There is a wide range of challenges that can impact the supply chain, and it is this complexity that leads companies to make mistakes that cause customer frustration. In particular, the processes and technology to support distribution requirements planning (DRP) and material requirements planning (MRP) are common pain points for organizations. For instance, mistakes in these two areas can easily translate to underestimations in terms of demand or missed work orders.
For most organizations, at least some of these processes are automated. After all, relying exclusively on manual tasks is time consuming and can lead to a high error rate due to input mistakes. However, automation can also lead to errors if the technology supporting MRP processes is not flexible enough to respond to changes in demand. As a white paper from cloud software vendor e2b teknologies pointed out, businesses may continue to plan their purchases based on inaccurate demand calculations when customers cancel an order due to insufficient MRP functionality. These types of incidents can also lead to more widespread issues throughout the supply chain, including:
- Inaccurate inventory reports
- Difficulty in planning for vendor lead times
- Ineffective measures for supplier performance
- Insufficient planning for warehouse transfers
Inaccurate inventory, according to e2b teknologies, is one of the most common issues with MRP and DRP systems. It's easy to imagine the customer frustration that would result if the company's records indicated it had more items in stock than what were actually in the warehouse. However, overstocking is also a problem because it wastes storage space, time and other resources. From a process perspective, it is important to conduct physical inventory checks on a regular basis to ensure the actual number of items matches digital records. Special attention should be paid to products that are ordered frequently or in high volume, since inaccurate supply for these items would have the greatest impact on revenue.
Particularly for highly complex systems, it may also be helpful to consider information or data governance solutions. For instance, software with data cleansing functionality would be helpful for eliminating inconsistencies among supply chain information as well as limit redundancy.
The second problem stems from poor communication with business partners. Many organizations do not know their vendors' lead times, and, as e2b teknologies noted, this causes some companies to resort to guesswork. This could have a significant impact on the customer because the organization will lack sufficient information to plan when it will have the supplies. The problem is further complicated by the fact that lead time is not a static number because business partners are likely working to improve their own efficiency. As a result, it is wise to review lead times at least once a year and to check for inconsistencies in data. For example, if a vendor's minimum lead time is 30 days, all related items should have the same minimum.
IBM's perspective: A three-step approach
Many of the operational problems that exist in supply chain management can be solved by improving communication and data management. While it helps to be aware of the common challenges that businesses face, it is essential to assess issues on a case-by-case basis and prioritize resolutions based on the risk those problems present in each unique environment.
Given how many factors are present at any given time, improving the supply chain may seem like an insurmountable task, but IBM identified three core principles that can guide the process in its "Supply Chain Management: Three Rules for Building a Smarter Supply Chain" best practice guide:
- Connect the dots across the global supply chain
- Create an adaptive supply chain with an emphasis on customer experience
- Differentiate by delivering customer fulfillment
As IBM noted, it is important that all business partners are connected and able to communicate effectively. To achieve this, it is essential to have a comprehensive and digestible view of supply chain activity to account for any changes in partners' processes that could ultimately impact delivery times or other essential factors.
"The bottom line is that it is impossible to achieve the perfect order without a holistic, real-time view of your supply chain," the report stated. "No wonder supply chain management executives around the world today cite visibility as one of their top organizational challenges."
The report highlighted IBM Sterling Supply Chain Visibility for its ability to generate graphical representations of the supply chain, and it's important to note that such features are critical in ensuring that business leaders can draw meaning from complex data.
Due to the complexity of today's supply chain, companies can benefit from integrating business intelligence with their supply information. This will make it easier to adapt to change without reducing efficiency. For example, scenario analysis would allow decision makers to assess risk and develop contingency plans based on factors that are most subject to change.
"Creating a smarter supply chain is imperative for companies that want to operate efficiently and differentiate themselves from the competition to win over smarter customers," the report stated.
For more tips about how to build a successful supply chain for your organization, please enjoy our complimentary research brief below: