Over the years, I have had the opportunity to manage diverse suppliers and supply chain teams all over the world with both large and small companies. In addition, I have had the privilege of teaching supply chain management to both students and practitioners. Here is a brief guide on the 12 essentials of managing a supply chain (aka Value Chain):
1) The supply chain matters: Often the supply chain is left to the last possible minute during product designs, marketing programs, and customer meetings. Don’t forget that the product still needs to be designed, built, and shipped or served to the customer if the company is going to make money. The supply chain matters!
2) Understand your customer (aka value chain management): A lot of times supply chain professionals will forget about what the customer’s needs are and leave it up to the marketing and sales departments to take care of it. A key part of supply chain management is to understand the end customer with the marketing channel. How will the customer want to receive the goods or services? Will special packaging be needed or will the item be displayed on store shelves? The customer is the key focus on ensuring an effective supply chain. This is why “Value Chain Management” is slowly replacing the term supply chain management. If the customer is forgotten in the supply chain you might as well get rid of it.
3) Understand your product, service, or technology: One often hears in supply chain management that it is really about shipping widgets and one widget is no different than another. This urban myth is far from the truth. Some items may need to be refrigerated, other products may need special care and handling, while some services may be digital. Understanding your product, service, or technology is key to creating a successful supply chain.
4) Get out of the office: Don’t just stay at your desk to manage the supply chain. Get out and see it. Ask questions. Learn from others who have managed supply chains before and visit the factories and suppliers. If possible, follow the product from raw material, through logistics, to the final customer. You will learn a ton.
5) You need to negotiate: Negotiating is key to supply chain management. Cost, quality targets, SLAs, and KPIs all need negotiations around the terms. If you want to be successful in supply chain management you need to become a good negotiator. Some practitioners are naturally gifted at negotiations, but a larger number of supply chain professionals need training and constant practice.
6) It is not just about cost savings: Although costs are important, it is not just about delivering great cost savings. Other factors include the quality of the product, the value of the business that the supplier, buyer, and end customer derive from the service, product, or technology, and ensuring the right amount of inventory is in the right place at the right time.
7) It is about the People: There is a lot of buzz today about the automation of the supply chain. In the end however the supply chain still comes down to relationships and people. Tools and systems will get better over time but even with the complete automation of the supply chain, people are still needed to make things happen, improve the system, and fix things when they break.
8) Value the relationships for the long-term: Supplier relationships should be treated as long-term relationships. Fair practices, fair dealings, and fair awards will ensure the reputation of your company remains intact. Treat both the buyer and seller with respect and honesty.
9) Use the data to make decisions, not your emotions: In the past I have seen a lot of decisions on supply chain optimization and strategy made strictly on emotions. This is a large mistake. Always look at the fully burdened and landed costs. Never just assume something is a “great” deal or opportunity because everyone loves the new supplier. Look at the data. Look at the facts. Remove emotions out of the decision-making process.
10) Limit the risk: The “Aquiles’ heal” of the supply chain is that it can quickly be disrupted through natural disasters, acts of war, environmental issues, and industry-wide shortages. Prepare for the worst but proactively limit your risk through second sourcing, auditing environmental and social compliances, and creating inventory plans that ensure continuity. Also, watch out for the second and third tiers of your supply chain, which can quickly bring a supply chain to a screeching halt.
11) Keep an eye out for disruptive trends: Supply chain management cannot be done in isolation. Industries shift, trends change, media hype comes and goes, and customers go elsewhere. Watch the trends and modify or change or even disrupt your supply chains strategy in new directions, so you don’t get left behind.
12) Embedded sustainability is the key: There is a lot of talk nowadays on sustainability especially from the PR departments of companies. In order to make real progress in sustainability (defined as balancing the needs of Plant, People, and Profit) a company both big or small must embed it into its everyday operations and DNA. Otherwise it becomes only a marketing promotion and is not part of the core of the company. Every worker must embrace sustainability and it needs to be within every function and operation of your company (from audits, to supplier award selection, to product design, to how external stakeholders are treated fairly).
Good luck on managing your supply chains! Don’t forget the above 12 essentials and feel free to leave your own in the comments.
Payson Johnston is the CEO & Co-Founder of Agora Intelligence, Inc., a mobile-first ecommerce company focusing on sellers, buyers, and the community Coming Together to Buy, Sell, Share, and Give. He is also currently an Adjunct Professor in the School of Management at the University of San Francisco and start his Ph.D. in Business Ethics at the Graduate Theological Union in September of 2015.
Note: This article was originally adapted from a long form post on LinkedIn by the same author. It was refined after using it as a framework for teaching supply chain management (aka value chain management) to MBA students in Spring 2015.