Within each of the supply chain stages is a series of major steps and supply chain activities that need to happen flawlessly for the supply chain to flow freely. Unfortunately, each stage, step, and activity also creates an opportunity for problems to arise.
To maintain oversight and control of the entire supply chain, your employees and managers must know what risks lie within their delegated responsibilities. In this blog post, Avetta breaks down the pitfalls that could arise in all stages of the supply chain, as well as how we can help you prevent them from taking place.
Supply Chain Stage 1: Procurement
The first stage of the supply chain, procurement, involves gathering and scheduling every component required in the manufacturing of a good.
Six major steps of procurement include:
- Build solid sourcing relationships.
- Calculate the costs of raw materials, components, and packaging.
- Negotiate contracts and ensure suppliers are able to meet compliance, demand, and profit requirements.
- Receive goods.
- Authorize invoices and pay vendors.
- Acquire all necessary paperwork and documentation for reference and auditing purposes.
Potential problems that can come up during this first supply chain stage include:
- Non-compliance of suppliers or the poor management of compliance records, both of which introduce a lot of risk into your supply chain process, quality of products, and brand reputation.
- Costs and availability of raw materials, components, and packaging changing after production has already been initiated.
- The time and costs associated with changing suppliers, supply location, packaging design, transportation routing, etc.
- Strained relationships with suppliers due to unmet demand.
Supply Chain Stage 2: Manufacturing
Manufacturing is the second stage of the supply chain and involves all the activities required to schedule and produce goods according to distributor demand.
Four major steps of manufacturing are:
- Protect raw materials, components, and finished goods during storage, handling, and transportation by using appropriate packaging.
- Assemble raw materials and components into a final product.
- Test and improve the final product.
- Remove disposable components and waste.
Problems that can happen in the second supply chain stage include:
- Demand forecasts being inaccurate, leading to unmet demand and reduced profits.
- Inaccurate or time-consuming inventory management, which may lead to shortages, overstock, and unidentified damages.
- Inefficient manufacturing plants, high production costs, and erratic economic conditions cutting into profits and overall customer satisfaction.
- Difficulty securing skilled labor.
- The expense of implementing automation and robotics.
- Difficulty identifying, managing, and prioritizing sales leads.
- Machinery failures, workplace falls, and other accidents that cause harm to employees, delay production, and expose a company to liability lawsuits.
Supply Chain Stage 3: Distribution
Distribution is the third stage of the supply chain. Its activities cover everything it takes to get a finished product to a third-party distributor (when it’s not sold directly) so that customers can make a purchase.
Three major steps of distribution are:
- Evaluate the customer to determine the best way to sell products to them.
- Decide on a distribution channel—direct, retailers, wholesalers, brokers, or a combination.
- Identify, build relationships with, and manage marketing and distribution intermediaries.
Some of the pitfalls of the distribution stage to watch out for are:
- Uncertain and fluctuating costs that span global channels. Costs may fluctuate based on fuel costs, weather and natural disasters, political unrest, tariffs, and currency valuation.
- Lack of data security that leaks a company’s confidential information and their customers’ personal data.
- Contamination or loss of product during transit. This may be due to sinking ships, temperature/humidity-dependent ingredients, truck accidents, fire, theft, etc.
Supply Chain Stage 4: Replenishment
Replenishment covers the inventory of raw materials from suppliers and the resupply of finished goods to distribution centers.
Four major steps of replenishment are:
- Forecast demand according to customer buying patterns, market knowledge, and opportunities that affect sales.
- Forecast lead times by analyzing lead time history, demand deviation, seasonality, and reliability of suppliers.
- Optimize the order cycle according to slow-moving items, low-cost items, and multiples buying.
- Manage service level based on algorithms that protect inventory against adjustments and errors.
Things to watch out for during the replenishment stage are:
- Unreliable supplier lead times that are either much longer or much shorter than forecasted.
- Unobvious and unexpected seasonality of products.
- An inaccurate order cycle analysis that adds unexpected costs because of the need to order more or less often than previously planned.
Supply Chain Stage 5: Returns
Returns is the fifth stage of the supply chain, and it involves customers returning defective, damaged, expired, or unwanted goods back to the supplier.
Five major steps in the returns stage include:
- Re-enter products into the inventory ledger.
- Repackage or dispose of goods, depending on their reusability.
- Track and monitor types of returns and their quantities.
- Provide service and support to distributors and customers.
- Recover value from used goods and scrapped materials.
Problems that appear during the returns stage are:
- The difficulty of planning for excessive returns, should a major recall or sudden shift in demand take place.
- The possible need for improving the quality control process, which may affect multiple stages of the supply chain.
- Waste management and compliance regulations that must be followed so penalties and fines are avoided.
- Lost profits from returned inventory.
- The need to find warehouse space for returned goods.
Let Avetta Help Optimize Your Supply Chain Activities
Because of the many problems that may arise throughout the supply chain, it makes a lot of sense to get some professional help.
When you use a supply chain management platform designed by experts in supply chain management, the following is at last possible:
- Forecasting demand with greater accuracy than ever before
- Optimizing workforce and process schedules at every step of the journey
- Automating redundant and error-prone processes
- Monitoring performance across the board
- Tracking compliance of all vendors, suppliers, and contractors
- Analyzing and reporting information that aids in making smart, split-second decisions
- Averting risks that can cause the downfall of your company