How to optimize your supply chain?

11 November 2020

This week, DESTL talks to Floriane Masse, Project Manager in the Export Montreal West (ExMO) team, our dedicated export department.

 

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For starters, what is a supply chain?

A supply chain is made up of a network of actors contributing, directly or indirectly, to the satisfaction of a client's demand.

 

The supply chain thus corresponds to physical flows (handling, delivery, packaging, transport, etc.), information flows (forecasting, transport preparation, production planning, etc.) and administrative flows (order processing, control of the delivery schedule, payment control, etc.).

 

The supply chain includes, among others, suppliers, carriers, processors, distributors, service providers and retailers. Its mission? To get the right product to the customer, at the right place, at the right time, in the right condition and at the right price!

 

The challenges faced by manufacturers with their supply chain

In general, supply chain risk management is a central issue. Each company must identify its risks, quantify their impact on the organization and finally prioritize them. Examples of these risks include obsolete inventories, raw material shortages and uncertain demand; these risks have been at the heart of manufacturers' concerns since the beginning of the pandemic.

             

1. Supplier management

One of the major challenges for any company is the management of its suppliers. It is strategic to choose the country of origin of its suppliers as well as to establish a relationship of trust and good communication with them.

 

Supplier diversification is also important. We suggest the 70/30 rule: entrust 70% of your purchases to a main supplier and the remaining 30% to another supplier in order to limit the risks of dependency.

 

Moreover, we recommend that you classify suppliers by risk, i.e. according to the degree of impact of this risk on your company. For example, it may be beneficial for your company to anticipate whether one of your suppliers is likely to go out of business or even be out of stock (particularly due to VIDOC-19).

 

  1. Resources allocated to continuous improvement

Too often, insufficient resources (time and money) are allocated to supply chain improvement.

 

Yet, regardless of the size of the company, the supply chain has a central role in the business. It can have an impact on the delivery time as well as the final price paid by the customer.

 

This is why the general management and the logistics department must be aligned and have a common vision of the resources to be allocated to continuous improvement.

 

  1. International sourcing

Several reasons, such as price, quality or availability of resources, push companies to source abroad. However, this choice to internationalize its supply chain can include certain challenges.

 

First of all, it is important to consider the management and choice of Incoterms for import and export, which define the obligations of the buyer and the seller.

 

Also, one must be aware of possible price variations, especially due to exchange rate fluctuations. You could include a clause on this fluctuation in your contract with your supplier.

 

In the context of international procurement, contractors must also consider the notion of political risk. Political risk occurs during geopolitical conflicts or during trade wars such as the one between China and the United States.

 

Finally, as in all international endeavours, entrepreneurs must be aware of the cultural distance that can impact relations with their partners. 

What impact does the trade war between the United States and China have on the supply chain?

Many Quebec SMEs subcontract in China, however, the trade war between China and the United States has resulted in a tightening of tariff barriers and an increase in taxes on products manufactured in China.

 

Two major impacts have been noted:

  1. For Quebec resellers or retailers who purchase products made in China and transit through the United States: increase in the purchase price of these products, thus increasing the final selling price for the consumer.
  2. On the competitiveness of companies that subcontracted in China: relocation of factories established in China to other countries such as Vietnam, China and the United States.

4 tips to optimize your supply chain in times of crisis

  1. Challenge and evaluate your current suppliers: regularly check that they are at the cutting edge of technology compared to the market, that they offer you the best rates and that they do not rely on their experience. Tip: call for tenders to put them in competition with other players in the industry.
  2. Subcontract or produce: the company should only subcontract those activities for which it does not have a competitive advantage.
  3. Automate and digitalize its supply chain: integrate sales and production departments by implementing sales and operations planning (S&OP) software.
  4. Think strategically: consider the "supply chain management" or "logistics department" as strategic for the company and not as a support function, because this department has an impact on the company's competitiveness (price, delivery time, quality, etc.).

 

DESTL can help you optimize your supply chain. Write us for more information.

 

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