Golden Rules of Supply Chain Management

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There’s nothing like a pandemic to point out the shortcomings in supply chain systems. But the silver lining for the industry, if it’s even appropriate to use such a term at this time, is that the strain this situation has put on businesses big and small has made us rethink what we can do to stay viable in a world were masks and border security are increasing concerns. 

Professor Richard Wilding OBE of Cranfield School of Management would want to share with us some rules that, even though they might generally apply to supply chain management, are finding their confirmation even in the ways businesses have responded to the pandemic. He calls the rules golden, and he invites you to add a couple of your own.

Know How You Create Value

You can’t have an effective supply chain until you understand how you create value. A supply chain strategy is very much tasked with delivering the value you create, so there’s no sense in figuring it out before you have all the relevant information about what you’ll be delivering. And then, it’s important to structure the supply chain strategy in such a way that it reinforces the value creation process. 

But first, let’s figure out value creation. Ask a marketer or a salesperson about value, and they’ll start talking about what their customers want. The starting point has to be the thing your customers’ values. If those two don’t align, you’re doing something very wrong. 

From there, you form a value proposition. You need to find a way to communicate the value to the market. Next, you scout the market for insights that might help you thrive on it. Finally, you should then start planning the delivery. That whole chain is the value creation process, and you should be familiar with every step along the way — regardless of the size of your business. 

Understand Your Capabilities

When we’re talking about important rules, we shouldn’t be surprised that some of them are simple to the point of being obvious. Understanding your capabilities is one of those rules. Its premise is that a business, any business, should have a good understanding of everything that it does and the context that it works in. 

An example would be a brewery that’s capable of having alcoholic beverages. They can take an ingredient, and through a series of processes turn it into spirits. Then, they’re capable of packaging those spirits and getting them in front of a paying customer. 

That business could, then, have the agility to apply its capabilities in different ways. They can stop making spirits, for example, and reorient towards beverages with no alcohol content. Or they can, as many have during the current pandemic, decide to focus on producing 70% alcohol, an in-demand commodity. That’s the sort of thing a business can do if it knows what technologies it uses for which processes.

Understand the Network

The network we’re talking about here is yourself, your suppliers, and your customers. More often than not, you won’t be sharing the same location. So anything that travels between the three of you — materials, supplies, products, and even money — has a route in need to take. 

Those routes don’t have to be direct. They don’t have to be physically shortest. They can be all around the place depending on all sorts of factors. But the key is that you need to know them, and you need to understand them. Whatever must travel for your business to be workable, you need to know the start point, endpoint, and most of the in-between. 

The one thing that’s become obvious during the pandemic is that businesses need to be agile in more aspects than one. Being capable to quickly reorganize a supply chain, like businesses needed to do during the pandemic, is an agility feat that’s only possible when you know the network by heart. 

Time & Transparency & Trust

If there’s one dimension that’s used to universally to gauge the value of everything, it has to be time. Every single trait of a business, every process, every outcome – all could be put against time to see how quickly it happens or how many of them you can squeeze in a timeframe. 

Time has an interesting relationship with transparency. People will often be untransparent with their demands to meet their time demands, which is the exact thing that happens when someone orders something weeks before they need it just so that they can be sure it gets there on time. 

When processes are transparent, people will start to trust and become a more eager part of the business or supply chain process. Without trust, every process becomes more difficult, less efficient, and eventually more time-consuming. And time is, after all, a finite and scarce resource. 

Collaborate Better

Relationships are important, but they can’t develop overnight. There’s no such thing as becoming a collaborator as soon as you put a foot through a business’ door. It’s a process of building and development that will, in the end, yield a collaborative relationship we should strive to keep afloat.

But there’s a lot that goes into learning to collaborate better. Being better at collaboration means knowing which relationships you don’t need. And the way you could do it, especially coming from a supply chain world that’s all about metrics, is by understanding the processes behind the relationships. 

To that end, you can even use an ISO framework that can help you understand, improve, and eventually end, relationships. When you’re changing the structure of your supply chain, this type of framework can help guide the transition. 

Understand Your Cost-to-Serve

When you’re looking to understand the cost-to-serve of your business model, you pay attention to three things. The first is the customer. The second is the stock-keeping unit with its attributes. The third is the service level. 

These three things will help you understand what you can offer and at which price to whom so that your margins still are profitable. For example, you can’t offer free delivery on all sales if it eats too much into the profits you get from an average sale. 

You will want to improve your service, and we’ve seen how important it is in tough times like this pandemic. But you can’t increase the cost-to-serve to the point where it bankrupts your business, no matter how much you want to serve your customers. You can serve no one if you’re out of business.

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LEX GREENSILL​

Chief Executive Officer, Greensill​

Lex is the co-founder and CEO of Greensill, and a Senior Advisor and Crown Representative to Her Majesty’s Government on Supply Chain Finance. He was awarded the CBE for Services to the British Economy in Queen Elizabeth II’s 2017 Birthday Honours.

Lex previously established the global SCF business at Morgan Stanley, and led the EMEA SCF business at Citi.

Lex holds an MBA from Manchester Business School, and is a Solicitor of the Supreme Courts of England and Wales, and Queensland.