In our hyper-competitive world of international business, building, managing and sustaining a global supply chain is necessary. It also can be challenging and costly. Issues regularly affecting a supply chain must be addressed in innovative ways. The bottom line: companies can optimize their supply chains by properly controlling costs, updating infrastructure, pursuing cross-functional alignment, implementing green practices, and offering more intense employee training.

The Big Picture

Supply chain functions should not be viewed as independent and separate activities, disconnected from other departments. They must work seamlessly together with other company functions if spending is to be balanced. If not, meeting the objectives of one department, like manufacturing, may result in excessive costs in other areas, like logistics.

For example, if a California-based company receives supplies from several Asian firms, and in turn, incorporates those inputs in production then shipped to Canadian customers, expenses related to Asian manufacturing may appear very beneficial. But when factoring in costs associated with the supply chain, which may include transportation, warehousing, security, and quality control, the entire operation may be at a loss. And this could be the case even if the Asian costs are only a small slice of overall expenses.

Controlling Costs

The expense of maintaining a healthy supply chain is frequently overwhelming. According to a 2013 Survey by PricewaterhouseCoopers, an international business consulting firm, 80 percent of those who work in supply chain management consider reducing their total supply chain cost to be a top priority.

Use of a thorough performance metrics system can help a company discover weaknesses in its system. It can identify which business practices and employee functions bring the least or most value to an operation. And by understanding what is specifically required to achieve a successful just-in-time inventory, a company can avoid unnecessary costs related to overstocking.

In The Spotlight

A wider knowledge of the global economic situation and a tightening of a supply chain’s managerial core also are of vital importance. By identifying countries or regions with low-cost suppliers and keeping managerial staff limited, analysts say a company can substantially lower supply chain expenses.

Maintaining Supply Chain Infrastructure

Keeping infrastructure up-to-date and well maintained is key to a successful supply chain. Many companies and countries have failed to adjust to the infrastructure demands of the 21st century. This is not only a major problem overseas, but for the United States as well.

The American transportation infrastructure, including ports, roads, rail and airports, is aging and requires critical attention. In fact, according to a 2010 bipartisan panel of experts and two former secretaries of transportation, Norman Mineta and Samuel Skinner, an additional $134 billion to $262 billion must be spent per year through 2035 to rebuild roads, rail systems and air transportation. And that estimate does not include the costs to maintain and upgrade the nation’s ports.

According to former Secretary of Commerce Gary Locke, “We are placing rapidly growing demands on aging infrastructure systems. We need to find new methods to move products more efficiently if we are to keep pace with the rest of the world.”

By updating America’s transportation infrastructure, costs of transporting goods to and from American factories and warehouses can be reduced. On the other hand, individual companies also can bend the cost curve on long term operating expenses involving warehousing, inventory, and their transportation infrastructure. And the impact can be big. A study by Boston Strategies International found that reducing freight transportation costs by ten percent resulted in a one percent decrease in overall operating expenses.

Investing in information technology is also essential for supply chain infrastructure development. Enterprise Resource Planning (ERP) technology is widely utilized to better organize and unify supply chain processes. Companies also are increasingly embracing the benefits of “cloud computing” or Internet sharing of software and information resources as they take advantage of useful new technological capabilities.

Encouraging Cross-Functional Alignment

Technology can further be applied to support cross-functional alignment. Cloud computing, ERP implementation, and use of performance metrics all assist in integrating the activities of various corporate departments. Cross-functional integration, however, requires more than information sharing and performance evaluating. Employees should also have a clear understanding of their roles within the supply chain network.

Many companies and countries have failed to adjust to the infrastructure demands of the 21st century.

Once structural and technological processes that encourage integration are in place, analysts say the focus should then be placed on establishing concrete interdepartmental connections. Collaboration between those working in separate departments of a company is aided by awareness of an organization’s larger mission. Flow charts and other materials may express how a company’s different sectors intersect and rely upon one another.

As cross-functional alignment becomes a reality, a fluid, better united company generally emerges. Supply chain management is more proficiently executed when thoughtful interdepartmental cooperation occurs.

Exhibiting Ecological Friendliness

While improving a supply chain’s performance, “green” factors should also be considered. Developing a green supply chain can generate more business as companies are applauded for reducing their carbon footprint. Many environmentally conscious actions also have the benefit of lowering supply chain costs.

A company can create a more eco-friendly supply chain and save money in the long run by:

  1. Switching from paper to electronic processes,
  2. Ensuring transportation routes used are the shortest and most direct possible,
  3. Outsourcing to data centers instead of maintaining on-site centers,
  4. Reducing the amount of energy utilized, and
  5. Cultivating relationships with green suppliers.

Surprising to many, small changes to supply chain operations can have a tremendous impact on the environment. Maintaining a greener supply chain is a cost-effective way to show a company is vested not only in its future, but also in the future of the world.

Finding the Right Talent

Perhaps of most importance to a successful supply chain are the employees who make the chain run smoothly. Without well informed and motivated workers, a supply chain cannot function efficiently and effectively, resulting in delivery delays and monetary losses. Based on the PricewaterhouseCoopers survey, almost three-fifths of supply chain management executives say there is a deficit in much needed talent.

In order to compensate for the lack of talent, many companies have chosen to offer more intensive training. Supply chain management academies have risen to meet a demand for comprehensive worker education, greatly increasing the knowledge base and expertise of those responsible for complex supply networks. Frequently, trainee education is financed by the employer to encourage superior work.

Facing the Issues

Although sound supply chain management practices are not always followed, pursuing a careful supply chain strategy is important (see When the Supply Chain Breaks Down). And the benefits are large. A well oiled supply chain can go a long way in enhancing global competitiveness and achieving higher profits. It also could be the difference between success and failure.

As businesses successfully address cost concerns, infrastructure needs, cross-functional integration, greening, and employee education, companies can strengthen their organizations as a whole. Supply chains are the veins through which international trade flows, and the issues affecting them cannot be ignored.

This article appeared in International Insights, a Fifth Third Bank publication, April 2013

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

More Articles | Speaker Programs | Speaker Demo | Videos | Services

You don't have permission to view or post comments.

Quick Search

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!