11 supply chain management best practices

The supply chain encompasses the entire process of producing and distributing goods or services, from procuring raw materials to delivering finished goods to customers. Accordingly, by increasing supply chain efficiency, businesses can improve their ability to meet customer expectations, build resilience against supply chain risks, and enhance their working capital position.

Successful supply chain management (SCM) is one of the most effective ways to increase supply chain efficiency. It allows companies to refine and optimize their supply chains based on specific business objectives, tailoring each step in the process to contribute towards their overall goals.

There’s no one way to handle supply chain management, with different approaches suiting different objectives. But, by adopting the following 11 best practices for supply chain management, businesses can lay the groundwork for a successful strategy and build a supply chain that meets their needs:

1. Establish clear objectives

Start by setting clear objectives. By factoring in the requirements of different stakeholders – including shareholders, employees, suppliers, customers, and the wider community – companies can create clear and realistic objectives for their overall supply chain management strategies.

These objectives can include building resilience against external threats, meeting ESG goals, reducing costs, and ensuring that goods flow promptly through the supply chain.

2. Adopt supply chain management technology

As supply chains become increasingly complex, traditional, paper-based, or heavily manual approaches can prove inadequate. But by adopting supply chain management technology, businesses can gain access to tools that help them meet their supply chain objectives.

For example, a digital SCM platform can simplify supplier management and offer increased supply chain visibility while also offering centralized access to solutions like supply chain finance (SCF), which they can use to strengthen their working capital position.

3. Source suppliers strategically

Supply chains are ultimately made up of suppliers. So, choosing the right suppliers – a process known as strategic sourcing – is vital when it comes to establishing a strong and efficient supply chain that ensures business objectives are met.

While the cost and quality of goods and services are important, companies may consider other factors depending on their priorities. These can include suppliers’ minimum order requirements and overall capacity, ESG ratings, payment and credit terms, and overall financial health.

4. Build healthy supplier relationships

Establishing effective lines of communication with suppliers is one of the most important supply chain best practices, as it contributes to the efficient operation of the supply chain and reduces the likelihood of misunderstandings that cost time or money to resolve.

By using a robust and reliable supplier information management or supplier relationship management platform, companies can build better lines of communication with their suppliers and ensure that their needs and objectives are understood. This, in turn, can ensure that products received from suppliers are consistently of an appropriately high quality, procured at the right cost, and delivered on time.

Companies can also manage supplier relationships more efficiently by prioritizing the relationships that are most important to the business.

5. Choose the right inventory management approach

Different companies will opt for different approaches when it comes to inventory management. Some may focus on agility, adopting a just-in-time approach that minimizes waste. Others may prioritize resilience against external risks by maintaining safety stocks to mitigate future stock outages.

When implementing supply chain management best practices, companies need to choose the right inventory management approach to meet their objectives. They can also harness inventory management tools, such as inventory management solutions, that can monitor levels of stock for optimal output.

6. Plan for supply chain risks

Since supply chain disruption can have major consequences for a business, it’s important to carry out regular supply chain risk assessments. Companies can thereby identify, assess, and mitigate risks within the supply chain, including those posed by suppliers.

As well as taking steps to mitigate the most serious threats, companies should consider building resilience into their supply chain. For example, the PPRR approach – Prevention, Preparedness, Response, and Recovery – involves being proactive with preventive measures and ensuring that contingency plans are in place.

7. Consider ESG in your approach

Environmental, social and governance (ESG) strategies are no longer just about ethical choices but are increasingly connected to resilience and efficiency. What’s more, with customers increasingly preferring to buy from companies with good ESG credentials, ESG has become progressively more important in supply chain operations.

Companies can improve their SCM approach in several ways to meet ESG goals. These include boosting the use of energy from renewable sources, increasing low- or zero-emission transportation, and adopting recycling systems to source and dispose of materials.

8. Improve demand forecasting

Demand forecasting is a process that companies can use to estimate their customers’ future demand for a product or service. Without an accurate demand forecast, businesses may struggle to respond to changes in market trends and consumer behavior. This, in turn, can lead to stockouts and resulting missed revenue or excessive inventory carrying costs.

By increasing the accuracy and breadth of their demand forecasting capabilities, businesses can improve their ability to procure the correct raw materials or components in the required quantities, thereby increasing the efficiency of the supply chain.

9. Take advantage of supply chain finance opportunities

While a supply chain is, first and foremost, a logistical feature, ensuring the timely delivery of goods or materials, it’s also a value center. Companies will often have significant amounts of cash tied up in their supply chain, often mostly in the form of accounts receivable or outstanding money owed by customers.

Therefore, supply chain best practice also includes the use of solutions that can unlock this capital, such as supply chain finance (SCF) and dynamic discounting:

• SCF – a solution that enables suppliers to receive early payment on their invoices – can provide working capital benefits for both buyers and suppliers, thereby increasing the stability and resilience of the supply chain.

• Dynamic discounting – enables suppliers to receive early payment in exchange for a discount on their invoices. Suppliers can typically receive payment at any time between the invoice being approved and the agreed payment terms – the earlier the payment, the greater the discount received.

Companies looking to strengthen their working capital position should explore the financing options available and consider making use of the solution that best suits their needs.

10. Measure supply chain KPIs

A company can measure its approach to supply chain management against pre-set key performance indicators (KPIs). These metrics can help the company evaluate the efficiency and effectiveness of its supply chain processes and identify any shortcomings.

Which supply chain KPIs businesses choose will depend on their supply chain objectives. For example, metrics such as customer order cycle time, inventory turnover rate, and perfect order delivery rate are indicators of supply chain efficiency and performance. Days payable outstanding (DPO) and the cash conversion cycle, meanwhile, are indicators of working capital health.

11. Run regular reviews

Last but not least, companies should take a flexible approach to SCM. Through the regular review of supply chain management best practices and policies, procedures, and processes, the supply chain can be continually adjusted to ensure that it is operating efficiently.

Through biannual or annual reviews, companies can reevaluate their risk exposures and formulate mitigating responses. This can include aligning their strategies to a changing landscape, adapting to new customer needs, and responding positively to technological advances. Companies that align themselves with evolving trends and continue to develop their offerings will be better placed to maintain or enhance their market positions.