How to Build and Manage Your Retail Supply Chain

As Amazon steps up its move into the supply chain market, retail chains are finding themselves forced to improve their supply chain management to stay competitive. As February drew to a close, Target announced it would sacrifice $1 billion in operating margins in order to lower its costs, an effort to compete with Amazon, ZDNet reports. Target chief operating officer John Mulligan attributed part of the company’s problem to inefficient supply chain management, reflected in slow-moving products and excessive inventory. Walmart also announced plans to adjust its supply chain in March, offering free shipping on orders over $35, says Business Insider.

Developments such as this illustrate how crucial supply chain management is to the success of a retail franchise. Here are some ways you can build and manage an effective supply chain to ensure the success of your retail franchise.

Plan Your Supply Chain Management Strategy

The foundation of an effective supply chain is supply chain management (SCM) planning. Map out the steps in your supply chain from supplier to customer, and select metrics to measure performance for each stage.

There are a number of key metrics that help determine your SCM performance. For instance, perfect order measurement tracks how many orders are delivered without errors. This can be broken down into subcategories such as the procurement, production, warehousing and transportation stages. Cash to cash cycle time tracks how long it takes between when you pay for materials and when you get paid for your product. Knowing this is crucial for managing your cash flow. On-time shipping rate tracks how many orders arrive on time, which is vital for customer satisfaction. Simplicable identifies 12 key metrics that can be tracked to optimize supply chain management.

Your sales and marketing directly impacts the rate of your supply flow, so you should consider this while you’re planning your SCM strategy. For example, o-ring supplier Apple Rubber uses instructional videos distributed through social media as a promotional tool. If you use social media in your marketing, tracking your social follows and shares and correlating this with your sales rate can help you adjust your inventory flow to meet demand cycles.

Select Your Suppliers and Processes

After planning your SCM strategy, the next step is to select your suppliers and set up your processes. Look for reliable suppliers with a reputation for on-time delivery. You can investigate suppliers by interviewing them, talking to industry peers and reading reviews by customers and expert reviewers. Directories such as SupplyChainBrain can help you identify suppliers.

Processes that need to be set up include inventory management, pricing, payment, delivery and returns. To increase the efficiency of your processes, you can use supply chain management software (SCMS). Leading SCMS providers include SAP, Oracle and JDA Software.

Organize Manufacturing Activities

Next, you will need to plan the activities in your manufacturing cycle. These include production, quality testing, product packaging and delivery. Your planning should take into consideration which metrics you will use to track product quality, product output and workforce productivity.

Set Up Your Logistics Network

The next step is setting up your logistics processes and network. This involves planning how you will receive customer orders, invoice receipt of payments, coordinate orders with your warehouse and ship your orders.

Your planning will include selecting a delivery service for shipping your orders. In the United States, there are two types of delivery services. Services such as US Postal Service Priority and First Class package services provide confirmation of delivery. Services such as US Postal Service Express, UPS and FedEx provide door-to-door tracking for shipments. Delivery confirmation delivery services are less expensive than trackable services.

Prepare Your Returns Procedures

A certain percentage of your orders will get returned, so you will also need to set up procedures for how to handle returns. This involves setting up a procedure for receiving and processing defective or extra items. It also involves setting up customer service procedures for providing support to customers returning items. You should coordinate your returns procedures with your bookkeeping procedures so that refunds and returned inventory get entered properly into your system.