In the last two decades, only 0.6% of firms from the Fortune 1000 and S&P Europe 350 have generated revenue and profit growth every year that is better than their industry peers. Supply chain inefficiencies constitute a significant reason for this lack of consistent performance across most resource-rich operations.Â
For small and medium-sized businesses, this issue can be more challenging as they generally have lesser leeway in supply chain negotiations. Here are a few actionable ideas you can use to manage efficiencies in your supply chain:
1. Streamlining Contracts
For many companies, the documentation around contracts is still done using boilerplate contracts provided by compliance teams and lawyers. The management and compliance teams might be able to go through these. Still, the operations and SCM teams, who are directly working on them, often have a tough time in establishing exact supplier and buyer responsibilities in line with the contract.
In larger enterprises, the issue gets further exacerbated as the master contract is centrally managed & stored, while the operations teams work with Statement of Work contracts. This leads to the scope of creeping and unmitigated risk exposure. In a study conducted by a consultant, the master contract entailed the supplier to bring the goods in a truck. The statement of work contract asked the same supplier to bring the goods in a helicopter without any obligations for insurance.Â
Using easily accessible agreements with clearly defined parameters can mitigate such risks quickly.Â
2. Supplier Portfolio Diversification
This is a counterintuitive approach. Placing orders with fewer suppliers can help you get economies of scale, greater leeway in the negotiation, and even simplify your work as the purchasing team. However, if the supplier faces manufacturing, sourcing, or other upstream issues – your entire process will go for a toss.Â
Instead, you can apply the Pareto Principle where the suppliers are divided into:
- Class One Suppliers who take care of 80% of the orders but constitute only 5% of the total number of suppliers.
- Class Two Suppliers who take care of 15% of the orders constitute 15% of the total number of suppliers.
- Class Three Suppliers take care of 5% of the orders and constitute 80% of the total number of suppliers.
3. Get Certificate of Insurance and Ensure Financial Viability of the Supplier Community
Ensure your suppliers provide you with a Certificate of Insurance that is precisely in line with the master contract and statement of work you have agreed to. Along with this, smaller companies that provide credit rating services can also run financial health checks on the suppliers, sub-contractors, and other ancillary service providers to your suppliers. With these documents, you can stay assured that your suppliers have adequate financial resources to conduct their operations and save you from any counterparty risk.Â
4. Deploy RPA Tools for Redundant Processes Exposed to Human Errors.
Bring in your IT team or an external vendor to cut the processes that are redundant and time-consuming. Order processing, supporting documentation, supply chain visibility updates – these are the common areas where you can apply RPA tools and get higher efficiencies.
5. Create Automated Workflows for Sharing Data with Adequate Authorization Protocols within the Firm.
Finally, as you streamline the outbound interactions, make sure your internal operations have been optimized. Quite often, the ground-level team gets quick updates about potential delays and errors. But, the approvals from the senior team members keep the issue unresolved. With a lack of authorization, teams also tend to get delayed in executing change orders. Automated workflows sensitive to authorization protocols can easily save this process into simple requests and rule-based approvals.Â
In final words, it depends on the needs and size of your organization in deploying the above-mentioned strategies to manage your supply chain efficiency.Â