(Bezoek onze Nederlandse website voor een Nederlandstalige versie van deze blog)
My mother taught me early on that I should look at myself first. Although my mother is a wise woman, this lesson does not always apply to supply chain optimization. Companies are links in larger supply chains with suppliers on the one hand and customers on the other. The focus of our clients lies (too) often on optimizing the internal supply chain. For example, on rapid replenishment of stocks and even shorter lead times in the production process. However, there are much more and sometimes easier efficiency gains to be found in the entire supply chain. Containing external uncertainties can result in a major optimization of internal processes. Therefore, in this case, look at someone else instead of yourself.
Supplier side efficiency gains
Make reliable agreements with suppliers. Sometimes it is wise not to ask the utmost in terms of short delivery times. For the control of the internal supply chain it is more important that the delivery of raw materials is reliable than that it is fast. A guaranteed delivery time of 3 weeks is preferable to a delivery time that varies between 1 week and 4 weeks.
Contribute to constant supplier delivery times yourself. Colleague Joni Radelaar stressed the importance of sharing information in his blog (in Dutch) about making reliable agreements with suppliers. He mentions the benefits of sharing expected future orders. Suppliers can organize their purchasing and production processes accordingly.
For repairables this is also the case. Constantly changing turnaround times make it difficult to control the supply chain. A large variation in repair times results in deliveries that are almost never exactly on time. Shipments arriving too early are taking up valuable space in your warehouse. Shipments that are late are disrupting the production process and can lead to a production stop.
Another possible improvement is to formalize agreements with suppliers and repair vendors in performance-based contracts. This ensures that payment is based on the performance that is delivered. Gordian supports the Ministry of Defence in drawing up such contracts with a supplier of armoured vehicles. For example, by including a shared repair forecast and a penalty construction on the delivery performance in the contract, the availability of this vehicle has increased.
Customer side efficiency gains
Cooperation is also possible on the other side of the supply chain. For example, start discussions with customers about peak orders and structural rush orders. A peak order is seldom required immediately in its entirety. Spreading the order out over time prevents a lot of stress in your production process.
A rush order implies that standard processes cannot be followed. This puts the internal supply chain under pressure. However, rush orders are still common practice. Some of these are inevitable; there will always be exceptions where haste is justified. Strive to eliminate the remaining part. Customers with structural rush shipments make my alarm bells ring. Is there a real urgency behind the customer’s requests? I regularly find that this problem is created by sales or account managers who agree on (too) favourable delivery conditions to win a contract. If, for example, no additional cost is charged to the customer for an urgent shipment, the customer experiences the delivery time for urgent shipments as standard and applies it accordingly.
Contact with customers about rush and peak orders is a good start. A next step is customers who share their expected demand. Customers who issue a reliable forecast ease the purchasing and production process. Variations in demand can be more easily absorbed in the production planning if they are known in time.
Making agreements with supply chain partners offers a variety of opportunities, both at the front and at the back of the supply chain. Record these agreements in contracts and SLA´s. But do not forget to manage these agreements! In his blog (in Dutch), colleague Ramón de Rooij describes that poorly executed contract management leads to discontinuity of delivery, frustration and irritation within the organization of both parties. Research has shown that poor contract management has a negative impact of 9.15% on the operating result.
The above actions may seem simple to perform. However, reality is more difficult. External communication is often not yet developed well enough within companies. Good communication goes beyond talking to each other; the right people have to talk to each other. Commercial departments have regular contact with suppliers and customers. These departments, however, have little insight into logistic inefficiencies. If there is already a logistics expert at the table, he is often facing someone with a commercial background. Due to the difference in backgrounds and interests, suggestions for improvement processes are not heard.
Another problem is that companies are often reluctant to share information with third parties. Writing agreements down and formalizing them is a solution. Agreements can also be made about data storage or the rights that can be derived from a forecast. For example, one of our customers sends its suppliers a forecast cut up in three parts:
- The short term with guaranteed purchases per date;
- The medium-term with guaranteed purchases, but without a date;
- The long-term with expected purchases. These purchases and dates are not guaranteed, but give an indication.
Team up and share efficiency gains
Collaboration with suppliers and customers offers you the opportunity to strengthen and optimize your internal supply chain. In this blog I described some measures on the supplier and customer side as examples, but the potential is larger. The most important steps you can take to initiate cooperation in your supply chain are:
- Get the right people to talk to each other;
- Be open to sharing information;
- Put agreements in writing and manage them.
See if you can start with some quick wins. These can be companies with whom you already have a good relationship. Take it from here and develop cooperation in the supply chain. This leads to partnerships with suppliers and customers and allows you to better control their influence on your supply chain. This results in less time spent managing issues caused by suppliers or customers. In addition, a constant input and requested output result in a more stable flow in your own production process. The time you save is an opportunity to work on further growth and optimization.
Feel free to contact us if you want to learn more about what supply chain collaboration can do for you. We will gladly discuss this with you over a cup of coffee at our office in Maarssen or via a conference call!