What does it take to excel in supply chain management? More importantly, how does a company go about improving its supply chain visibility when it comes to managing the vendor’s performance and lowering purchasing costs? Managing vendors is an involved process. It is never as simple as just demanding lower pricing. Companies must be able to lower their month to month inventory holding costs, pursue lower prices on material and parts, all the while lowering their per-unit costs on incoming freight.
Several companies employ multiple approaches to not only managing their inventory but also towards managing their supplier’s performance. So, what are the essentials of supply chain management or fulfillment services? There are two categories in which these principles will be classified. Qualitative and quantitative measures are those categories. In the former, this is where the satisfaction of the customers has measured as well as the quality of the product being delivered.
On the other hand, the quantitative measures are those that are calculated, such as the time between the order and the delivery processes, the response of the supply chain in terms of the time involved, the utilization of the resources, and the performance of the delivery. Many studies have shown that quantitative performance is effective, and therefore this should be given the attention they all need.
Month-To-Month Inventory Holding Costs
For companies that want to improve their supply chain visibility, it amounts to understanding the importance of their month-to-month inventory holding costs. Inventory is often referred to as a cost of money. Most businesses use loans and business credit lines to finance the purchase of their parts and materials.
These loans have a yearly interest rate that can be broken down into a daily interest rate. Every day those parts are not sold is a cost to the company in the form of this daily interest rate. The longer parts remain in the warehouse, the higher the costs. Companies must be able to properly ensure that the parts they put in inventory have a high probability of sales.
Per-Unit Freight Costs
Inventory is never just the cost of the parts on the shelf. Included in this cost are the aforementioned month to month holding costs and the costs to get those parts in and out of the warehouse. Freight is a huge cost of inventory, and many businesses ignore these costs completely.
When companies need to improve their supply chain practices, they must understand the impact of freight. Strategies to reduce freight costs include increased purchased volumes and constantly trying to mitigate freight costs with competitive bids.
Liquidate Slow-Moving Stock:
There is only one solution to dealing with outdated inventory. Liquidating obsolete and slow-moving stock is essential to lowering daily costs. Several businesses try to hold on to products regardless of whether it Is outdated or not. The mindset is to retain that inventory and hopefully sell it at full value.
However, every day those products are held and do not sell is a cost to the company. When companies immediately liquidate slow-moving stock, they effectively lower their month-to-month holding costs and dramatically reduce their daily cost of money.
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Purchase In Balanced Amount
Supply chain professionals are often caught in the middle of either buying too much or too little. To be successful, they must have solid inventory forecasting tools and a sales team able to immediately sell the outdated stock. When everyone works together, a company can drastically lower its cost structure and improve its inventory turnover rate.
Performance Measurement
Supply chain performance measurement is usually done by a company regularly. This will give him an idea regarding what he should do so that he can improve the health of this section and the whole company as well. This, however, requires multidimensional strategies that will address how the firm will present service to its customers.
Usually, the supply chain measures are similar to the other measures in the company. Yet, one can observe that there are specific goals here that make each of the supply chain metrics different from the others. Quantitative supply chain measures are broken down into classifications: the financial and non-financial. In the latter, this includes the cycle time, the inventory levels, the customer service level, and resource utilization.
These are all important in such a way that this will help the company see the improvements as well as the malfunctions in the delivery processes, especially in the lead or cycle time. The order to delivery time allows the owners to determine exactly how well the organization responds to the call of their customers, and the results will be visible through the reports.
Financial Measures
Meanwhile, financial measures are those that consist of the cost of the materials, the revenue received from the products sold, the costs of every delivery and transportation, the fees for the expired perishable supplies, penalties for late or incorrect deliveries, credits from the suppliers for their errors as well as the behind schedule release and the costs of the goods that are returned by the customers.