f your company sells a thing to a customer, your company most likely has a supply chain. And that supply chain impacts almost every other business function.
How can Sales sell without Supply Chain supplying products?
How can Finance calculate the cost of goods (and your profitability) without Supply Chain managing supplier and manufacturing costs?
How can Research and Development research and develop new products without Supply Chain sourcing new components?
I could go on and on.
But what are supply chain and supply chain management ? Supply chain management isnt just the management of products — its also the management of information, time and money.
Lets start at the far end of the chain and work our way forward, shall we?
Suppliers
Supply chain management doesnt start when you order a product from your suppliers. You should be managing your product supply when your suppliers are sourcing their suppliers. Thats called Tier II supplier management.
If your suppliers arent practicing supply chain management with its suppliers, your own supply chain performance will suffer. Thats why so many in the supply chain management field practice Tier II supplier management.
How can you influence your Tier II suppliers?
The answer takes us back to what supply chain management is. Its the management of product flow, information, time and money. And for Tier II supplier management, «information» is one of the key performance drivers.
The information your Tier II suppliers need is the demand information that youve provided to your suppliers — whether thats forecasts are firm orders.
Your Tier II suppliers can use that information to do its own capacity planning and raw materials buys (i.e. practice its own supply chain management).
By ensuring your Tier II suppliers have what they need in order to deliver on-time and cost effectively to your suppliers, you are on your way to optimizing your supply chain.
Supplier Management
Supplier management is what most people perceive supply chain management to mean. And, truly, this is where a lot of supply chain managers spend their time.
The arena of supplier management includes the cost of goods negotiations, on-time delivery management, quality audits and management, new product development — to name a few areas of focus.
Your supply chain team will work with your suppliers customer service teams, engineering teams, quality teams and even supply chain teams.
Just like your customers probably measure your performance, its important that you and your suppliers work together to determine the right metrics to measure their performance. On-time delivery is the most common metric thats measured, but make sure that you and your suppliers understand the precise definition of on-time delivery that youll be measuring.
On-time delivery isnt has black-and-white as some might think. There are original promised delivery dates that can (and often) change during an orders lifetime. So are you measuring on-time delivery performance against the original promise date or subsequent revised promise dates? Make sure you and your suppliers are aligned.
Also, are you measuring the dock date or the ship date? Oftentimes that will depend on the payment terms youve negotiated with your supplier. If your payment terms are FOB Plant, for instance, that means youre responsible for the shipping method once the product leaves your suppliers plant.
In that case, your on-time delivery metric would likely be based on the ship date.
However, if your payment terms are CIF, i.e. your supplier pays for the cost, insurance and freight to deliver it to you — then your on-time metrics would likely be based on date the shipment arrives at your dock.
Logistics
Logistics and supply chain arent the same things. Logistics is the management of the movement of goods whereas supply chain management covers the many other areas were discussing here.
But logistics is a part of supply chain and that means whoever manages your supply chain will be responsible for managing freight forwarders, shipping companies, parcel delivery companies (like Fedex and UPS), customs brokers and third party logistics providers (3PL).
Logistics providers should be managed in the same way that you manage your suppliers. Costs and contracts can be negotiated. You can source freight forwarders the same way you would source suppliers of the products you need.
Shipping and warehousing costs can be one of the largest expenses in your supply chain and its critical that your logistics providers are measured and managed to control those costs.
