The simple test that AMC uses is this: Are you delivering your customers what they want, when they need it – and are you spending as little time, efforts and money as possible accomplishing that?
If you can’t answer that question with a clear yes, than clearly your supply chain needs optimizing. Supply chain cost have a big impact on your bottom line results.
How do you know if you’re spending as less time, efforts and money as possible on cost of goods, on inventory, on shipping, on warehousing, on labor, on overhead.
Your end-to-end supply chain doesn’t begin with your suppliers. Your Tier 2 suppliers are the suppliers who provide components, raw materials and sometimes services to your suppliers.
If you don’t know who your Tier 2 suppliers are – and don’t understand the products they supply, what their costs are and what their lead times are – your end-to-end supply chain needs optimizing.
COGS management is like car maintenance. Just because you’ve changed the oil and rotated the tires at 10,000 miles, that doesn’t mean your car will run smoothly for the next 100,000 miles. And just because you’ve negotiated a low price with your supplier, that doesn’t mean you shouldn’t renegotiate once your suppliers have optimized their own internal production processes.
Your own suppliers are doing what they can to supply you what you want when you want it – and accomplish that by spending as little money as possible. But if you and your suppliers aren’t sharing demand information they run the risk of not carrying enough inventory to meet your needs.
In the case of your end-to-end supply chain, the P’s and Q’s refer to the RFP’s and RFQ’s (and RFI’s). These Requests for Proposals, Requests for Quote (and Requests for Information) are the supply chain and sourcing managers’ tool to ensure that their suppliers are providing the highest quality, lowest costs, and latest innovation.
Contrary to what the age-old adage, “poor planning on your part, does not constitute an emergency on mine,” might suggest – poor planning throughout your end-to-end supply chain does constitute a emergency.
Actually, “emergency” might be the wrong word – it’s more like additional “expedited and overnight fees” which can be even worse, if you’re a CFO, than an supply emergency.
How can you be sure that what your warehouse management system or resource planning system tells you what you have on hand is actually what you have on hand? Every company’s goal should be 100% inventory accuracy and the only way to accomplish that is by conducting regular, systematic cycle counts and physical inventories.
Without 100% inventory accuracy, you may or may not be able to ship to your customers on time. Lack of inventory accuracy also means that you’re buying inventory that you already have on hand or you’re buying items you don’t need.
Yes, your customer might send you forecasts. And, yes, your customer might even send you long term or blanket orders. But does your customer know what it actually wants – and when it wants it? You should know better than they do.
You can use your customer’s demand information (forecasts, orders) as a starting point. But you can do so much more in a robust demand planning environment. You can use history, market analysis, seasonality, competitive landscape and other factors to understand your customer needs better than they do.