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Home : Articles : Supply Chain : Supply Chain Value

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SUPPLY CHAIN VALUE

Developing an effective supply chain is not easy. A company must have the right technology and the support of the best suppliers for it to work. However even once that obstacle has been overcome, another major issue may still loom ahead: finding real cost-reduction in the supply chain. Unfortunately, the unanticipated costs of running the supply chain often surprise managers and force companies to make some tough decisions. Thankfully, understanding what causes or drives these costs is half the battle.

There are actually six main causes of cost problems in supply chains. Usually a supply chain will not exhibit all of these problems but they commonly do have a combination of numerous ones since many of them are related. One of those causes is simply that the business and its partners have not clearly thought about what they are doing. Anyone who has ever put together a supply chain knows that it is a truly ambitious endeavor that is truly worth doing right. However, many companies lack sufficient direction to accomplish such a goal. Along those same lines is a second cause: confusion. When so many different elements come together, confusion is almost inevitable initially, especially if there was not enough planning, training, or communication among those elements.

Another problem deals with the way supply chain success is measured. Too many companies continue to use outdated financial yardsticks as the sole indicator of the success of a project or of the business. This approach does not work for supply chains since its main goal is not necessarily to only to improve profits but to balance supply and demand among all of the chain's elements. Using profits and revenues as the main unit of success measurement means that many partners may begin to sacrifice quality or to make other drastic changes which seem to help the bottom line but which destroy the supply chain's foundation.

A third cause of extra costs involves barriers. Those already involved with supply chains probably already understand that small changes are magnified at each level of the supply chain. A minor price cut at the distributor level may be a major problem for vendors supplying the raw materials. In order to minimize these effects, businesses must be able to overcome the barriers that exist between each separate organization involved in the supply and between the different departments operating within one's own company. Unfortunately crossing these boundaries is not always as easy as it sounds. However, dealing with these situations before they arise and choosing supply chain partners who are open to that level of collaboration can help alleviate many of these problems.

Finally, supply chains often suffer because either one or several links in the chain are unable or are resistant to change or when attempts are made to make everyone involved in the link adhere to strict guidelines. Being willing to adapt and to be flexible is one of the biggest challenges supply chain partners must face. An insistence that the status quo be the way to go will ultimately cost all parties involved a great deal and might actually destroy the supply chain.

While there are a number of ways to avoid these cost problems, they all boil down to one thing: take pre-emptive action. When a supply chain waits for a problem to arise then deals with this problem, the consequences have already occurred and the damage may not be able to be reversed. Instead, companies need to sit down with their supply chain partners and discuss issues like flexibility, barriers, metrics, and direction. By going over these concepts in advance, the companies can ensure that everyone is on the same page and that anyone who is not willing to be part of the group can get out before they get too deeply involved.

Overall supply chains can be tremendous assets to companies and their vendors, but they often come with a price. Businesses must be willing to change their attitudes, their routines, and their ideas of how things need to run. A failure to do this means that not only will the supply chain fail, but the businesses involved will likely lose a great deal of money in the process.

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