Top 5 Challenges in Supply Chain Management

by Joe LaMantia and Ron Quick

Like any complicated business process, the supply chain offers great potential for operational efficiencies, cost savings and positive outcomes for stakeholders when it’s carefully maintained, regularly reviewed and thoughtfully improved. At the same time, a supply chain that doesn’t effectively change or grow can cost your business money and harm relationships with suppliers, distributors and customers.

To unlock the potential of your supply chain, it’s vital to recognize widespread concerns, determine if they apply to your operations and then analyze current workflows to make careful improvements. Consider these top five challenges of modern supply chains as a starting point for making specific changes to your own.

1. Increasing supply chain visibility

ERP systems are a cornerstone of modern supply chains, gathering extremely large amounts of data from across the enterprise. However, it’s often difficult for all but the most engaged and skilled users to derive actionable insights from them, and do so quickly enough to make those results relevant. Calling in the IT department to use programming skills to create customized reports is possible, but often leads to sacrifices in terms of timeliness.

Increased visibility means recognizing and avoiding problems early on and at a granular level. This means more focused countermeasures can be deployed, whether the issue is due to a major port worker strike affecting all shipments arriving from Asia or a specific part shortage that impacts one facility out of many. Your buyers and planners can manage additional exceptions and identify the most time-sensitive issues for immediate response.

Achieving this holistic view of the supply chain helps you and your suppliers make the best decisions possible for the circumstances. To realize these changes, businesses often have to leverage their ERP systems more efficiently by incorporating tools that provide reliable, customized analysis with no delay.

2. Supply chain responsiveness and risk reduction

An abundance of insight into your supply chain operations boosts responsiveness and improves processes for reducing risk. Detecting potential sources of disruptions and responding to them with speed and purpose is a vital ability with the ultimate goal of making adjustments to meet customer preferences, requirements and demands.

This challenge is strongly connected to the issue of increasing supply chain visibility, although with a somewhat more specific application. Identifying widespread and highly specific concerns – and all the issues in between – with raw materials, components, shipping and similar problems with enough time to react effectively is critical.

Responsiveness in relation to competitors also can’t be ignored. B2C companies have seen this in action with Amazon. Two-day and same-day shipping were once viewed as unimaginable, but are now expected by many customers. Improving responsiveness, through risk reduction strategies and more operational visibility, is a powerful competitive weapon in terms of keeping up with or surpassing industry rivals.

3. Right-sizing inventory

Keeping inventory stocked in warehouses leads to unavoidable costs. Right-sizing inventory in response to changing customer demands helps to keep those costs as low as possible without sacrificing a high level of service and responsiveness.

Visibility into both supplier and customer operations is crucial in this context. An efficient flow of information to and from stakeholders allows your company to make relevant adjustments that lower excess inventory on hand without any change to service levels. A collaborative approach to planning, forecasting and replenishment allows your company to trade information for inventory, reducing its cost and levels in your warehouses while supporting more effective production.

Along with putting the right systems into place to increase visibility related to inventory, a variety of specific techniques can be used to address this challenge and create better results:

• Consignment
• Vendor-owned inventory
• Vendor-managed inventory
• Kanban

4. Analytics and management by exception

Spotting exceptions – like unacknowledged purchase orders, acknowledged items that won’t meet delivery dates and late shipments – and quickly addressing them helps your supply chain avoid complicated problems and continue to move forward. With the right strategy and tools in place for recognizing these issues, staff can put their attention where it’s needed most.

Focusing on exceptions means employees don’t have to spend time reviewing orders that are confirmed and on track. Instead, they can turn their abilities toward exceptions and start resolving them as soon as they’re identified. This approach allows your company to do more with less, highlighting important, time-sensitive issues without needing to increase your workforce or the hours current employees spend on the job.

Analytics allow your company to carefully segment the many streams of information in the supply chain and identify specific issues. Discovering a supplier often has problems shipping internationally but is especially effective in a given region, for example, allowing your business to make more informed decisions that can avoid exceptions in the first place.

5. Supply chain digitization

Speed of communication is a constant concern for the supply chain. The faster that digital information can reach the points where it’s needed, the better equipped decision-makers will be. By reducing manual errors than can come from sharing information through hard copies, the supply chain as a whole is more accurate and effective. The ultimate goal for all businesses should be end-to-end digitization spanning the entire supply chain.

Digitization can also improve the security of information as compared to the passing of paper documents and the many ways in which that process can be compromised. While digitization brings its own security risks, a meticulous approach can address them in a much more stable and comprehensive fashion than is possible with a less advanced strategy.

Understanding your organization’s next steps

Addressing these five common challenges, as well as many others your company may face, rests on a few basic factors that are applicable to each and every concern. A willingness for organizational change and the implementation of the right solutions for effective, consistent oversight, analysis and communication being two of the most important. Taking these elements into account and addressing them in a comprehensive fashion positions your enterprise for significant positive change.