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With regional and global supply chains becoming more sophisticated, what real world benefits result in having an effective supply chain for your small business?

What Are The Benefits Of An Effective Supply Chain?

A well managed, data-driven supply chain system provides visibility from end to end for monitoring the flow of goods, services, and information from procurement to manufacturing, and final delivery to the end consumer.

The saying, “what can be measured can be controlled’ implies that data plays a critical role in manifesting real-world benefits of an effective supply chain. But the truth is there are many other essential factors which include:

  • Securing the right logistics partners
  • Effective cost control
  • Good vendor and supplier relationships
  • Adopting innovative supply chain technologies.

Simply put, an optimized and effective SCM offers numerous benefits that improve a business’s bottom line.

Let’s have a look at eight of the most appreciable benefits of effective supply chain:

1. Reduced Overhead

More accurate predictions for demand can reduce the overhead costs associated with slow-moving inventory storage.

Stocking less slow moving inventory makes room for higher-velocity, revenue-producing inventory.

Because the necessity of warehousing contributes to overhead, reducing these costs by optimizing your layout, or adopting the right automation solutions can improve productivity and result in a better inventory management system.

Identifying other unnecessary expenditures is another way to achieve lean operation. If your small business is facing high logistics costs, switching to a more efficient provider offering comparable services and quality at a lower cost is a quick win.

2. Better Integration

According to Oracle, 76% of companies lack an automated flow of information across the supply chain.

If information flow is a stumbling block for companies, companies will suffer fragmented information which results in lost sales opportunities.

Implementing software solutions to remove bottlenecks and allow seamless sharing of information provides a big-picture view of the supply chain from end to end.

Thanks to improved data access and warehouse management systems, supply chain leaders have the information they need to make more informed decisions.

3. Greater Control Over Quality

When issues with quality come up, the results can manifest in significant costs for companies. According to the rule of 10, the cost to replace or repair an item increases by tenfold at each step of the progression.

As long as an equitable agreement is in place that does not drive margins into the ground, companies that have greater control over their direct suppliers, and their suppliers’ suppliers, benefit from improved quality control.

Implementing a standard minimum quality criteria plan enables direct suppliers to identify and partner with secondary suppliers that meet those requirements.

Likewise, process guidelines and SOPs can help suppliers comply with your company’s quality requirements.

Some companies go beyond simply providing criteria and take the extra step of conducting periodic audits or requesting documentation verifying suppliers’ compliance.

Arshad Hafeez, a global expert for Supply Chain Management and Quality Control, recommends implementing a Management Operating System (MOS) for monitoring key performance indicators including:

  • Suppliers scrap rates, reworks and similar issues
  • Final product quality (as received by end customers)
  • On-time delivery
  • Time for complaint resolution
  • Supplier quality assessment findings

By analyzing these data points, companies can partner with the highest-performing, best-suited vendors and suppliers to maintain strict quality control thus keeping end users happy.

4. Higher Efficiency Rates

Benefits of an effective supply chain include real-time reporting on the availability of materials and manufacturing delays.

This allows companies to implement backup plans. Things like useful data points on sourcing materials from a backup supplier which can prevent further delays.

Without real-time data, companies can’t initiate a plan B effectively, resulting in problems related to out-of-stock inventory or late shipments to end consumers.

Implementing smart automation also results in higher efficiency. Investing in the right solutions and leveraging data to minimize delays supports a positive customer experience, plus it boosts your company’s reputation.

5. Keeping Up With Demand

“If consumer sales increase by 5 percent in a given week, a retailer could end up ordering 7 percent more product in response to the increase and a feeling that demand will continue,” cited in a report by VISA.

“The next link in the chain, observing what appears to be a 7 percent increase in demand, then orders a larger increase on his supplier. Eventually the factory may observe an inflated 20 percent increase in orders.”

This phenomenon, known as the bullwhip effect, often results from a lack of efficiencies in communicating supply and demand changes. Supply chain leaders with access to real-time, accurate information can better predict demand.

By being more nimble, they can adjust readily to demand and be more agile in reaction to changing market conditions therefor avoiding the bullwhip snap-back.

6. Better Risk Mitigation

Analyzing big-picture supply chain data at a granular level can reveal potential risks. This enables companies to put a Plan B in place to respond to unexpected circumstances.

By taking proactive action, rather than being reactionary, companies can avoid the negative fallout from quality control issues or other concerns as they arise.

Understanding risks also helps companies achieve leaner operations, and as mentioned previously, reduce overhead.

As an example, 87% of companies surveyed believe they could reduce inventory by 22% if they had a better understanding of risks in their supply chains.

7. Optimized Shipping

An article from Logistics Management, The State of Logistics Report, cited that:

  • Freight transportation costs increased by 7% from 2016 to 2017
  • Private and dedicated trucking costs increased by 9.5%
  • Less-than-truckload costs rose by 6.6%, and
  • Full truckload costs rose by 6.4%.

Because of  rising costs, shipping optimization is a priority for supply chain leaders.

Identifying efficient shipping methods for small parcels, large bulk orders, plus various other shipping scenarios, results in companies getting orders to customers faster while at the same time minimizing costs.

These cost savings boost the company’s bottom line. They can then be passed on to consumers and help to improve customer satisfaction.

8. Streamlined Cash Flow

Supply chain disruptions have a domino effect impacting every segment of the supply chain.

Working with reliable suppliers not only means fewer disruptions and more satisfied customers, they also improve the company’s bottom line.

Improved cash flow by allows you to invoice (and get paid for products and services) sooner. Implementing more cost-effective solutions eliminates wasteful spend and reduces overhead pressure thereby contributing to a more positive cash flow.

In Conclusion, Better Efficiency Is A Matter Of Studying The Details

Knowing the key touch-points and critical data metrics in your supply chain provide insight into the fluid nature of your business.

All benefits discussed above allow companies to make overall smarter decisions such as choosing the right partners, accurately predicting and responding to market demand changes, and reducing supply chain disruptions.