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All about Supply Chain..

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Supply chain managers at wholesale distribution and manufacturing companies might think that if a process is efficient, it is also effective. In fact, that may not always be the case. But how can a supply chain be efficient, yet not effective? It can happen when a company is more concerned with internal process improvements than the needs of its customers, stakeholders, or the supply chain as a whole. It can also happen because of the relationship between the two concepts. Efficiency and effectiveness are interrelated, yet independent. A supply chain therefore could be efficient and effective, neither efficient nor effective, efficient but not effective, or effective but not efficient. Confused? Let’s take a closer look at these concepts. 

What is supply chain efficiency?

Organizational efficiency is defined as an internal standard of performance. Supply chain efficiency is related to whether a company’s processes are harnessing resources in the best way possible, whether those resources are financial, human, technological or physical. Notice that the definition of efficiency says nothing about improving customer service. You might have a very efficient supply chain that minimizes costs for materials and packaging but leaves your customers fuming when the product they receive is not up to their specifications. The term efficiency is also a very abstract one. People have different definitions, and again…what may be deemed “efficient” in one part of your supply chain may adversely affect another area of your business.

What is supply chain effectiveness?

The definition of effectiveness, on the other hand, is more externally focused on results. Organizational effectiveness is defined as an external standard of how well an organization is meeting the demands of the various groups and organizations that are concerned with its activities. These groups might include customers, partners, suppliers and vendors. So, to measure your supply chain effectiveness, take a look at not just what is going on within the walls of your own company, but how this is ultimately impacting customers and the supply chain as a whole.

Supply Chain Efficiency vs. Effectiveness

When considering the efficiency or effectiveness of a supply chain, we’re evaluating each from different perspectives. When thinking about supply chain efficiency, we’re considering what happens within the supply chain system. The supply chain is efficient when we are able to get products at the lowest cost. We also might be looking at how well we are able to coordinate with others in our supply chain for extended manufacturing processes. When a supply chain is effective, we’re looking from outside the company. Customers are looking at whether they got the right product in the right timeframe to meet their needs. Stakeholders might be looking at how much revenue was generated relative to the cost. Vendors and other business partners might also be looking at how well we were able to solve problems.

What can we learn?

So what can we learn from all this? That supply chain systems are extremely complex goes without saying. In general, it is very difficult to improve efficiency in meaningful ways, unless we look at both efficiency and effectiveness. We must look beyond our internal company requirements to how improvements in our processes will impact external partners and customers. In other words, not only must we do things right, we must also do the right thing and this means employing the right people.

 

If you are looking to improve your Supply Chain, please give me a call on 01275 813038 or email daniel@cavendishmaine.com

I look forward to hearing from you.

Regards

Dan Wells
Consultant

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