supply chain | 11 mins read

5 Pillars of a Successful Supply Chain Management System

5 pillars of a successful supply chain management system 1645727074 4845
Debdutta Bhattacharjee

By Debdutta Bhattacharjee

What is Supply Chain Management?

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As a fisherman heads towards the Magdalena Bay from San Diego in search of tuna, the owner of a sushi restaurant in Los Angeles is anxious because stocks have run low. There is an invisible chain that links the two of them, and extends further to include the customer.

This supply chain also consists of transporters, distributors, and retailers, so that what we have in the end is a complex network of specialized agents at each nodal point of the network.

A supply chain, therefore, is essentially a large imaginary conveyor belt. It moves a product from its raw and nascent stage in the hands of the primary producer, to its fully finished and sellable stage to the table of the consumer. At each step, value is added to it.

Supply chains can be fragile. Bottlenecks may arise at any stage as a result of a disagreement with vendors, labor disputes, transportation issues, natural disasters, government regulations, and so on. This may cause the whole supply chain to break down. A business that wants to succeed, therefore, has to invest a considerable amount of time, effort, and energy to efficiently manage its supply chain.

This exercise involves the active monitoring of supply chains to maximize value and efficiency, save costs, and boost sales and profits. It essentially refers to the management of the entire network of individuals, organizations, resources, activities, and technologies used to make, store, ship, refine, and sell a product.

How Can Good Supply Chain Management be Great for Business?

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Supply chain management may not be one of the most interesting parts of running a business, but it is certainly one of the most important. Skilled supply chain management helps create efficiencies that, in turn, give businesses a distinct and sustainable competitive advantage. The efficiencies thus created result in reduced costs and increased profits.

Supply chain management involves implementing the best practices in the areas of demand planning, sourcing, procurement, supply chain logistics management, supply chain risk management, inventory management, vendor management, information flow management, compliance, distribution, and contingency plans.

A good supply chain manager will pinpoint potential disruptions and plan in advance. He or she will also think and act quickly and decisively to troubleshoot if a bottleneck appears anywhere along the line, be it in the global supply chain or the local one.

Let's take the example of the foodservice industry to see how good supply chain management can make all the difference between success and failure.

Restaurants on average spend about 28-35% of their revenue on food. According to an Apicbase study, a whopping 75% of U.S. restaurants struggle to register profits because they are unable to keep their food costs at a manageable level.

A restaurant that is uncertain about its inventory will invariably end up buying more than it requires, leading to wastage. It will, alternatively, be unable to meet customer expectations due to dwindling stocks. This could lead to loss of reputation. It may also continue with loss-making practices, like keeping menu items that receive a lukewarm response. An efficient and automated inventory and order management system allows restaurateurs to focus on menu items that are popular. It also prevents over- and under-stocking.

Such a lean business model is primed to deliver good results. Proper inventory management also helps gather sales data and improves understanding of the demand and supply dynamics. This, in turn, helps the business make strong decisions for growth. A robust point of sale (POS) system, like Plum POS, helps achieve this.

Constant and close monitoring of stocks would also help detect and prevent theft, and their deleterious financial implications. Apicbase points out that as much as 75% of restaurant inventory shrinkage in the U.S. happens because of theft by employees. This results in an overall loss of $20 billion every year.

A supply chain manager has to look out for the best deals for his company and winnow out suppliers who don't offer favorable deals or drive hard bargains.

A restaurant also has to have a backup plan in case of large-scale disruptions and supply-side shocks. For example, a natural calamity can result in tons of crops getting damaged. It also has to decide which parts of the supply chain it wants to keep in-house, and what it wants to outsource to third-party agencies.

In this way, managing the supply chain adroitly lets companies cut costs, boost profits, and grow in size and scale.

Nowadays, technology has become central to effective supply chain management. It reduce human error, saves time and effort, and frees up employees for customer service. Indeed, concepts like Industry 4.0, Big Data and Internet of Things have become crucial to a company's success.

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Supply Chain Pillar No 1- Demand Forecasting

A good grasp of consumer demand is the first step towards successful supply chain management. Technology has started to play a big role in facilitating this. Demand forecasting tells a restaurant what the fast-selling menu items are and which have been sitting unsold.

Management can then take crucial operational and financial decisions on whether to ramp up the production of a popular menu item, how to promote and popularize it even further, and whether to discontinue an underperforming item, or give it a last chance by spending more on its promotion. It also advises restaurants on what type of ingredients should be bought and in what quantity.

Demand forecasting should give businesses a rough idea of the duration that demands may sustain. It also prepares them for demand fluctuations. This allows restaurants to match demand with supply and prevent over- and understocking.

A restaurant looking for a solid technology-driven solution to manage its supply chain need look no further than Hubworks. This restaurant-focused platform offers operators an integrated suite of applications that simplify and quicken every process, helping them optimize their operations. Hubworks applications are cloud-based and can be accessed from anywhere in real time, on any device.

Zip Forecasts, for instance, pulls in a restaurant's POS data to accurately predict future sales in real time. This lets the restaurant tweak its ordering and staff scheduling in keeping with its budgetary goals. The business intelligence system offered by Zip Reporting provides accurate, up-to-date, and actionable data in real time. This ensures that decisions are based on solid data and not on wild guesses.

Supply Chain Pillar No 2- Vendor Management

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There's a whole bunch of suppliers and vendors starting from primary producers, stockists, transporters, wholesalers, retailers, and so on for an organization to choose from. Some organizations tend to procure their supplies from the same vendors over long periods of time. This has its advantages. One of them is the personal rapport that develops between supplier and buyer, that results in favorable terms and conditions.

However, an organization's needs and goalposts may change. Picking the right vendor may later involve careful consideration of the cost, quality and facilities offered, and comparing them to those provided by other suppliers. For the sake of profitability, a business should be prepared to change its vendors according to its needs, select those who are best suited to its objectives and help it rake in profits. A business, in fact, must have a raft of alternative suppliers. These should be willing to offer better deals and take care of more than one aspect of the supply chain.

A prudent strategy is to dangle the carrot for vendors in the form of timely clearing of payments, quick problem-solving, and so on, to set the vendors competing for a contract. The resultant deal is bound to be beneficial to business. The Zip Ordering software from Hub Works has an embedded search feature that enables restaurant owners to discover local vendors and view their catalogs so that the best deals can be struck.

This also ensures that a restaurant will not be caught off-guard should its regular supplier or logistics providers fail to provide timely and quality service. This way, the restaurant will have its future supply of goods and services assured. Zip Ordering lets the restaurant choose its future supply chain more efficiently. A business owner using Zip Ordering can select vendors with just a click.

  • According to a Statista report, the North American logistics market generated about $1 trillion in economic value in 2020.
  • It was projected to grow steadily in the near future, given the interdependence of logistics and firm-level business activities.

Supply Chain Pillar No 3- Order Management

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A business should always have sufficient resources to do business! A restaurant, therefore, should guard against the possibility of stocks running out, especially at crunch time. It should also try to avoid ordering more than required, which would then lead to wastage of food and money.

Ordering becomes tricky, especially if a restaurant has multiple outlets spread across various locations. The stocks in these outlets are bound to vary according to the varying eating habits of their customers. Moreover, an ingredient may be required in a small quantity at one outlet, and in a substantially bigger quantity in another.

Digital supply chain management solutions allow consolidated orders to be sent to vendors from a central kitchen, which prevents discrepancies.

Hubworks' Zip Ordering software allows restaurateurs to instantly connect with suppliers and import their product catalogs. It also lets multiple orders be placed with just a click of a button. Price totals listed by vendors make for easy calculation.

Zip Ordering helps in the customization of orders and places usage and order patterns in the context of actual costs incurred by the restaurant. It gives restaurant owners a better idea about how much each menu item costs so that decisions around retention and removal of menu items can be easily taken.

The mobile app ensures that product order guides can be created on the fly and orders can be placed instantly. The system notifies the buyer when the supplier receives the order. With the Zip Supply Chain service, a user is able to check order updates and the progress of supplies.

The Zip Inventory software is another Hubworks tool that supports order management. It makes inventory counts unbelievably easy by tracking stocks in real time. According to Apicbase, restaurant operators who measured inventory turnover every week were able to minimize over- and under-ordering and add 2-10% to their bottom-line.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

Supply Chain Pillar No 4- Inventory Management

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Proper stock-taking is a crucial part of Supply Chain management and no business can move ahead without it. Inventory management lets entrepreneurs know exactly how much raw material is in their possession. It tells them which items have been depleted and need to be reordered, when to reorder them, and which ingredients are in surplus.

It also lets business owners monitor stock losses due to pilferage, pest attacks, or rotting. Robust inventory management is critical for a restaurant to keep food costs under control.

Zip Inventory enables a restaurant manager quickly and accurately take stock count with the help of a shelf-to-sheet design, and by identifying overspending and food wastage. The inventory count is then updated across the entire Hubworks network.

Zip Inventory also suggests how much of each ingredient has to be ordered on the basis of actual usage and par levels. Orders can then be placed quickly with the click of a button. There is absolutely no need to deal with faxes or phone calls. Hubworks' Plum POS system acts as a vital aid in this regard.

Supply Chain Pillar No 5- Consumption and Variance Management

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The actual usage of an item in the inventory may vary from its expected usage, throwing the plans of a business out of gear. For example, let's say a restaurant has sold 100 hamburgers in a day. The business owner expects to have used 100 buns and 100 patties for those hamburgers. However, an inventory count reveals that in reality 125 buns were used. This means that there is a negative variance in consumption. What happened to the 25 extra buns? They could have been stale, destroyed, thrown away, or stolen. The restaurant may also have received less than what it paid for in its last delivery.

Similarly, if the hamburger recipe is designed to produce 500 patties from 125 pounds of ground beef, and the restaurant ends up using 25 pounds more of the ingredient, this would again mean that there is something amiss. Bigger variance leads to bigger problems. For instance, costs may cross targeted levels as a result of overpaying suppliers for out-of-season and expensive ingredients.

Knowing exactly how negative consumption variance affects a business is an important part of running a successful operation. Their ability to identify the root cause of differences in what is budgeted for and what is actually paid for, used, and sold, will help business owners optimize operations in their kitchen. This will help them save thousands of dollars.

Zip Inventory provides variance reports that highlight food wastage costs for each ingredient, and helps identify opportunities to boost profit margins. Detailed and real time reports generated by Plum POS also helps improve inventory and variance management.

A proper understanding of the theoretical and actual usage of resources is crucial for managing supply chains, and no business can ignore it if it has to keep operating costs on a tight rein.

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