If any organization understands the critical nature of an efficient supply chain, it’s big-box retailer Target.
The company’s ill-fated expansion into Canada is considered a cautionary tale in the retail sector, proving that even established brands can come unstuck if operations aren’t efficient. With this episode very much in mind, it’s no surprise to see Target among a host of major retailers tightening the screws on suppliers.
Tough new standards will go into place at the end of this month, with suppliers facing fines of up to $10,000 if they slip up. It’s a princely sum, but that’s the price you pay for supplying the major names in retail.
The bottom line for brands like Target, Best Buy, Walmart, and many more who are examining their suppliers, is that a missed deadline means a disappointed customer.
So what can we learn from the example of big box retailers and their increasing focus on supply chain efficiency?
Setting standards to increase efficiency
One of our most popular articles in recent years has been 8 Ways to Eliminate Waste From Your Supply Chain. It’s not so surprising that this one would bubble up to the top. Any time the call comes to reduce costs, inefficiency is one of the first places that most managers look.
With that in mind, here are some areas in which increased supply chain efficiency can drive competitive advantage:
- Improved reliability: When customers have confidence that a brand meets its delivery promises, they’ll keep coming back. Everyone offers free shipping nowadays, but reliable shipping remains a mark of distinction.
- Less rework: Every order that misses its delivery deadline, whether into the warehouse, retail store, or to the home of the customer, adds another cycle of work to the fulfillment process. Rescheduling transportation, re-ordering products, and handling return shipments all cost time and money – waste that can be avoided by improving supplier standards.
- Increased accountability: To focus on stricter standards you need performance indicators that measure progress. Setting up these metrics – and regularly reviewing them – makes every player visibly accountable for their section of the supply chain.
- Focus on strategy, not supply: When everyday operations run like clockwork, time is freed up to focus on the long-term strategy. Confidence in fulfillment partners means the capacity to take on more high-minded work for your own organization.
- Keep prices down: A more efficient supply chain keeps costs down, which some brands choose to pass onto the consumer. If price competition is high in your industry, an efficient supply chain is indispensable.
- Expanded delivery options: If you know your suppliers will get the basics of standard delivery right, you can start to offer premium alternatives to customers. The ability to get something more quickly is always attractive to some buyers, and offering more options than your competitors makes it more likely that you’ll get that business.
Goal Setting for Suppliers
The path to stricter standards starts by defining what you expect to happen in every delivery requirement. As Target’s new supplier requirements demonstrate, you should be specific about expectations and the penalties for not meeting them. You must decide whether or not to allow some degree of flexibility for suppliers, such as delivery windows and performance thresholds.
This depends largely on how much bargaining power you have with suppliers. Small businesses with limited order volumes will usually have limited ability to impose customized requirements, but may be able to increase this influence by bringing on board a third-party fulfillment provider. This is because these services can aggregate several small volumes into one large contract and negotiate with other service providers on a more level playing field.
The overriding lesson from Target is that efficiency matters at every level of the supply chain, and it can almost always be improved.
Very few fulfillment processes run smoothly in every area. If you can work with your planning team and/or fulfillment provider to drive improved standards from suppliers, it’s only a matter of time before your customers start to see the benefits.