A breakdown in supply chain management is bad news for business. Delays, broken processes and other bottlenecks can arise anywhere. For companies of any size, breaking free comes down to one thing: breaking down silos. Why? Because supply chain management thrives on integration and collaboration. You could even go so far as to say it’s a requirement. But before we get into that, let’s start with the basics.
What does a supply chain do?
Well, every supply chain has links, just like a literal chain. These links include producers, vendors, warehouses, transportation companies, distribution centers and retailers. For most retailers, the supply chain begins with the components you purchase to create your products or products you buy from someone else. And for each product, the journey through the supply chain ends at the time of fulfillment. Complicating things further is the fact that a supply chain isn’t actually linear like a chain but, rather, a network, which can make managing complexity challenging. Each step your product takes to get to your customer requires administrative and other tasks.
Companies order products or components according to expected demand. They must then ensure that orders match the products in their warehouses and 3PLs. Finally, they must pick, pack and label to get the product out the door in a timely fashion. All of this becomes all the more complex as a company increases sales volume, sells through multiple channels, or distributes inventory across multiple branches and warehouses. And of course the cycle isn’t a one-off deal. It is ongoing as products enter and leave a company’s inventory. Meanwhile, supply chain management must be flexible enough to accommodate changing tastes, seasons and sales volume.
What is supply chain management and why is it important?
Because supply chains encompass everything from product development to production to the information systems needed to coordinate all of these activities, failure to adequately manage any single aspect can spell disaster. Quickly getting the right products to customers in the right quantity can be tricky, even for simple supply chains. A company must ensure that its purchasing, inventory management, and planning and fulfillment all work together. That means coordinating a lot of moving parts.
Given all that, it’s easy to see how siloed processes can create bottlenecks. An organization will need different processes for each step of the supply chain. Planning inventory and production to match demand, for example, will use one set of tools and processes. Managing orders and tracking stock will entail another set of processes, as will warehouse order fulfillment. Keeping these processes siloed, however, can result in each part of the business working on different information and assumptions. This could lead to inadequate inventory planning, unexpected stock-outs and shipping delays. But unifying these processes will allow every aspect of a business to draw from the same pool of data.
Cin7 inventory management software provides product-driven brands with the single source of information they need for unified supply chain management. With Cin7, businesses of any size can gain end-to-end supply chain visibility and keep inventory in line with orders as they sell through multiple channels.
What makes a good supply chain?
If the goal of good supply chain management is perfect fulfillment, the key to success is collaboration. In fact, 30% of supply chain managers identify a lack of cross-functional success as a key barrier to achieving success. Moreover, this perfect fulfillment must be achieved as efficiently and economically as possible. After all, time is money—and money is money!
Whether you’re a fledgling startup or a growing into a major player, you can learn valuable lessons in effective supply chain management by looking at Apple and Walmart. Both of these companies excel at inventory turnover, the ratio that measures the number of times inventory is sold in a given time period. Inventory turnover is calculated by dividing the cost of goods sold (COGS) by average inventory cost.
In Walmart’s case, they focused on driving costs out of their supply chain so they could pass the savings along to the customer. This meant removing links in the supply chain (buying in bulk and transporting goods directly to stores) and developing strong relationships with vendors to minimize costs through both favorable pricing and vendor-managed inventory (VMI).
With the VMI model, manufacturers are responsible for managing their products in Walmart’s warehouses, including restocking, freeing Walmart from the burden of administering more than 142,000 SKUs per store. Think of it as the flip side of FBA, where Walmart, like Amazon, is effectively housing and distributing product on behalf of the manufacturer/seller, who supplies inventory just in time, as needed, freeing up space and reducing carrying costs for Walmart. This mutually beneficial arrangement gives suppliers insight into inventory performance, allowing them to adjust their output while cementing their partnership with one of the world’s most powerful retailers: Suppliers offer Walmart the lowest prices in return for long-term, high-volume purchases.
Another lean practice employed by Walmart to reduce links in the supply chain is cross-docking, or the direct transfer of products from inbound or outbound trucks without storage in between. This keeps holding and transportation costs down, saves time and increases efficiencies. Walmart’s fleet continuously delivers goods from one loading dock to another in 24 hours or less, and company trucks bring back any unsold merchandise.
In Apple’s case, when Tim Cook joined the company as chief operations officer in 1998, he made a point of slashing inventory, reducing the number of warehouses as well as the number of suppliers (from 100 to just 24), making them compete for Apple’s business, similar to Walmart’s VMI model. These measures reduced stock on hand from a month to six days. By 2012, Apple was turning inventory every five days, trouncing competitors Dell and Samsung, who turned inventory every 10 and 21 days, respectively.
In the technology sector, lean inventory, or keeping as little on hand as possible, is particularly important. Why? Because things can change in a heartbeat, be it a new innovation or a hit product by a competitor, tech manufacturers who keep too many products in stock may find themselves with low-value inventory they can’t move. And because new products can quickly cannibalize the old, accurate sales forecasting and keeping lean inventory become crucial. Not having too many SKUs helps correct forecasting, as does a longer product life cycle.