Top 15 Supply Chain Best Practices (2024)

Emerging technology and an increasingly globalized supply chain are driving forces inthe evolution of supply chain processes, but the skilled workers needed to run theseoperations are in short supply. In fact, only 38% of supply chain leaders areconfident in their current supply chain team’s abilities to compete in today'smarket.

Overcoming this shortage of skilled workers and closing the skills gap requireseffectively finding new talent with the required knowledge. To achieve this, manysupply chain leaders are hiring staffing companies that specialize in supply chainrecruitment. Building relationships with universities to establish a pipeline ofstudents in supply chain, logistics and project management programs for internships,entry-level positions and professional development is another effective avenue forsourcing talent with the necessary skills.

It's also essential to provide career development opportunities for supply chainstaff. That means first investing in high-quality training to bolster currentemployees' skillsets. Building clear roadmaps for promotions and focussing oncross-functional job mobility also helps companies retain their talent and develop awell-rounded team that understands every level of supply chain operations.

Effective cross-business execution is integral to establishing an efficient supplychain. However, too often, each function of the supply chain operates like adistinct entity, separated by business units, varying priorities, disparities intime and resources, siloed systems and procedures and even geography. That oftenleads to information gaps, slow communication, errors and inconsistent processes.

So how can supply chains be more efficient with such disjointed teams? Creating aspecific role that coordinates activities and communication between the relatedbusiness units can help by facilitating collaboration and orchestrating tasks. Thisperson would develop standardized supply chain processes and ensure that teamleaders across the organization are on board by heading detailed discussions aboutthe strengths and weaknesses of current and proposed processes, as well as theimpact any changes have on each area of the valuechain.

Once that's complete, each supply chain group can put the standardized processes intopractice and make adjustments as necessary. Above all, from senior-level decisionmakers to warehouse staff, everyone should have a voice in the supply chainoperations to ensure goals and practices are aligned and encourage innovation.

Building strong partnerships with suppliers is vital to supply chain success, oftensaving expenses and improving reliability. If both sides treat this as apartnership, these relationships should be equally beneficial. That requiresbalanced problem resolution and co-creating goals that help both parties achievetheir objectives.

Companies should also look for suppliers that share the same values and principlesbeyond the basics, such as expertise, pricing and timeliness in vetting supplypartners. Things like environmental sustainability and social responsibility areessential points of agreement, as scandals like labor law violations can have adamaging impact on the companies they serve.

Taking advantage of economies of scale can be a cost-effective way to purchaseinventory. Understanding demand from all areas of the business and making a singlepurchase lowers supply chain costs via volume discounts and reduced administrativeand warehousing labor costs compared to multiple supply purchases.

While businesses can make one-time bulk purchases, there are two other ways to set upvolume purchases:

• Blanket orders establish a set price and quantity for productsdelivered as needed over a certain amount of time, often one year. That protectsthe buyer from price increases and can assist with inventory stability as youcan request additional products when stock gets low.
• Standing orders provide similar price protection as blanketorders, but supply deliveries occur in predetermined quantities on predetermineddates over a certain period of time. These provide less flexibility than blanketorders, but eliminate guesswork and short-term forecasting.

Supplier-side delays are one of the most common reasons for supply chain disruptions.A lack of availability of raw materials, import/export issues, weather and naturaldisasters, political and regulatory issues and other unforeseen obstacles can allslow down or even cease the delivery of supplies.

While it’s hard to predict delays, businesses can still account for and mitigatethese problems. Communication is the primary defense. One of the main benefits ofhaving strong alliances with suppliers is the ability to forge open and responsivecommunication that allows both parties to reach out as soon as possible once apotential delay is on their radar.

Anticipating when a situation may affect a supplier is a key to avoiding delaysbefore they become a more substantial problem. For example, the possibility ofplacing tariffs on goods from a supplier's country should encourage companies tosource alternative suppliers or make bulk purchases before the new laws go intoeffect.

Ultimately, the best way for businesses to overcome supplier delays is to invest insupply chain software with predictive analytics that can show exactly how much inventory is instock, how fast it's moving and how much you need in the future. Inaddition, diversifying your suppliers can help you when you predict a delay bygiving you something to actually do about it.

Having too much or not enough product in stock is a costly issue for companies. Theformer may mean that inventory isn't moving because sales are down or the businessmiscalculated demand and overbought. The second may mean that sales are up, butsupply is lagging, leading companies to miss out on revenue opportunities. Both areconsequences of inaccurate demand forecasting.

Forecasting errors have an enormous effect on the bottom line. Research shows that a15% improvement in forecast accuracy results in at least a 3% gain in pre-tax revenue. Accuratedemand forecasting enables businesses to have the correct quantities to meet bothcurrent and future needs and takes into account historical sales, sales forecasts,seasonality and promotions.

In tandem with demand forecasting, inventorymanagement is another crucial part of an efficient supply chain. Once abusiness can reliably predict demand, supply chain managers need to calculateoptimal inventory levels for current and future demand and develop replenishmentbest practices (e.g., ad-hoc supply restocking or one-time, standing or blanket bulkpurchases). Having visibility into inventory helps you forecast more accurately —without inventory visibility, you can't have accurate demand planning.

Another important aspect of inventory management is ensuring that it aligns withsupply chain objectives. That means determining where to make adjustments in youroperations, such as fixing inventory-demand mismatches, lowering total cost ofownership, accelerating the order-to-pay cycle, shortening delivery times orimproving document management.

Software that tracks inventory in real time, monitors the item's velocity andautomatically reorders stock per item- and demand-specific criteria provide valuableinsights into the strengths and weaknesses of a company's inventory managementstrategy and enable data-supported planning and decision-making.

Supply chain managers need to establish specific parameters by which they can quantify supplychain performance. These key performance indicators (KPIs) allow businessesto identify and analyze strengths and inefficiencies to enable data-supported goals.Among the most critical metrics are:

• Perfect Order Rate: This measures a supply chain's ability todeliver error-free orders. That means orders that arrive on time, in full,containing the correct items. A perfect order rate has one of the biggestimpacts on the bottom line, as it directly affects customer satisfaction andretention.
• Warehousing Costs: This metric is critical for establishing afinancially efficient supply chain. It encompasses all of the costs related towarehouse operations, including labor, rent and utilities, equipment, shelvingand pallet racks and technology. Supply chain managers should review this KPIregularly and make adjustments as necessary. However, businesses should analyzeany cost-cutting on warehousing expenses to understand its impact on other areasof the supply chain.
• Inventory-to-Sales Ratio: This KPI measures the amount ofinventory available for sale compared to how much is sold and helps businessesavoid over- or under-stocking items. It's calculated by dividing the amount ofavailable inventory by the amount sold and then multiplying that result by 100for a percentage.
• Inventory Velocity: This looks at the amount of inventoryprojected to sell within a given time frame, often a quarter or year. It iscalculated by dividing the inventory count at the beginning of the period by thesales forecast. This metric helps supply chain managers optimize inventorylevels by showing them how quickly items need to be restocked.
• Supply Chain Cycle Time: This metric calculates the overallefficiency of the supply chain. Shorter cycles are more efficient, leading tocompetitive advantages. Longer cycles can indicate bottlenecks or other painpoints that need to be addressed. Finding the supply chain cycle time requiressupply managers to measure how long each step of the supply chain takes, fromsourcing suppliers and order placement to customer delivery and final payment.It assumes inventory levels of zero and is calculated by adding the time eachstage of the supply chain takes together. It's most helpful to use the longestlead time for each stage, as that provides more wiggle room for delays.

Constant communication, timely updates and reliable documentation are crucial to anefficient supply chain. Businesses need true end-to-end supplychain visibility and must account for every aspect, including suppliers,partners, warehouses and shipping carriers. Real-time data sharing across the supplychain provides a bird's-eye view of the entire chain and more granular informationabout each node. The benefits of this visibility even reach the customer in the formof real-time tracking of deliveries.

Managing purchase orders, customs paperwork, inspection reports, bills of lading andother supply chain documentation can be a complicated process. Since supply chaindocumentation involves multiple business units, it often suffers frominconsistencies, disconnects and misalignment of processes and goals due to siloedfunctions and departments. That creates confusion and can reduce responsivenesswhile increasing errors.

Investing in a solution that provides a centralized hub for all supply chaindocumentation and serves as a comprehensive source for decision-makers to review andmanage all of a company's supply chain activities can provide greater clarity overend-to-end processes while eliminating ad-hoc, disparate document management.

The order-to-pay process, also known as the procure-to-pay process, encompasses allof the steps involved in an order, from requisition to final payment. This processusually includes various departments across the company, including finance, sales,warehousing and logistics, all of which are likely using different systems tofulfill their requirements. If operations are fragmented, this can cause manychallenges, namely data discrepancies, lack of responsiveness and misalignment ofactivities.

Addressing these challenges might involve companies automating the order-to-payprocesses with a unified platform that can simplify the entire process by addressingeach step. Everything from vendor management and the issuance of purchase orders todelivery and final payment recording can be centralized and automated, improvingvisibility across the entire cycle, driving key insights and boosting efficiency.

While compliance with various laws and regulations is a chief driver of supply chainsustainability initiatives, being a leader in this realm can also bolster acompany's brand value and reputation and its bottom line. A survey found that that43% of consumers expect businessesto hold themselves accountable for their environmental impact and that productsmarketed as sustainable grow 5.6 times faster than thosethat are not. These stats point to an increasingly environmentally consciouscustomer base that is becoming more focused on the sustainability of the businessesthey buy from.

The goal here is to actively minimize the environmental, social and economic effectsof the supply chain. That means finding innovative solutions to evolvingenvironmental and social issues and meeting and exceeding expanding environmentalregulations. It also means making conscious decisions regarding the supply chain'ssocial and environmental impacts, such as only partnering with suppliers that upholdhigh standards for labor conditions or purchasing inventory and materials fromenvironmentally-friendly sources.

Supply chains are inherently full of risks. Natural disasters, raw materialshortages, port disruptions, trade disputes, theft, cybersecurity breaches,non-compliance with laws and regulations and reputational damage all representpotential supply chain disruptions. Known risks such as distribution limitations,demand fluctuations, supplier issues and regulatory non-compliance can beidentified, measured and managed, and it’s often possible to quantify their impacton the supply chain.

Unknown risks, on the other hand, are both difficult to predict and difficult tocontrol. They include natural disasters and geopolitical events and are challengingto quantify or incorporate into the supplychain management framework.

Diversifying solutions is the best way to mitigate both types of risks. That meanshaving alternative suppliers, partners, facilities and production processes.

However, having backups isn't always feasible, especially for proprietary items. Inthese cases, companies that can proactively predict, assess and plan for disruptionscan ensure they have alternative supply chain functions. Advanced predictiveanalytics are powerful tools in predicting and mitigating known and unknown risks,leading to more actionable strategies. In the same vein, managing supply chaincompliance risks requires access to the latest information regarding legal andregulatory changes, automatic documentation and operational integration.

The total cost of ownership (TCO) encompasses all of the costs associated with everyaspect of the supply chain. It's how businesses account for each activity's costswithin the supply chain, including material acquisition, storage, selling,transportation, currency exchange costs, trade incentives and restrictions.

The key to making adjustments in this area is to use the TCO to make informeddecisions with all of the supply chain nodes and other business units that take apart in strategic decisions. That's because there are usually unforeseenconsequences to cutting costs to simply achieve a lower TCO. If, for example, adelivery partner can provide a low purchase price for bulk orders, but there's notenough storage space in the warehouse, then the cost may increase due to theadditional staff and space needed to organize and house the items (includingpotentially paying a third party to hold the inventory).

Most businesses employ multiple systems to manage their supply chain operations.These often include basic programs such as Excel spreadsheets and applications thatare then integrated with the enterprise resource planning (ERP) system. As describedin the sections above, the issue is different parts of the supply chain often usedifferent systems and manual processes to perform supply chain tasks. That can be acostly mistake in the current fast-moving business environment.

A successful, efficient supply chain relies on access to real-time information and supply chainanalytics to ensure data-driven strategies and enable swift action whennecessary. Automation, predictive analytics and digitized documentation are alreadymaking supply chains more efficient and cost-effective. However, the most powerfultool in supply chain optimization is a comprehensive supply chain managementsolution that can handle all aspects of the business, from all operationalfunctions, to sales and marketing, to finance.