A supply chain is not just from a supplier to your warehouse, but rather from a Purchase Order through to Supplier, Delivery of product to a customer and receipt of payment and, hopefully, feedback on the product. Here are a few things to watch for as indications that you supply chain needs a review:
Consistently Over (or Under) Buying
Depending upon the type of inventory (A, B, C, or D) and your buying cycle, you should have just enough inventory to represent your demand across a lead time for that product.
- If your lead time is 90 days, you should be able to hold inventory in the amount represented by your demand during that 90 days
- The shorter the lead time, the less inventory is needed.
- The less volatile a lead time, the less inventory is needed
Poor Incoming Quality
- You’re constantly running out of product even though you’re purchasing the proper amount
- Product arrives damaged, out of specification, or poorly assembled. Poor incoming quality increases your Cost of Quality, a hidden cost to dealing with a supplier
Inconsistent Lead Times
- Is there an issue with the transportation issue (shortage of truckers or ports backed up)?
- Is your supplier unreliable?
- After spending the time to segregate your inventory, you recognize that several of your high volume items (A and B inventory) are sourced at just one factory or at one company
- Having a single source eliminates your leverage for product improvement and exposes you to both interruptions to supply and cost increases.
Costs Rising faster than market
Are you getting multiple price increases from suppliers over a season or year?
- Might be due to volatile market conditions OR a supplier who has become complacent
- Having alternative vendors is the best antidote for complacent vendors
A supply chain review is typically done each year or two, depending upon your sales and purchasing cycle. If you’d like help doing so, reach out to someone at Forsyth Advisors for guidance.