Supply Chain SWOT Analysis
How can a SWOT analysis help a company streamline its supply chain and ensure its vendor’s core competencies are properly aligned with the company’s quality, delivery, pricing and inventory approaches? More importantly, what is a SWOT analysis and what role can it play in inventory management?
SWOT analysis stands for Strengths, Weaknesses, Opportunities and Threats. Performing a supply chain SWOT analysis allows companies to assess all the pros and cons of a given vendor and how that vendor can help the company in its goals of inventory cost reduction.
The Importance of Proper Vendor Selection
When companies look to improve their supply chains, and reduce their inventory cost of ownership, they often call upon the expertise and abilities of their most trusted vendors. Reducing inventory costs is all about mitigating costs at every opportunity. The right vendor can improve a company’s quality by reducing the incidence of product failures, help in reducing month to month holding costs, lower purchase prices and reduce the per unit freight costs on incoming parts. In fact, proper vendor selection is the most important aspect of supply chain management. So, given its importance, how does a company go about using a supply chain SWOT analysis?
Explanation of the Supply Chain SWOT Analysis
To simplify this exercise, let’s assume a company wants to bring on a new vendor but wants to be sure that vendor meets the company’s overall selection criteria. The company wants to be sure if the vendor has the core competencies needed to become a primary vendor. In this sense the company would want to review the vendor’s quality, their service levels, their reputation in the market, their strengths and weaknesses, as well as the other companies that particular vendor services. To perform a thorough evaluation, the company would perform a thorough SWOT analysis. If they did, it might look something like this.
Strengths: What are the inherent strengths of the vendor that make them a solid potential partner? Do they have strong engineering and design capabilities? Are they well known for their service and product support? Perhaps they have large purchasing power that affords them better prices on parts and materials. Maybe they have large inventory levels and can turn around orders faster than their competition. The vendor may even be willing to sign contractual supply agreements that will help lower the company’s inventory cost of ownership. These are the questions that must be asked.
Weaknesses: Regardless of how good a vendor is, there are always some weaknesses that accompany their strengths. For the vendor that has solid engineering capabilities, do they have the manufacturing expertise to compliment their design abilities? There are plenty of vendors that can design great products, but a number of them have a hard time ramping up full scale production. How fast are they at turning new designs into new products? Can they meet the company’s aggressive inventory forecast? For the vendor with the large inventory, do they do a good job of batch control or is their quality a constant concern? A vendor’s weaknesses can quickly become the customer’s weaknesses if left unchecked.
Opportunities: What does the vendor represent to the company in terms of opportunities? Perhaps they can not only help lower inventory ownership costs, but also play an important role in reducing freight. Several vendors are well positioned in their market and afford their customers increased visibility. Could the company increase its market share by working with this vendor? Sometimes the opportunities afforded by vendors are much more significant than just price savings alone.
Threats: When it comes to analyzing threats in a supply chain SWOT analysis, it’s more about the costs of not acting as opposed to the obvious threats facing the company. In this case, what would happen if the company chose not to work with this vendor? Looking at it another way, if the company choose not to work with the vendor, does this mean they’ll gravitate to the company’s competitor? If that’s the case, what are the threats posed by the vendor working with the company’s main competition?
When it comes to improving a company’s supply chain, it really amounts to ensuring the company is thorough in its vendor selection. Today’s business success depends upon the strategic partnerships that are forged between customers and vendors and the cost savings each brings to the table. It’s less about singular transactions and more about finding cohesive partnerships.