supply chain - what do you mean?

I was asked the other day what was meant by ‘supply chain?’. It’s not the first time I’ve been asked.

My response, as it always is, is ‘what does it mean to you?’

‘Purchasing?’ I got back. ‘Maybe warehouse? Distribution?’ ‘No, definitely purchasing. Well, procurement actually. Supply as in suppliers; that’s what it means no?’

‘Are purchasing and procurement the same thing?’ I asked.

‘Aren’t they?’ was the reply!

So we had a good chat about the difference between those two – there IS a difference - and then the more broader subject matter of the ‘supply chain’.

‘Suppliers is definitely a key part, but what about the ‘chain’ in ‘supply chain’?’ I asked. ‘What’s the chain?’

Silence.

The backstory of this conversation was the importance of an effective supply chain for any business if they want to grow sales. Especially so when embracing new opportunities, products, services, markets even.

We hear the phrase ‘supply chain’ all the time now but, as I’ve discovered many times, it can mean different things to different people or businesses.

Supply Chain - Simplified

In its simplest form, a supply chain is the activities required to obtain and then deliver goods or services to your customer. These activities will vary dependent on the nature of the individual business and the products or services your business wants to supply to its customers, but the principles are the same.

The key aspects of a supply chain are:

• Sourcing: Procuring the necessary/desired goods or materials

• Logistics: Managing the transportation and storage of goods.

• Distribution: Getting the finished products to your customers.

• Customer Fulfilment: Ensuring timely delivery, customer satisfaction and handling returns.

Some or, more likely, all of the above will be applicable. Let’s take a quick look at each.

Sourcing

It is obvious that your supplier relationship is critical to the success of your business. Quality of product/service, reliability of lead times, continuity of supply and price are all key elements, but I would wager that having a positive and trusting relationship is just as important. I would advocate that supplier relationships should be viewed as a partnership rather than just transactional, in my experience these types of ‘partnerships’ lead to the best outcomes for both parties.

Logistics

Assuming there are physical goods involved, logistics processes then become vital; goods-in, storage, goods-out and returns cover the main areas but there are multiple components within each.

Process, process, process! I was taught this mantra many years ago and it is as relevant today as it’s always been. A good process cuts down on errors and waste, which in turn helps to maintain profit. A bad process will obviously have the reverse effect and is a guaranteed profit killer.

Distribution

Pretty straight forward, you have the goods just chuck them in a van and get the driver to deliver them to your client! I would venture that distribution is the element of your supply chain that might be the most critical.

Delivery drivers have the potential to be the eyes and ears of your business, the person within your company that has the most contact with your client, they have the ability to really impact on your customer’s perception of your business, good and bad. Driver selection, training and cover are all critical if your business promotes best-in-practice customer experience.

Cost-to-serve is critical to your profitability so ensuring that you have calculated and controlled your distribution costs correctly is fundamental. Everything from vehicle repairs to fuel/charging costs, wages, NI, leasing costs etc. need calculating if your run your own fleet, a ‘cost per drop’ model is essential. Good, logical route planning will underpin your cost to serve model as well as aiding your customer satisfaction requirements.

If using third party distribution all aspects of your contract need scrutiny and understanding, are they going to deliver what you have promised?

Sustainability, electric/hybrid vehicles are now front and centre of potential customer requirements or indeed your business’s own credentials/sales strategy. What is the most cost-efficient way of achieving these requirements?

“Chuck them in a van and get the driver to deliver them to the client” is not really going to cut it anymore!

Customer fulfilment

‘On time in full’ (OTIF) is the old school phrase used when setting standards/targets and should always be the aim. I have seen many examples where customer fulfilment metrics are measured solely on whether that delivery turned up on time or not (99% next day delivery!) but, as important as that is, the IF (in full) part is equally important. Getting the previous three headings – sourcing, logistics, distribution - right will put a good foundation in place to allow for the best levels of customer fulfilment, satisfaction and hopefully client retention. First class client experience underpins client retention and provides the foundations for expanding that client relationship into new areas.

Process, process, process. I make no bones about repeating this because good processes lead to good outcomes. No one wants returns for example, but good practice leads to fewer errors and therefore fewer returns. Returns are a fact of life and a returns process that covers all potential scenario’s is required and a robust and agreed returns policy should be back-to-backed with your suppliers.

Never take customer fulfilment for granted, ensure you have some form of measurement in place, complacency is your enemy.

Personally, having worked at all levels, from being a warehouseman to a Regional Service Director for the biggest office products wholesaler in the country, a retail business owner and an operations director at one of the most forward-thinking workplace products dealers in the UK, there is little I have not come across in the supply chain arena. If you have any issues, problems or just need a fresh pair of eyes in this area of your business, I’m happy to help.

Steve is a proven and experienced business leader and senior manager. With a 35-year track record in leadership roles, Steve has managed and led teams from small, project teams to national teams of over 200 people.

A specialist in operations, logistics and supply chain management, Steve’s wider commercial experience includes business ownership and business mergers, and includes personal leadership roles from single-site to multi-location businesses with sales in excess of £200m per annum.