Supply chains are one of the most critical yet overlooked mechanisms that fuel global business. Without them, consumers wouldn’t have access to the goods and services they need. Global organisations highly value the contribution that effective supply chain management gives them, with GEODIS reporting that 57% of companies believe it gives them a competitive advantage.
Supply chain managers, therefore, are vital and are being called upon to manage their remits in an increasingly complex global environment. In Australia and globally, the number of opportunities in the supply chain profession is growing at above-average rates.
What does it take to excel as a supply chain manager today? For aspiring and current supply chain managers, this article will explore global supply chain best practices for retail, including a discussion of 11 supply chain examples. This article will answer questions such as, What is a supply chain? It will also provide examples of supply chain processes and supply chain diagrams.
What is a supply chain?
The first step in understanding how to best manage global supply chains in retail is to define a supply chain.
In its simplest meaning, a supply chain is the network and relationships required to make and deliver goods and services. The supply chain includes the partnerships created between a company and its suppliers, as well as the process of converting or assembling raw materials into a finished product. The supply chain team focuses on the activities that enable this entire process to function efficiently, effectively and at the best possible price.
The activities that the supply chain team undertakes to ensure an effective supply chain are varied. They include finding and vetting suppliers, negotiating supplier pricing, creating supplier contracts, controlling manufacturing, planning and overseeing logistics, managing inventories, and managing and mitigating risks.
Many benefits to an effective supply chain exist for an organisation. First, it enables businesses to boost customer service by ensuring that a quality product is delivered at the right place and time and that the customer has appropriate after-sales support. Second, effective supply chain management helps companies reduce operating costs because supply chain managers can negotiate with suppliers and optimise the supply chain to decrease both purchasing and production costs. Finally, effective supply chain management helps companies improve their financial position as managers can control and reduce the cost of fixed and variable assets and costs, which in turn increases profit leverage and cash flow.
- A supply chain is the system required to make and deliver goods and services.
- Supply chain managers find and negotiate with suppliers and organise logistics.
- The benefits of effective supply chain management include better customer service, reduced operating costs and improved financial performance.
The following resources can help you further answer the question, What is a supply chain?:
- CIPS, What Is a Supply Chain? Learn about supply chains and related topics.
- Indeed, What Is Supply Chain Management and Why Is It Important? Get an overview of supply chain management from a career development perspective.
- IBM, What Is Supply Chain Management? Understand the six components of supply chain management systems.
Supply chain best practice examples
The next step in understanding global supply chain best practices is exploring specific examples of those best practices. Here are 11 best practice supply chain examples.
Example 1: Set up a supply chain steering committee
A critical supply chain best practice is setting up a supply chain steering committee. The purpose of such a committee is to give direction and align the strategy of the supply chain team with an organisation’s overall strategy and direction.
For the committee to be effective, it should include several specific members, such as the leaders of the supply chain team (typically a chief procurement or supply chain officer) and C-suite executives from the organisation. The steering committee should meet regularly to provide support for the actions and decisions of the supply chain team. Overall, the committee needs to ensure that the organisation is happy and comfortable with supply chain operations. It also needs to remove barriers to success for the supply chain team and troubleshoot any issues that arise because of misalignment between the supply chain and the rest of the business.
Example 2: Provide supply chain training
Another supply chain best practice is providing supply chain training. Given the increasingly complex nature of supply chains, people inside and outside of the supply chain team must understand the basic functioning of supply chains and how to ensure optimal operation.
Supply chain training may take many forms. For supply chain team members, specialist training or qualifications are usually required. For the rest of the organisation, different types of briefing and training may be required. For example, the finance team may require some training on specific supplier contract terms to ensure that they’re met, whereas the customer service team may need to understand more about the logistical side of the supply chain to ensure that they satisfy customer expectations.
Example 3: Utilise technology
Nowadays, it’s obvious that organisations will require technology to help them manage their workflow; according to Forbes, 50% of companies believe that technological advancements have a strong impact on their operations.
With the sheer number of different technologies available today, to ensure supply chain management best practice, companies need to not only use technology but also understand how to leverage it to become more efficient and effective. Too often, supply chain teams choose technology and then structure their workflow around it. This is a mistake; instead, supply chain managers need to understand a process and select a technology that makes it simpler.
Example 4: Create best practice supplier relationships
Managing a supply chain is essentially about managing relationships. For that reason, an important best practice is for supply chain teams to create strong supplier relationships.
A strong supplier relationship can mean different things to different businesses, although some essential elements exist. Strong supplier relationships are more like partnerships as opposed to the supply chain team telling the supplier what it needs and on what terms. Two-way communication is essential, as is working with the supplier long after the deal is signed. The supply chain team needs to treat the supplier with respect and endeavour to negotiate fairly and equitably at all times.
Best practice when it comes to supplier relationships also means that reasonable protocols exist for when things go awry. For example, the supply chain team shouldn’t seek to “punish” a supplier if things go wrong; both parties are committed to continuous improvement and aim to meet the value objectives.
Example 5: Use meaningful data, including total cost of ownership
Historically, supply chain managers have been very focused on price. Now, however, supply chain best practice is focusing more broadly on strategic sourcing. Strategic sourcing involves looking at data differently, including at a metric called the total cost of ownership (TCO).
TCO looks at the cost of goods over their entire lifetime (as opposed to the cost of simply acquiring them). For example, TCO may look at factors such as the costs of training, maintenance, warehousing, environmental impact, transport and logistics — and even maintaining or disposing of the product if it isn’t sold.
Considering these metrics can help supply chain managers understand other factors that may be important when selecting suppliers. For example, if the cost of disposing a faulty product is high, a supply chain manager may elect to acquire more expensive, higher-quality goods rather than simply select the least expensive supplier.
Example 6: Create a strategic sourcing plan
Another important best practice supply chain example is creating a strategic sourcing plan. As previously mentioned, strategic sourcing is broader in its approach than simply focusing on price.
Creating a strategic sourcing plan is truly a collaborative process that involves ongoing management so that supplier relationships represent partnerships for the organisation.
To create a strategic sourcing plan, the supply chain team needs to consult with and solicit feedback from multiple stakeholders in the organisation. These stakeholders may include those from quality assurance; finance and operations; customer service; and, potentially, occupational health and safety. Consulting with all these important stakeholders will help them buy into the plan and understand the many factors that must be considered beyond cost. Consultation will also ensure the most streamlined and effective supply chain management processes.
Example 7: Excel in contract management
Although supply chain management is about more than just cost, cost savings are a big benefit of effective supply chain management. Without proper contract management, supply chain managers may not be able to realise these cost savings.
Several elements for excelling at contract management exist. First, supply chain managers need to negotiate watertight yet fair terms when they onboard a supplier to ensure that if anything happens, the organisation is covered. Beyond that, supply chain managers need to manage the contract throughout its lifecycle, which means regularly checking to see that terms are adhered to and proactively managing risks associated with not meeting terms.
Exceptional contract management also means being fair and reasonable when extraordinary events do occur and treating the supplier as a business partner.
Example 8: Optimise inventory
Fluctuating economic conditions mean that organisations are more cost conscious than ever, which is why inventory optimisation is another supply chain best practice.
Inventory optimisation has many benefits. Essentially, it means that organisations don’t have excess money tied up in products that aren’t selling and that they don’t have to spend money warehousing and storing stock.
Significant costs are associated with holding on to products that aren’t selling. As Investopedia notes, these costs can be up to 30% of the total cost of inventory, especially if held for a significant period. For this reason, supply chain teams need to invest a significant amount of time and effort into properly forecasting and managing their inventory so that they can reduce the carrying costs.
Example 9: Create a risk management plan
Many risks are involved in managing a supply chain, so an important best practice is to create a risk management plan.
To create a strong risk management plan, the supply chain team needs to survey different factors. First, they must work with internal stakeholders to identify financial, safety and other risks inherent in the supply chain. Second, they must work with their suppliers to understand what their risks are and how these risks may affect the organisation.
For example, if a supplier is suddenly not able to access a part for a critical product, a second option needs to be available.
Beyond this, supply chain teams need to plan for and mitigate other risks, including environmental, economic and political risks.
Example 10: Focus on the triple bottom line
Sustainability is becoming more and more important to managing supply chains, with Nielsen reporting that nearly 50% of consumers value sustainability enough to consider altering their purchasing habits, and more than 80% of millennials believe that companies need to help the environment.
A focus on the triple bottom line means that a company focuses on its social, environmental and financial impact. This type of approach is increasingly important for the planet but also for corporate marketing initiatives and reputation management.
Example 11: Implement agile and just-in-time strategies
The final best practice example in this list of supply chain examples is the implementation of agile and just-in-time (JIT) strategies.
An agile approach to supply chain management means that a supply chain team will use a combination of responsiveness, flexibility and overall efficiency to manage the supply chain. Agile management means that the supply chain team will largely be proactive, as opposed to reactive, when managing its supply chain and any issues that may arise. For example, the team may use data to forecast trends in supply fluctuation based on extreme weather events, as opposed to waiting for the events to happen.
Just-in-time management is also a more effective way to manage supply chains, especially products. The just-in-time strategy refers to how companies can acquire (and manufacture) goods based on demand instead of holding excess stock.
For further information on supply chain best practices and examples of real-life supply chains, please see:
- Supply Chain, “Top 10 Global Supply Chain Leaders.” Read about successful corporate supply chains.
- Material Handling & Logistics, “Top 25 Supply Chains of 2020.” Take a look at Material Handling & Logistics’ annual analysis of supply chain leaders.
- Arkieva, “Supply Chain Best Practices from 10 Leading Companies.” Explore supply chain best practices from Amazon, Procter & Gamble and other companies.
Supply chain process
Managing a supply chain can be a complex task. For that reason, understanding the basic supply chain process is important.
In simple terms, the supply chain process comprises the steps that are involved in creating a product or service and getting that product or service to the customer. In a supply chain, these steps can involve acquiring and collating raw materials, manufacturing and finishing a product, and selling and distributing the product to an end user. Typically, the process involves many agents, including suppliers, manufacturers, logistics professionals, warehouses, distribution centres, retailers and online stores.
A popular process model used to describe the supply chain process is the supply chain operations reference (SCOR) model. SCOR describes the various elements required to produce a product and deliver it to the customer. It includes the following elements:
- Source: Sourcing refers to the process by which goods and services are obtained to meet market demand. This includes purchasing, receiving and other supply-side activities.
- Make: Making refers to the process by which goods are produced. Finished products are created in this step so that they’re market ready.
- Deliver: Delivery refers to any step by which finished goods are delivered to customers. Steps here include transportation and distribution.
- Return: After the goods are in the hands of the customer, the process isn’t finished. The return process refers to any customer support required after delivery.
Reliable suppliers are critical throughout the SCOR process (and indeed, throughout supply chain management) as they’re responsible for sourcing, making and often delivering the product.
Another important model used to describe various parts of the supply chain is the flow of costs. The flow of costs refers to the path in which costs move through a business when the business is producing something. Typically, costs are split into the cost of raw materials and inputs, the cost of manufacturing, the cost of storage, and the cost of selling goods. Dividing costs in this way helps businesses understand where and how to optimise their supply chain processes.
For further information on best practice supply chain processes, please visit:
- McKinsey & Company, “How Great Supply-Chain Organizations Work.” Explore different supply chain processes and models.
- QuickBooks Commerce, “Supply Chain Operations, Processes and Planning.” Take a high-level look at supply chain operations and processes.
- Blume Global, The Supply Chain: Explained. Read a general overview of supply chain processes.
Supply chain diagrams
Even with the most in-depth descriptions, supply chains can still be challenging to understand. For this reason, supply chain diagrams can provide excellent insight into how supply chains actually work.
Supply chain overview diagram
To be delivered to consumers, products must go through many stages, all of which supply chain managers need to manage. The diagram provides a general overview of how this process works:
Source: Corporate Finance Institute
Architecture of supply chain diagram
Supply chains aren’t always circular. At some points, organisations must manage many distributors or retailers, making logistics more complex. The diagram shows an example of this:
Source: Quality & Quantity
Future of supply chain management
With the rise in digitisation and the beginning of what experts have coined the “fourth industrial revolution,” supply chain management will continue to evolve. Many factors are influencing this evolution, including the growth in e-commerce and the increasing complexity of global supply chains. These trends are unlikely to change, with e-commerce, for example, expected to continue to grow at least 15% every year, according to Oberlo.
Technology will also, unsurprisingly, play a big part in the evolution of supply chain management. Many repetitive jobs that were traditionally associated with supply chain management will be automated, with the help of artificial intelligence (AI). The market for AI in supply chains is growing at an incredible rate; Meticulous Research estimates growth of 45% by 2027.
This technology-enabled automation doesn’t necessarily mean fewer jobs in supply chains; supply chain managers will continue to innovate and add value in other ways. In fact, supply chain managers may have even more opportunities to innovate and forecast due to the increasing availability of big data and analytics. The growth in data and analytics will also ensure that supply chains can be managed more efficiently, effectively and agilely.
Finally, sustainability will continue to be on the agenda for businesses going forward. Sustainability will be incorporated into every element of the supply chain, and businesses will be encouraged to create circular supply chains in which they reuse and recycle materials.
For more information on the future of supply chains, please see:
- Grant Thornton, Manufacturers Reset and Reassess Opportunity. Learn how companies are preparing for the future of the supply chain.
- KPMG, “The Future of Supply Chain.” Read a white paper on supply chain trends.
- QuickBooks Commerce, 10 Supply Chain Management Trends. Explore 10 key trends for the future.
Endless possibilities for supply chain managers
When creating a supply chain, supply chain managers have many best practices and processes to consider. As supply chains become more complex, there will undoubtedly be many more.
Regardless of this, endless possibilities exist for how supply chain managers can manage their supply chains, and the work itself is interesting. As they ponder what the future of supply chains might look like, supply chain managers and their teams can rest assured knowing that their work will continue to contribute substantially to the mechanisations of global business.