage the supply-chain. Get out and see it. Ask questions. Learn from others who have managed supply chains before and visit the factories and suppliers. If possible, follow the product from raw material, through logistics, to the final customer. You will learn a ton.

5) You need to negotiate: Negotiating is key to supply-chain management. Cost, quality targets, SLAs, and KPIs all need negotiations around the terms. If you want to be successful in supply-chain management, you need to become a good negotiator. Some practitioners are naturally gifted at negotiations, but a larger number of supply-chain professionals need training and constant practice.

6) It is not just about cost savings: Although cost savings is necessary, it is not just about delivering great cost savings. Other factors include the quality of the product, the value of the business that the supplier, buyer, and end customer derive from the service, product, or technology, and ensuring the right amount of inventory is in the right place at the right time. Dynamic cost optimization between supply and demand is needed to ensure pricing at a fair price.

7) It is about the People: There is a lot of buzz today about the automation of the supply-chain. In the end, however, the supply-chain still comes down to relationships and people. Tools and systems will get better over time, but even with the complete automation of the supply-chain, people are still needed to make things happen, improve the system, and fix things when they break.

8) Value the relationships for the long-term: Supplier relationships should be treated as long-term relationships. Fair practices, fair dealings, and fair rewards will ensure the reputation of your company remains intact. Treat both the buyer and seller with respect and honesty.

9) Monitor Your Suppliers – Use the data to make decisions, not your emotions: In the past, I have seen a lot of decisions on supply chain optimization and strategy made strictly on emotions. This is a large mistake. Always look at the fully burdened and landed costs. Never just assume something is a “great” deal or opportunity because everyone loves the new supplier. Look at the data. Look at the facts. Remove emotions out of the decision-making process. A scoring system based on data and input is needed. Check out the SMART Score and other supply-chain productivity tools that bolt on to your existing systems via API at ZSupplyChain.com.


10) Limit the risk: The “Aquiles’ heal” of the supply-chain is that it can quickly be disrupted through natural disasters, acts of war, environmental issues, and industry-wide shortages. Prepare for the worst but proactively limit your risk through second sourcing, auditing environmental and social compliances, and creating inventory plans that ensure continuity. Also, watch out for the second and third tiers of your supply chain, which can quickly bring a supply-chain to a screeching halt.

11) Keep an eye out for disruptive trends: Supply-chain management cannot be done in isolation. Industries shift, trends change, media hype comes and goes, and customers go elsewhere. Watch the trends and modify or change or even disrupt your supply-chains strategy in new directions, so you don’t get left behind.

12) Embedded sustainability is the key: There is a lot of talk nowadays about sustainability (aka social responsibility), especially from the PR departments of companies. In order to make real progress in sustainability (defined as balancing the needs of Plant, People, and Profit) a company both big or small must embed it into its everyday operations and DNA. Otherwise, it becomes only a marketing promotion and is not part of the core of the business. Every worker must embrace sustainability, and it needs to be within every function and operation of your company (from audits to supplier award selection, to product design, to how external stakeholders are treated fairly). I explore this issue further in my Linkedin article titled, “Top 8 Tips for a Successful Sustainability Program.”

Other Important Topics: Over the years I have had others suggest important areas such as understanding the challenge of the supplier, understand capacity and the constraints, a good attitude, and looking at other risk factors such as cloud-based changes. I agree all of these are important editions to the above essentials.

Good luck on managing your supply-chains! Don’t forget the above essentials and feel free to leave your own in the comments.

Payson Johnston is the CEO & Co-Founder of Crowdz, a SCMTech startup focused on supply-demand optimization. Payson has 20+ years of experience in managing value chains, supply-chains, creating analytics, and launching commerce systems. Payson also has taught as an Adjunct Professor in the School of Management at the University of San Francisco and as an instructor at the University of California, Berkeley Extension.

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