If you run anything but a pure service business, chances are you’ve heard of supply chain management or SCM, but exactly what it is and why or how you might do it may be a lot less clear. The good news is that supply chain management is something you do today: using information about orders, inventories, sales trends, etc., plus your own experience to decide what products and materials to order and when. Supply chain management applications are designed to let you use information even more effectively, to let you see how you can manage the supply chain to optimize revenues, cash flow, and customer satisfaction. And while there are a lot of SCM applications to choose from, the most important part is your core business information system. With that solid foundation in place, you can manage your supply chain in the way that works best for your company.
You’re Already Managing Your Supply Chain
Companies manage their supply chains to meet some basic goals: reducing costs, improving their cash flow, and making sure materials and products are in stock when needed to meet customer demand. Every company manages its supply chain, whether the process is automated or not. Even in the smallest company, you pay attention to when a product is running low or you plan for the materials you need to meet a production schedule. You try to not to overstock but you also try to avoid delays and backorders that will discourage customers or limit your sales.
But supply chain management can involve a great deal of diverse information–bills of materials, product descriptions and pricing, inventory levels, customer and order information, supplier and distributor information, current cash flow, etc.–and it can require a lot of communication and coordination with suppliers, transportation vendors, subcontractors and other parties. With limited time and resources, it can be difficult to stay on top of all the information and communication to keep the supply chain running smoothly and in the way that’s most profitable for your business. And if the information you need is scattered or out of date, managing the supply chain is that much more difficult.
Better Supply Chain Management: Putting Your Data to Work
There is a lot of supply chain management software out there: stand-alone software, software that integrates with enterprise resource planning (ERP) systems, software for specific industries from retail to construction and transportation, software to solve specific problems such as logistics, product information management, and cash flow management. Software prices can vary from per-user licenses of a few hundred dollars to large-scale systems that cost tens of thousands, depending on the functionality you need, the licensing model, and the services and maintenance options you may choose. Depending on the size of your operations and the number of users, you may run SCM software on your existing server, on a dedicated server, or you might choose to start with a hosted application that integrates with your in-house information system.
Before you go looking for SCM software, though, remember that any application is only as good as the information you give it, So the first step to better SCM, whether you plan to use specialized software or not, is to make sure your business information is complete, consistent, current, and accessible. Make sure product, customer, order, and financial information is in server-based databases, centralized and secure. Set up secure mobile and remote access so that sales and service people or project managers in the field and in other business locations can view and update information immediately. Make sure that everyone who makes decisions about supplies has at least basic reporting applications that allow them to see current inventory levels, orders, cash flow, etc. For a fast-moving business, spreadsheets that have to be manually updated simply are not effective.
Once you have your core information complete, current, and accessible, look for ways to leverage it. Look at the age of your inventory regularly. Do you have old inventory that’s taking up space on your shelves? Mark it down and move it out, then fill that space with product that sells faster. Do you lose sales or miss schedules because you run out of materials? Do you have work crews costing you wages while they wait for materials? Work with your vendors to set up more regular delivery or to restock automatically based on your inventory levels. Try a promotion to move more of your most profitable products, and work with your suppliers to make sure you can meet the increased demand. Or maybe you could improve your margins by ordering more proactively and taking advantage of cheaper shipping options or by ordering smaller amounts more often.
The answers to these problems will guide you in choosing an SCM solution that fits your needs and analyzing the possible ROI on an SCM application.
Next Issue: Choosing SCM Solutions.