Supply chain refers to the activity of moving material from its raw state to the final customer. The most common supply chain problems include using historical trends, using outdated information to make decisions, lack of understanding regarding suppliers' capabilities, and lack of communication. Due to the complicated nature of supply chain management, many professionals fail because they do not utilize effective supply chain principles.
The most common supply chain problems are typically caused by using historical trends. Sweeping economic downturns in the late 2000s, for example, clearly showed that even long standing organizations such as General Motors should not rely on past performance to predict future sales. The better alternative is to track actual sales as they occur so the supply chain network can quickly react to any changes in consumer behavior. This is especially helpful in a retail supply chain where the product being sold is somewhat generic and can be purchased from many different retailers, since demand may be perishable.
Making decisions using outdated information is another of the more common supply chain problems facing supply chain operations. Understanding real time inventory levels, financial ratings, and cash flow are imperative for making sound supply chain decisions. Maintaining supply chain metrics for all of these categories should prevent companies from making significant errors in who they partner with both as suppliers and customers. If the company does not use a significant enterprise resource planning (ERP) system, the supply chain manager can still get much of this information by reviewing financial data such as customer and supplier credit ratings, outstanding accounts receivable (AR), and outstanding accounts payable (AP).
Understanding a supplier's capabilities is one of the supply chain problems that is the hardest to manage. Not knowing what a supplier can do severely limits a company's ability to quickly respond to changes in demand. Effective supply chain managers will periodically review lead times, standard capacity, upside or burst capacity, and prototype and quick turn capabilities with their suppliers to determine if the supplier's capabilities are sufficient for the company's needs. By knowing if a particular supplier has the ability to support upsides in demand during a very short time frame, the supply chain manager will be able to better predict when products can ship to the end customer.
Lack of communication also ranks high as one of the common supply chain problems. Suppliers and customers alike require constant monitoring and at least some level of collaboration to ensure supply meets demand. Though in today's environment of highly automated information flow there tends to be almost an overload of information, successful supply chain managers have learned that nothing replaces face to face communication. By developing personal relationships with both suppliers and customers, the entire supply chain process becomes a group effort. When things do not go as smoothly as planned, it is much easier to discuss opportunities for improvement if a relationship already exists.