10 Supply Chain Gotchas, and How to Avoid Them
Supply chain mistakes can cost big bucks. So companies should be aware of these 10 common supply chain errors.
The larger an industry grows, the easier it is for participants to make mistakes, and the supply chain industry, estimated by Fortune to be at $1.3 trillion and growing, is no exception.
Here are 10 of the most common supply chain mistakes and advice from experts on how to avoid them:
Lack of Supply Chain Transparency
A common supply chain mistake companies make is operating without complete end-to-end visibility into their supply chains, said Chris Kushmaul, IDV Solutions’ director of supply chain and vice president of finance for the American Production and Inventory Control Society’s greater Detroit chapter. "If you don't know where your raw materials originate from, what locations they will have to pass through, where your distributors are located and where your finished goods will travel, that could be costing you in efficiencies today and will hamper your risk management efforts in the future."
Ignoring Supply Chain Data
Data is the most valuable commodity for a company, said Akhil Oltikar, vice president of supply chain solutions at Riverwood Solutions. "Every single minute in operations and global supply chain management generates data, be it product testing data, transactions, pricing agreements, logistics, material costs and even tacit data like email communications between teams."
Companies need to examine which kinds of data can be used to make better business decisions, which will help them create appropriate strategies for capturing, storing and analyzing data, he said.
Not Planning for Business Disruption
"Companies must be prepared for business disruptions by having in place an overall risk management and resilience plan. They must perform rigorous analysis of their supply chain network to uncover its vulnerabilities and manage risk," said Jeff Karrenbaur, president of Insight, Inc. , adding that many businesses are not prepared for the potential supply chain disruptions that affect their bottom lines when they have trouble obtaining raw materials or getting finished products through ports.
Choosing Too Many Partners
"Unless you are billion-dollar brand owner with very tight process controls, systems, support infrastructure and massive upfront demand for new products, launching a new product simultaneously with multiple suppliers creates considerable added complexities that can actually increase the risks you’re seeking to mitigate,” Oltikar said. "With a multiple contract manufacturer launch, the brand owner is faced with managing two of everything – a process that is far more complex than simply doing the same things twice. Managing the complexities introduced by launching a new product at multiple contract manufacturers almost always slow things down and causes more problems than it solves."
Going Too Lean
Lean supply chains are popular for companies trying to control costs. However, Karrenbauer said, companies with lean supply chains can be caught unaware if demand changes suddenly. "The leaner the supply chain, the more significant the changes need to be to get up to speed," he said.
"The average loss from supply chain disruption alone can be in the millions of dollars," he added. "If you focus your supply chain goals on lean, the more brittle your supply chain will become, making it susceptible to failure from even the slightest event, such as losing a supplier, rising fuel prices and natural disasters. There needs to be a balance between efficiency and resiliency."
Lack of Cyber and Physical Security Controls
"We hear about security breaches in the industry in the news more frequently than any of us would like, and there seems to be a lack of intellectual property security measures in place by some vendors," said Ray Winkel, supply chain manager for MBX Systems. He suggested that vendors serving the supply chain should secure their networks through practices such as using SFTP (secure file transfer protocol) for file transfers, restricting access to imaging servers to all but authorized users, and using a version control system to track and report changes to each image deployment routine.
Edna Conway, chief security officer, Global Supply Chain, for Cisco Systems, said that vendors often overlook security flaws that can result in disclosure of sensitive customer and supply chain data and others that can slow or harm business operations. Such security compromises can be minimized by employing a secure supply chain data, measurement and reporting architecture, along with a thorough understanding of collection points and repositories for all sensitive data, as well as defined third-party “entry points” with controlled access.
Companies are also often unaware of product tampering, Winkel said. "At the bare minimum, companies should use locks and seals to protect their products from such risk and make it easy to identify any tampering. Companies should use access control procedures and have accountability protocols in place to track product activity, including who is responsible for it throughout transit."
Lack of Optimized Business Processes
"Coming from a simple ecommerce solution, many small business owners ignore monitoring the steps that come before a product enters their business or what happens if that product needs to be returned after it's been sold," said Dimitris Athanasiadis, COO of Megaventory.com, adding that following industry best practices is the first step in creating a successful supply chain.
Not Aligning Application Design to Business Strategy
Many failed supply chain application implementations can be traced back to a failure to properly understand and align to the business strategy, said Bob Derocher, principal of The Hackett Group. "This can be addressed by explicitly linking the selection and design of applications to specific features of the business strategy. For example, if the company plans to grow by acquisition it will be important to select a package that is scalable across multiple different business models and can be quickly implemented in an acquired business."
Not Creating Effective Vendor Relationships
Price is not the only factor when negotiating with vendors, said Sue Wilson, vice president of supply chain management for Toshiba America Business Solutions, and companies must be careful to consider other areas such as performance and customer service. "Find a vendor not just offering the lowest price but one that is willing to be a partner and offer solutions to assist with your supply chain issues. Those types of vendor relationships yield so much more to the bottom line as it relates to reduction in inventory, employee performance and increased throughput."
Operating in Silos
Companies that operate in silos are inefficient, sluggish and victim to risk, said Greg Johnsen, co-founder and CMO of GT Nexus. "To avoid operating in silos, businesses must take a networked approach. Organizations that do so operate far more efficiently. They're agile and fast. They benefit from supply chain visibility, collaboration, customer centricity, supply chain transparency and operational excellence," he said.
Phillip J. Britt's work has appeared on technology, financial services and business websites and publications including BAI, Telephony, Connected Planet, Independent Banker, insideARM.com, Bank Systems & Technology, Mobile Marketing & Technology, Loyalty 360, CRM Magazine, KM World and Information Today.