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How to Establish an Efficient Supply Chain

For companies that work exclusively in the production and/or sale of goods, receiving and delivering products efficiently and legally is vital to a successful operation.

A supply chain is the route a product takes from raw materials, through production links, to storage and then delivery to the customer. An efficient supply chain requires properly aligning supply and demand to meet the needs of a consumer.

Efficiency in a supply chain means a better final product, customer satisfaction, lower costs and larger profits. Follow this guide to establish a dynamic supply chain that is optimized at every point.

Set up your supply chain in a series of connected phases

A supply chain typically begins with the product design, which dictates what raw materials you will need to build the product. Once the materials are sourced, the chain then follows them through production, assembly and/or construction and then to storage. The final step in a supply chain is the delivery or distribution of the final product to the customer.

While setting up your chain will vary depending on the type of business, there are some general suggestions and resources for a basic setup. Some common points in a supply chain and options for approaching these points are:

Raw materials

For most products, you will want to source your materials in bulk for a discounted rate. Trade websites like TradeKey and Alibaba.com have a lot of cheap, quality materials from verified suppliers. You can search materials by product category or browse wholesale. These sites can provide a good starting point for gathering raw materials anywhere in the world.

Production

The production phase involves assembling and constructing your product. If you are manufacturing in-house, be sure to consider the cost of labor and the length of production schedules. If you choose to outsource to a contract manufacturer, companies like Arena PLM and Outsource Manufacturing can help you with this process.

Storage

For small-scale operations, you may be able to use your garage for storage, but as you expand, you will need to explore storage options. You can search for commercial real estate (including warehouses) for sale or rent on sites like Rofo or Realtor.com. You may also choose to store with a warehousing service, such as Averitt Express or Extra Space Storage, which are specifically tailored to business storage needs.

Delivery to customer and distribution

Delivering the product safely to the customer is the final (and in some ways most crucial) step. In some cases, you can avoid the responsibility of shipping through a process called drop shipping. If you plan to manage the shipping yourself, however, there are several popular options. UPS offers reliable shipment tracking and also occasionally gives discounts to businesses. FedEx offers fast delivery and small business support as well. Read more about setting up a shipping system here.

Once you have established relationships with each point in your supply chain, you must create a relationship between the links in the chain.

  • Once you have established your chain, review each point, from your product creation to delivery, to find flaws or areas that need improvement. For example, does the product take too long between sourcing the raw materials and being manufactured? You should always be brainstorming potential ways to establish a more streamlined process and consistently satisfy customers.
  • Collaborate at each level and connect each point. Provide each company in the chain with relevant information about other members of the supply chain, and consider even taking them all out to lunch or at least hosting a conference call so that all of your suppliers feel comfortable interacting with one another.
  • Consider not only stops in product creation, but those in transportation and delivery as well.
  • Provide incentives for each level of the chain to improve in speed, efficiency or quality.

Find a balance in your safety stock

You need to match supply and demand with minimum inventory and labor.

  • You don’t want too much or too little. Supply must adequately meet demand, so track your needs and properly document your stock.
  • For products with demands that are difficult to predict, like cutting-edge tech items or popular toys near the holidays, you run the risk of shortage. For times like these, you need to be able to respond quickly.
  • Quick responses can be more easily made when you thoroughly track data and sales and then communicate this data with each level in the supply chain.

Involve your marketing department as part of your supply-chain management

They can help you track changes in the market and adequately predict the demand for particular products.

Adjust to changes in the market as well as problems within the chain

You need to leave room to adjust for potential problems and to modify steps in the link when necessary.

  • Be flexible and restock when necessary to avoid running out of product. At times, this may mean more money for transport or delivery, but it’ll result in more customer satisfaction in retail. If a product is out-of-stock, the customer will buy from a competitor.

Focus your delivery system on customer satisfaction

This means ensuring the package is shipped in a timely manner (which matches the predicted shipping date) and that the package is secured properly so the customer receives an undamaged product. You also must collect the right data from the customer the first time to make sure there is no delay in shipping. Get the customer’s address, not P.O. Box number, and the customer’s phone number in case of issues.

You need an organized system for order management and customer satisfaction

This can be provided through a software program like AFS Enterprise or JDA Software. This allows you to find flaws in the chain and repair them as necessary while ensuring that each link is accountable for the final product. It also allows you to track orders and fulfillments as well as customer reviews of the product and delivery.

Be aware of the legal issues surrounding supply-chain management and make sure you are compliant

Some of the regulations you need to be conscious of include:

  • Be knowledgeable about the Uniform Commercial Code regarding participation in business transactions outside of your state.

For a full list of regulations relevant to supply-chain management, visit Legal, Government and Regulations for supply chains.

For further help, refer to this Supply Chain and Sourcing M&A Integration Checklist for planning purposes.