By taking a strategic approach to supply chain management, midsize companies can increase efficiency, improve customer service and supplier relations, and grow revenue.

If your midsize company is like most, its supply chain has evolved over the years in response to new product introductions, vendor changes, shifting market demand, and new cost structures. But this reactive approach is hardly ideal. It can create—and obscure—inefficiencies and introduce unnecessary complexity.

By adopting a strategic perspective, executives can get a better handle on not only the company’s network of suppliers, but on the entire value chain from raw material to end customer. The results could be well worth the effort: In its 2013 Global Supply Chain Survey Report, global consultancy PwC found that companies that acknowledge supply chain as a strategic asset achieve 70 percent higher performance than their competitors¹ . Here are five steps for assessing and improving the health and efficiency of your company’s supply chain.

1. Get the big picture. Supply is merely one tributary of the broader value stream, explains Bob Forshay, vice president of Transformance Advisors in Denver and a supply chain consultant and trainer. “There are lots of supply chains within an organization, all part of the larger value chain, which also includes marketing, product development, R&D, and things like that. They all interact with each other.”

   When working with clients, Forshay begins by mapping that value stream as completely as possible. In a similar way to a process map, the value stream map highlights material and cash flows from supplier (or beyond) through manufacturing and on to the end customer. As the name implies, each stage of the process should add value to the final product.

2. Embrace transparency. Gathering this information requires open communication among operational functions, with suppliers, and perhaps most importantly, with customers. “This is where we encounter a lot of cultural resistance,” Forshay says. “It’s really important from my perspective to find how ready our client is to become a learning organization.”
3. Isolate pain points. With map in hand, it should become evident where bottlenecks and inefficiencies arise. One critical measure of efficiency is the value-added ratio, defined as the time required to add value at a particular juncture over the total process time; the higher the ratio, the better. Forshay cites the negative example of a single manufacturing process that takes mere minutes to complete but which is part of a larger batch process that consumes hours or even days with no added value.
4. Determine root causes. It is tempting to create a solution for each pain point that you uncover, but Forshay cautions that this can merely obscure the actual issue. Say a supplier is slow to deliver a part for assembly, for example. Paying more for expedited shipment could alleviate the problem, but by digging deeper, it’s possible to uncover the root cause, which may be a design flaw, a quality issue, or other explanation. The solution might not even lie with your supplier, but with your own R&D department.
5. Monitor performance. Central to the concept of supply chain management is establishing monitoring processes at multiple levels to capture performance at every stage of the value chain. While each company will have its own set of metrics, Forshay notes that there are five areas that every company should monitor at key junctures in the value chain: cost, dependability, speed, flexibility, and quality.

Streamlining your supply chain is an ongoing process that can require cultural adjustments and heightened vigilance on the part of executives. But the payoff is knowing that you are optimizing value added every step of the way.