Supply Chain – Then vs Now
The “Good Old Days”
Back in the good old days the supply chain was very straight forward. Raw materials were produced, sent to a supplier who sold it to a factory who then manufactured products and in return sold it to a wholesale/distributor, who in turn sold it to a small business, who finally sold it to an end user.
But times have changed.
Today’s Challenges
Technology has advanced at an incredible rate, as have most business models. We have seen manufacturing jobs move to other countries, big box retailers have exploded across the nation, the internet has reduced the need for face-to-face interaction allowing us to compare products, prices and make purchases online rapidly.
The supply chain became Worldwide.
Making landed costs a major factor (freight, duty, brokerage, storage costs and more).
COVID19 created the most rapid and significant change to our supply chain that we have ever seen. Government regulations shuttered many businesses. Manufacturing businesses either shut down or pivoted into products in high demand (e.g. PPE). Inventory/raw material availability became problematic, causing many businesses to overstock when they could get the stock. Labor became harder and harder to find.
Increased competition. We are no longer competing with business down the street. We are seeing competition across the country or even the world. Even competition from our own manufacturers and distributors as they are reacting to increased pressure from other competitive products.
The Solution
To remain competitive in today’s business environment it is essential that we take control of our supply chain.
Because of the changes we are facing with our business models and increased competition, and reduced margins, it is imperative that we Know Our True Costs.
We need to know and account for our costs including:
- Duty
- Brokerage
- Freight
- Added costs
- Overhead
- 3PL
- Co-manufacturer
- Storage costs
- Sales costs (Amazon, eBay, Wayfair, Walmart marketplace, EDI)
- Etc.
For an inventory business Product Forecasts are essential.
We need to be able to predict our inventory needs based upon some form of sales analytics. Making purchasing decisions is where science meets art. Forecasts should be based upon the following:
- Prior product sales (prior month, quarter, year, etc.)
- Adjustments for special situations (for example you won a large one-time contract).
- Seasonality (if applicable)
- Current market conditions (has something disrupted the market for one or more of your products?)
- Availability of products or materials.
Money tied up in inventory is money that can’t be used for other purposes. Space taken by obsolete, non-moving inventory is space that can be used for current inventory.
Evaluate and utilize alternate suppliers. Sometimes ordering from suppliers that may be more expensive on the surface, but have more rapid availability, resulting in less holding or landed costs which ultimately can result in higher profits. These alternatives also allow you to fulfill orders that you may lose because of availability.
Order Fulfillment needs to be reviewed and updated. If you find yourself having order errors causing you to have to reship orders and coordinate the return of the incorrect items (or worse telling customer to dispose of or keep the wrong items), you will need to review your pick/pack/ship processes. Every incorrect order costs time, money and creates customer dissatisfaction. Speed and accuracy are the name of the game for an efficient pick/pack/ship process.
It may even be prudent to investigate a barcode solution to drive accuracy in conjunction with a warehouse management strategy that will allow for efficient picking. Or even look at utilizing the capability of a 3PL (third party logistic) to manage your pick/pack ship, thus reducing overhead.
Drop shipping is an important strategy. If you haven’t talked to your suppliers about their drop ship capabilities, you are likely missing an opportunity. Drop shipping reduces your inventory investment, and your warehouse overhead.
You can also become a drop ship supplier to your customers. This may drive additional revenue.
In summary: Exploring additional sales channels and methodologies, utilizing product forecasting methods, and driving efficiency with your pick pack ship processes will set you up for success inside your supply chain.
