Oct 01, 2022

Supply Chain: Efficiency versus Effectiveness

  • By John Smith,
Supply Chain - Efficiency versus Effectiveness

Supply chain optimization results in on-time production and delivery of goods to the customer. To optimize supply chain management, companies must begin by optimizing the efficiency and effectiveness of the supply chain. Some may equate efficiency with effectiveness, which is the cause behind the failing supply chain of many companies.

Efficiency focuses on making the best use of resources, while effectiveness is about whether the demands are being met. By combining these two concepts, companies improve customer relationships at a lowered cost of doing business.

Continue reading to find out how each of these entities differ from another and how you can maintain them.

How to Identify an Efficient Supply Chain

The Industrial Marketing and Purchasing (IMP) Group defines the efficiency of an organization as an internal assessment of performance. An efficient supply chain is driven by its goal to use the company’s resources in the best way possible. By doing so, they reduce their costs on production, manufacturing, packaging, and final delivery.

How to Identify an Effective Supply Chain

The IMP Group defines effectiveness as the external assessment of an organization’s performance. An effective supply chain goes beyond the confines of the office to check whether the organization is meeting the expectations of the customers and stakeholders.

Supply Chain Efficiency V/S Supply Chain Effectiveness

Efficiency and effectiveness are inter-related but independent. They differ from each other in their key features and end goal.

A supply chain may be efficient with its resources but not as effective in providing quality. The company may be able to get their products ready in time to maintain low costs. However, rushing the production will result in an end product of poor quality.

On the other hand, an organization may be effective in providing a good quality product to the customers. This will make the customers and stakeholders happy but at a cost. The company likely used up a lot of their resources and time for quality goods.

How to Improve Efficiency and Effectiveness Of A Supply Chain

To maintain efficiency, companies are recommended to invest in IoT-enabled gadgets. IoT analytical tools make it easier to keep tabs on each step involved in the supply chain process.

The next step will be to increase your communication with the outside world. So, keep in touch with stakeholders and customers to get their feedback on how you can improve the standards of your product.

Final Thoughts

The Chartered Institute of Procurement and Supply has stated that a third of the firms today are not aware of their supplier’s performance. Supply chains are incredibly complex to understand unless you carefully consider both efficiency and effectiveness as interconnected parameters. To avoid any slippage in performance, organizations that are currently lagging must embrace the digital age. A digital strategy to rapidly improve the efficiency and effectiveness of a supply chain will benefit the company in the long-run.

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