4 Ways to Improve Your Supply Chain Management

Navigating the complexities of supply chain management can be daunting, especially for small and medium-sized manufacturers (SMMs) who may have limited resources and competing priorities. But there are potential benefits of closely monitoring supply chain processes for your operations. By implementing effective strategies, you can significantly improve efficiency, reduce costs, and enhance overall competitiveness.

Here at the New York MEP, part of the MEP National Network™, we use our Supply Chain Maturity Assessment to identify improvement opportunities for our manufacturing clients by comparing their current supply chain management practices to 59 best practices in nine categories. In this article, we'll explore key lessons learned from dozens of supply chain assessments conducted with numerous manufacturers.

Here’s how each assessment works: We discuss how each supply chain management best practice is helping the manufacturing business and which best practices may help to reduce or eliminate business challenges. Obviously, not every one of the 59 best practices applies to each manufacturer. But we usually arrive at four to six key recommendations for each SMM.

Based on our many assessments, here are four of the most common recommendations that you can use to improve your supply chain management practices.

1: Establish a Collaborative Sales and Operations Planning Process

Small manufacturers often struggle to implement effective sales and operations planning (SOP) to align expected demand with planned supply. This is because it is difficult to create and maintain processes that are both comprehensive and adaptable to changing circumstances. For example, while it’s important to have accurate historical data, new customers will have different needs and preferences, and markets are more dynamic than ever. With so many variables, how can you ensure adequate, but not excessive supply, to meet demand across your organization?

You can start by establishing a process that works for the customer-facing side of your business, as well as the operations side. It’s important to understand that this is an enduring process that becomes part of your monthly routine.

Here is a five-step process we often recommend to our manufacturing clients:

Gather data: Accurate historical data provides valuable insights into seasonality and market trends while establishing benchmarks and improving your forecasting.
Demand planning: Project the demand for your products for the next 12 months based on historical usage. Review and revise the demand plan based on the previous month’s forecast errors, open orders, expected orders, promotions, and competitor activities.
Supply planning: Convert the demand plan into net purchasing and manufacturing requirements for the next 12 months. What will it take to produce all that is expected? Identify gaps on the purchasing or operations side, and then figure out how to resolve the gaps or constraints.
Reconcile demand and supply plans to your financial plans: Compare the revised demand plan (revenue) and the revised supply plan (cost) to the financial plan. Identify gaps and revise the demand or supply plan as needed. This step may involve trade-offs based on demand potential, available supply, and product family margins.
Approve and implement: Conduct a leadership review and authorize execution of the demand and supply plans. This step enables both demand and supply resources to align their activities. In other words: Sell what you can make and make what you can sell.

The process of reconciling demand and supply plans to your financial plans is hard work, but it forces more company alignment. We have seen tremendous payback for the manufacturers who are committed to following this alignment process monthly.

A disciplined process for SOP can help you:

Meet profitability targets.
Deliver on new sales.
Cut overtime spend.
Cut expedited freight charges.
Acquire equipment in a more timely manner.
Secure supply and negotiate longer-term (12-month) pricing agreements with your suppliers.

2: Identify and Reduce Your Supply Continuity Risks

Supply continuity risk is any factor that could disrupt the flow of revenue into your business. Reducing risks can be tricky, as you can’t protect yourself from everything. Identifying and assessing risks is a great first step toward reducing likely interruptions.

Here’s a checklist for reducing supply continuity risks:

Identify risks. Keep in mind that risks extend beyond your operation and include your suppliers, service providers, and even your customers. Risks could include:

Single-sourced suppliers
Single pieces of equipment
Employees or service providers with unique capabilities
Your own cybersecurity
Cybersecurity at your single and sole-sourced suppliers
Continuity plans at your single and sole-sourced suppliers

Assess each of these risks by their likelihood, possible impact, and detectability.
Prioritize which risks pose the greatest threat to interrupting your revenue.
Develop mitigation strategies for the highest priority risks and begin implementing changes.
Document your plans, then review and refresh the plans annually.

Addressing risks will involve many factors, including technology capabilities, costs, and staff. For example, adding preventative maintenance for key equipment may have an upfront cost but often has a long-term return on investment. Cross-training your employees may create operational flexibility in addition to reducing risks, but it might not be practical in the short term.

Prioritizing the risks using the steps above can help you navigate decisions on how and when to deploy mitigations without disrupting ongoing business needs.

3: Improve Inventory Management

Much like SOP, inventory management can be complex and requires a robust set of decisions to effectively guide investments that will enable a competitive strategy.

I suggest starting every inventory decision with two key questions:

What do you need to have on hand before you receive orders?
What can wait until you receive orders?

If it takes longer for you to produce finished goods than customers are willing to wait, you will need to stock components, work in progress, or finished goods inventory to earn revenue. However, inventory drives many costs, so keeping the inventory investment as low as possible helps to maintain or improve profitability.

Here are some important considerations for improving your inventory management:

Establish a standard process to identify which products you will or will not keep on hand based on supply versus demand lead times and your ability to accurately predict future demand.
For purchased components, work in progress, or finished goods that you decide to keep on hand:

Gather historical data on forecasted demand and the lead time required to replenish your inventory.
Establish purchase and production quantities that balance inventory holding costs with set-up or ordering costs.
Calculate the reorder points and safety stocks.
Maintain these planning parameters in your information system.

Inventory management is ongoing. Consider refreshing your calculations every quarter to ensure consistent benefits.

4: Enhance Your Supplier Communication

Suppliers can amplify a manufacturer’s competitiveness, or they can stand in the way. Establishing performance expectations, providing frequent and consistent feedback, and partnering with suppliers to make improvements can turn a pain point into a competitive advantage. Enhancing communication with your suppliers is a great way to achieve these improvements.

Essentially, there are two levels of communication that I recommend establishing with key suppliers — tactical and relational.

Tactical Communication

Focus on workflow. Consider holding brief, weekly reviews with suppliers on the status of items such as open purchase orders, quality issues, documentation gaps, or shipping delays. Think of these sessions as daily production meetings where obstacles (to flow) are identified and resources are assigned so that problems can be solved quickly to resume flow or prevent interruptions. A regular meeting with your buyer and your supplier’s customer service representative can be used to quickly address problems that might otherwise cause an interruption to your operations.

Relational Communication

Consider meeting quarterly with key suppliers to focus on their performance versus your expectations and how you can work together to make improvements. Think of these sessions as opportunities to evaluate how you and your suppliers work together, setting expectations, and giving feedback. Key elements of these meetings include:

Tracking supplier delivery, quality, and cost performance versus established targets.
Working together to identify and implement process changes that will resolve performance gaps.
Monitoring the execution and impact of previous process improvements.
In addition, these sessions can be used to escalate unresolved issues from the weekly tactical meetings, confirm the supplier’s ability to meet projected future requirements, and to review future pricing expectations.

A key aspect of supplier communication is asking, “How can we help each other beyond what we are already doing?” For example, one of our clients was receiving a key material in a large unit size and their first step was to cut each piece into three smaller pieces. They could have simply asked the supplier to provide the material in a custom size, saving time and effort.

Your Local MEP Center Can Help You With Supply Chain Management

Your local MEP Center has supply chain experts who can help you improve the effectiveness of your supply chain management. Connect with the Center in your state to get the conversation started.

About the Author

Don Lynch, TDO

Don Lynch is a senior project manager and supply chain expert for TDO, a not-for-profit consulting and training organization that is a regional office of the New York MEP, which is part of the MEP National Network.