A well-functioning supply chain is not only effective, but also efficient. In this article, we explain the differences between efficiency and effectiveness, and how you can ensure your business model produces both.
Efficiency versus effectiveness
Efficiency generally refers to the extent to which a process uses resources in the best way possible to ensure the fast, smooth running of systems. Effectiveness, on the other hand, refers to the extent to which a process produces the kinds of results sought.
It is possible for a supply chain to be one but not the other. Below, we’ll explain the features of both, and how you can achieve them.
What is an efficient supply chain?
An efficient supply chain makes the best use of its resources — financial, human, technological or physical. By doing so minimizes costs for materials and packaging and reduces time wastage.
What is an effective supply chain?
In comparison, an effective supply chain is one that meets or exceeds the demands placed on it by its key stakeholders – whether these are customers, partners, suppliers or vendors.
How do they differ?
There are some key features of each that differentiate them from one another. For example, if you have an efficient supply chain, your processes may move very quickly, and you may deliver final products to customers in excellent time, but this does not necessarily mean that the product they receive will meet their specifications.
In this case, your supply chain is efficient because the turnaround time for delivery to customers is quick, but it is ineffective because the product that is delivered is of poor quality, and as such does not meet the demands of your customer.
From another perspective, your supply chain can be effective if it provides a quality service or product to your customer which adequately meets their demands. That is, the product or service you deliver is of the quality and standard they expect. However, in this case, it would be considered inefficient if that same product took an excessive amount of time to be delivered to the customer.
How to maintain both efficiency and effectiveness
To summarise, maintaining an efficient supply chain is largely about considering the best practices for internal processes, whereas an effective one requires considering external factors in order to meet external demands.
In order to improve supply chain efficiency, business owners must thoroughly check internal processes to make sure that resources, time and money are being used to streamline processes and reduce wastage and error. In order to improve effectiveness, business owners need to be in constant communication with external stakeholders to improve the standard of the products and services they deliver.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.