Seven golden rules of supply chain management

29 July 2020 (Last Updated July 30th, 2020 10:29)

Supply chain resilience has been sorely tested by Covid-19. We speak to Professor Richard Wilding, who outlines seven strategies to help your operations cope.

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Seven golden rules of supply chain management

Supply chain resilience has been sorely tested by Covid-19. We speak to Professor Richard Wilding, who outlines seven strategies to help your operations cope.

If ever there was a time for a robust supply chain, it is now. None of us has any real idea how the coronavirus pandemic will pan out, at what cost, or for how long. And while the protection of human life is paramount, it’s also imperative for businesses to remain organised enough to continue to provide the goods and services that keep the world turning.

But that can be difficult or next to impossible if your supply chain is creaking, or worse, falls apart.

“Every single part of that journey is potentially vulnerable to disruption,” says Professor Richard Wilding OBE, professor of supply chain strategy at Cranfield University. “And they are all parts of a whole – meaning that if one part of the chain goes down, it immediately impacts the whole operation.”

How do you mitigate that risk – and ensure you keep up the inflow of supplies to your business so you can do your best by your customers?

1. Collaborate

“Supply chain management is actually about managing relationships with all key stakeholders, to ensure value for the final customer by reducing cost for the supply chain as a whole,” says Wilding.
“If you’re managing stock processes, or inventory or logistics, you have particular methods, computer software, to make sure everything runs smoothly. Most businesses have performance metrics to measure everything – except relationships. Yet that’s an essential part of that chain, without which none of the other things can happen.”

Wilding recommends businesses explore international standard ISO 44001: Collaborative Business Relationships. “It sets out the process that can really make a difference to those vital connections,” he adds.

2. Location, location, location

You need to know where your suppliers and your customers are geographically. “That way, when a disruption occurs you have more chance to see it coming,” says Wilding. Using that knowledge with other technology, such as geo-tracking software, can also help you plan alternatives.

“It might be an area in lockdown, say, or an economic situation that you think will affect a region. You could even track natural events, such as the paths of hurricanes or extreme weather conditions, so you get warning of situations that will impact your suppliers or your customers and work out alternatives accordingly.”

3. Know how you create value

This sounds like a more general strategic action – but it underpins the effectiveness of your supply chain. “Identifying and understanding how you create value helps you physically deliver it,” says Wilding.

“There are four elements in value creation: processes, infrastructure and equipment, information systems, and people. If one of them gets disrupted, you need to know how you can still deliver the value – and the knock-on effects that will have. An example in the current climate is shop closures. That’s a disruption to your infrastructure, so you sell online, but you need to understand the impact on the other three elements.”

4. Understand your capabilities

What are you really good at? What is your key competence? And how can you use it to maintain your supply chain?

“If you need 1,000 items but then say, ‘just to be safe I’ll order 1,200’ that’s immediately increasing volatility, affecting demand and impacting the entire chain”
Richard Wilding OBE, professor of supply chain strategy, Cranfield University
Joyously anarchic craft beer-maker BrewDog used one of its key competences to tackle the current crisis – and make its own range of hand sanitiser. Punk Sanitiser Brewgel is made with a broadly similar process to its beer, brewing a concoction of alcoholic liquids. Gin producers Verdant Spirits in Dundee, Bristol business Psychopomp and 58 Gin in London are following suit, as is French luxury retail brand Louis Vuitton.

“They have all identified their skills and adapted them to the situation,” says Wilding. “Other businesses could look at their competencies by, say, making their electrical components for respirators or using their logistics skills to transport emergency goods.”

5. Time and transparency

“Time is the critical dimension of the supply chain,” adds Wilding. “You need to understand its value. We plot process against time, cost against time, demand against time. How do you measure the value of time spent? Does it physically change the product or service? Is that change something the customer will value? Might they pay more for it? And can you use that time to get the product right first time?

“Then, if you use time rather than cost as a lens to view processes, that leads to greater transparency. Time is the same for everyone and it helps to understand demand.

“However, if you don’t value time properly, and therefore you don’t have transparency, you lose the third T, which is…”

6. Trust

A very clear example of this is the recent stockpiling that has cleared supermarket shelves.

“If we don’t trust, we do crazy things,” says Wilding. “If you’re a business and think you need 1,000 items but then say, ‘just to be safe I’ll order 1,200’ that’s immediately increasing volatility, affecting demand and impacting the entire chain.

“With the stockpiling, customers didn’t trust that the supermarkets would have enough supplies, and didn’t trust politicians telling them the supply chains were OK. In situations like that, it’s helpful for the businesses to be transparent, to open a window on its operations – even by posting pictures showing lorries full of supplies being loaded or heading to the supermarkets. When the trust increases, behaviours will go back to normal and supply chains will settle down.”

7. Understand your cost to serve

How much does it really cost to serve your customers? “If you are, say, a retailer that’s gone online, it affects all your margins, especially if you then do home delivery,” says Wilding.

“You need to average out your costs and ensure it’s worth your while – the hours, the fuel, the lorries, the staff to deliver your goods add on around 20% to the cost of each item. And if you do free delivery, the price to deliver every item averages out the same – so it will cost you the same to deliver, say, an 8ft whiteboard as it will a pen. So, you need to work out why you’re doing it, if you do it for every item and where that service fits in with your overall strategic goals. Is it worth it?

“Essentially the key to successful supply chain management is understanding how it fits in with your business’s overall goals. Supply chain is not separate, it impacts and is impacted by every part of your business.”