CeMAT Insider

Should you focus on supply chain efficiency or flexibility?

Posted by CeMAT Team on 12-Sep-2016 11:01:08


Did you know that the configuration of your supply chain doesn’t have to focus purely on volume flexibility or business efficiency? Your supply chain really can have it all. In this post we look at how your business can create a next-generation supply chain by being both efficient and flexible.


Efficient supply chains

It is the conventional wisdom that supply chain efficiency will lead to magical things. And for the most part this is correct. Business efficiency is defined by an internal standard of performance that allows you to evaluate productivity. 

CeMAT-Insider-quote-25.pngIn terms of supply chain management, efficiency is all about improving productivity at the lowest cost; or in other words any action that’s designed to improve productivity or cost-effectiveness. Efficiency can be achieved through computing power and connectivity via the creation of a complex and interconnected system driven by a clear business strategy.

We know that new technologies can enable your businesses to improve labour productivity, which will lead to improved margins. But one of the most important (and sometimes forgotten) aspects of improving business efficiency is to measure your throughput before and after implementing new technologies.

Businesses under this umbrella should always aim to seek opportunities that optimise operations relating to everything from network design, route mapping and load building. It’s also important to constantly try to improve current inefficient processes, and to quantify the potential impact of proposed solutions.

Although digital capabilities offer process automation, many businesses are still lagging behind when it comes to taking advantage of the potential possibilities. There are many reasons for this from the added expense of new technologies to the difficult process of transitioning over from legacy systems. 

It’s incredibly important for businesses to remain efficient, however, economic disruptions and many external factors make it difficult for businesses to respond.

Flexible supply chains

Consider this scenario: you have a sudden demand in one of your products, let’s say you sell tea, but the latest shipment of tea from your supplier is late and a few of your customers have now requested express shipping. How fast and effectively could you respond to this?

Supply chain flexibility will make it possible for you to respond quickly to demand or new opportunities in the short and long term. 

Making good decisions on the fly requires end-to-end supply chain visibility. If you currently manage information from suppliers, products and services in separate siloes, any updates on a shipment from a supplier won’t automatically be channelled through to the customer service team when they are dealing with enquiries. 

Supply chain flexibility shouldn’t just be thought of on a case-by-case basis when one of your shipments is late, flexibility should be the lifeblood of your organisation. Your organisation should aim to support changes and new strategies taking place in the market place.

CeMAT-Insider-quote-27.pngIf critical information on processing, distribution or inventory numbers for POS is inaccurate or inconsistent, this may result in a bad experience for consumers.

It’s important to have collaborations between the different departments of your business, from sales, to marketing, procurement and even finance. In 2013, a survey conducted by PwC revealed that companies that acknowledge the supply chain as a strategic asset achieve 70% higher performance. Lets take a look at how to combine both efficiency and flexibility to achieve a next-generation supply chain.


Balancing act: Achieving a next-generation supply chain

A responsive supply chain is distinguished by short production lead-times, low set-up costs, and small batch sizes that allow your business to adapt quickly to market demand. However, adapting quickly means you may have to pay a higher unit cost.

Compare this to an efficient supply chain where longer production lead-times, high set-up costs, and larger batch sizes allow organisations to produce at a low unit cost. The trade off is often at the expense of market responsiveness.

So what are organisations to do when the trade seems like either or?

It doesn’t have to be the case that you trade efficiency for responsiveness or vice-versa, it’s about finding a balance between the two that suits your business. 

CeMAT-Insider-quote-28.pngFocusing purely on either efficiency or flexibility won’t result in an effective supply chain. A strategy that involves a combination of the two is the most effective, because it enables you to react, while also maintaining stability through collaboration.

Speed and adaptability drive success in a volatile world, and being able to maximise supply chain flexibility and manage multiple supply chain configurations at once has become essential for supply chain managers today.

Supply chains today encompass the end-to-end flow of information, products and money, and managing this successfully within an organisation today strongly impacts its competitiveness. It’s important to remember that your supply chain needs to be properly aligned with your business strategy, and only then will you be able to determine your perfect mix of efficiency verses responsiveness. Ask yourself, which of the two options would best suit you product?

To answer this question, it’s important to understand the connections between key drivers throughout your value chain and the below four elements may assist you in answering this.

  • How does the variation in the demand of your goods impacts stability and consistency in your organisation?
  • What are the market mediation costs to compensate for over supply or lost sales?
  • What is the lifecycle of your product?
  • What’s the relevance of the cost of assets to the bottom line?

Take for example a retailer that sells new fashion items with a short product lifecycle. There would be no point promoting end-to-end efficiency by ensuring you reduce costs through overall equipment efficiency and forecast accuracy. You should then instead focus portfolio renewal and achieving maximum portfolio renewal in as short a time as possible.

Make sure you have a clear channel focus and configure your supply chain to meet the needs of your customers. If you can achieve this, your supply chain will be well on the way to success in the future.

Topics: Supply Chain Management