Is Supply Chain Your Competitive Advantage?
Once upon a time, I interviewed for a supply chain leadership position at a small company. The head of operations nodded knowingly as I ticked off my accomplishments (cost of goods reductions, lead time improvements, inventory accuracy, or supplier relationship management).
Things went well enough for him to punt me over to the CEO for an unscheduled interview. She asked me high-level, global supply questions. I gave her my thoughts on the subject and when I said, “Supply chain should be your company’s competitive advantage” — her eyes lit up.
I did not make up that phrase. I can’t take credit for it. I’m not actually sure I believed it when I said it to that CEO. But…I got the job.
And I absolutely buy into that phrase now.
Supply Chain Should Be Your Company’s Competitive Advantage.
And if it’s not, that means it’s probably your competitor’s advantage.
My optimized supply chain definition is “getting your customers what they want when they want it — and spend as little money as possible getting that done.”
How does that translate into your competitive advantage?
Cost of Goods Sold (COGS)
The last part of the optimized supply chain definition — i.e. the “spending as little money as possible” part — has several layers to it. Your company can spend less by managing and planning freight, by lowering your inventory or by the cost of goods sold (COGS) reductions.
One way that optimized supply chain achieves COGS reductions is by negotiating with your suppliers. Cost negotiation quick wins can typically range between 3%-10% in savings.
Another cost of goods savings method of the optimized supply chain is a strategic sourcing project. By issuing an RFI (Request for Information), RFP (Request for Proposal) or RFQ (Request for Quotation) to multiple suppliers, COGS savings are achieved through competition.
That supplier competition often leads not just to COGS savings, but to supplier innovation and higher levels of customer service.
The second part of the optimized supply chain definition — i.e. the “when the customers want it” — is where many companies end up bleeding themselves. Companies, especially small companies, want to satisfy their customers.
And it’s true — being the supplier that your customer knows it can always rely on is absolutely a competitive advantage.
However, if you’re achieving 100% on-time delivery (which should be every company’s goal) by overnighting shipments and paying expedite fees — you’re not operating in a sustainable business model. Over time, that incremental shipping and expedite costs have driven many small companies to the brink.
Optimized supply chain puts a focus on 100% on-time delivery. Optimized supply chain knows that freight management can get you there. But it also knows that managing freight costs can keep you away from the brink.
Optimized supply chain negotiates with freight and transport providers — to get the best rates when you do have to overnight and expedite. But the true benefit of an optimized supply chain is that it helps prevent those overnight and expedite scenarios.
Detailed and informed production planning, lead time management and supplier-customer communication are the bones of the supply chain corpus.
Lead Time Management
And speaking of lead time management… Your supply chain has many lead times to contend with and your optimized supply chain knows them all.
- How long does it take your suppliers to secure the raw materials they need to produce your products?
- How long does it take your supplier to then produce your products?
- How long does it take your products to get to your facility?
- How long does it take to receive, inspect and inventory your products once they’re in-house?
- And how long does it take to deliver your products to your customer (where they become their products)?
If you don’t know each lead time in your supply chain, then the supply chain isn’t your competitive advantage yet.
It’s nearly impossible to get your customers what they want, when they want it (and spend as little money as possible getting that done) without having inventory control, ie. without knowing what’s in your warehouse.
100% inventory accuracy depends on many things — from your warehouse management system to your purchasing policy to your part numbers (is that an “I” or a “1?) to your warehouse personnel to your cycle count process.
Optimized supply chain knows whether you should be cycle counting or conducting full-blown physical inventories. So that what you think you have in your warehouse is what you actually have in your warehouse.
In most companies, there is someone managing each step in your supply chain — purchasing, freight, inventory, for example. But in a company with an optimized supply chain — an overview is taken to create a supply chain strategy that provides that company with a competitive advantage.
Get your customer what they want, when they want it — and spend as little money as possible getting that done. That’s an advantage any company can use.