6 Signs Your Supply Chain Network Is Inefficient
Your supply chain network is one of the most important components of managing your business and making it successful. Companies with logistics efficiency, and particularly those who use EDI logistics software, will maximize their return on capital and increase profit margins by monitoring their supply chain management system and making improvements.
However, an inefficient supply chain will cause a raft of issues, including cash flow disruptions, excess inventory, increased freight cost and consumer dissatisfaction when you miss the requested delivery date.
In this article, we will discuss the supply chain process and some of the most common signs that your supply chain network is not operating at its peak. Learn more about EDI logistics and supply chain management systems to improve your company’s bottom line.
Metrics Used to Measure Supply Chain Performance
While we don’t want to go too in-depth about supply chain KPIs like inventory velocity, time compression and fill rate, it is important to give a broad overview of the three main factors that all logistics departments are trying to solve. When you are vetting your supply chain network and your company’s ability to meet consumer demands, there are three main categories that all supply chain management metrics will fall into: Time, quality and cost.
Each customer order sparks a number of actions in your business, but before an order is even placed, time is already a factor. How long do raw materials sit in your warehouse? How much lead time will a customer allow? How long does it take for your downstream to fill a purchase order for more raw materials? How long is your production cycle? How long will your cash flow be tied up in raw materials and manufacturing before an order is fulfilled and an invoice is paid?
Enterprise resource planning and EDI logistics track everything from inventory days to on-time shipping rates, delivery services and your cash cycle time. Warehouse operations need to understand your supply chain network to handle stock turnover and prevent excess inventory from arriving with no storage space available.
Quality in your supply chain performance goes upstream and downstream, covering the quality of raw materials you receive from your suppliers and measuring the level of customer satisfaction with your finished products.
Your supply chain management system helps you track data on inventory loss caused by poor quality controls and gives you a better understanding of how much material to order. Customer expectations on quality are also managed by understanding the rate of return and the causes behind it, which can quickly eat into your gross profit and reduce consumer demand for poor quality products.
The bottom line for every company is cost reduction, and without proper EDI logistics efficiency, you will not be able to get a handle on what your true costs are. The number of costs that one business can incur in a single day is staggering: transportation, freight, warehousing, raw materials, shipping delays, missed deadlines, unfulfilled purchase orders and more. All of these result in decreased consumer demand and loss of revenue.
Managing your supply chain network is ultimately an understanding of logistics, metrics that make or break your business in the margins and can be difficult to track. Performance metrics in supply chain management intend to quantify the time it takes to produce your goods, the quality with which you make them and the cost it takes to go from procurement to delivery.
What Causes an Inefficient Supply Chain?
There is never one cause when it comes to an inefficient supply chain network. Each self-contained web of suppliers, manufacturers, distributors and consumers will affect each other on a continuous basis throughout a business’s production cycles.
However, the more elements you have downstream of your company the more inherent risk there is in knock-on effects from suppliers causing poor performance in your logistics metrics. Each one of your suppliers has their own set of suppliers — which expands your supply chain network — and has the potential to cause disruptions.
Along with mitigating the effects of supply chain issues, finding efficient suppliers with on-time order fulfillment at the lowest cost is one of several goals for your EDI supply chain management system. Positive performance in logistic performance metrics is what separates a successful company from a thriving one.
Common Supply Chain Network Inefficiencies
So what makes for an inefficient supply chain network? There are a number of issues and concerns that logistics metrics reveal when the proper EDI logistics software is used. Here are six common areas of concern for inefficient supply chains.
1. Inventory Management
Discrepancies between inventory levels can cause massive problems in order fulfillment and material procurement. Knowing your entire inventory — what has been committed to customer orders in process and what needs to be ordered to fill future orders — keeps you from having excess inventory on hand or letting your reserves drop to levels that cause missed deliveries. One of the main faults in order fill rates is caused by a lack of internal inventory tracking and not downstream supply chain network issues.
2. Data Tracking
Centralizing information so that it is accessible across all of your teams, understanding consumer behavior and ordering trends and the ebbs and flows of your particular business will help your EDI logistics efficiency by better managing your stock, cash flow and staffing requirements.
3. Capturing Consumer Behavior
Metrics used to measure supply chain performance can have difficulty accounting for consumer behavior. On the macro level, it can be largely driven by local, national and global events that are difficult for businesses to quantify. A good EDI supply chain management system can keep you in touch with how consumer behavior changes over time and allow you to adjust your business strategy accordingly.
4. Pricing Issues
With shifting consumer behavior and natural supply/demand cycles, supply chain and logistics metrics can improve your bottom line by finding price efficiencies during peak demand periods and cost-effective solutions for procurement when demand dissipates. Likewise, knowing whether your supply chain network is experiencing disruptions will allow you to optimize your pricing strategy relative to available supply.
5. Supply Chain Mapping
Inefficient supply chain management is unconcerned with the big picture of how your company gets its materials, where they come from and where they go once they leave your production facility. Mapping your supply chain network, understanding how your suppliers acquire their materials and tracking your products all the way to distribution lets you see potential problems and develop solutions. If your supplier relies on multiple sub-contractors for order fulfillment, that increases the number of potential delays that can occur. Centralizing information so that it is accessible across all of your teams, understanding consumer behavior and ordering trends and the ebbs and flows of your particular business will help your EDI logistics efficiency by better managing your stock, cash flow and staffing requirements.
With the right EDI supply chain management software, you can forecast potential disruptions in your downstream and make adjustments to acquire materials from other suppliers.
6. Inbound/Outbound Supply Conflicts
Performance metrics in supply chain management have to be concerned with the full production cycle. In an ideal world, every material you get from every supplier would arrive in the same amount of time. That would allow you to understand how much labor you need, help you manage your cash flow and equalize your production time across all projects.
In the real world, though, things are never that easy. Inventory turnover is very rarely one-in, one-out across the board. This causes discrepancies and creates problems in ordering new materials with different delivery times, warehousing current stock and managing new customer orders as they come in. Understanding your supply chain cycle, time to delivery and length of time for receiving new materials will help you to anticipate needs and give you a leg up on inventory management.
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