Delivery volumes have never been higher, and supply chains are feeling the strain. Packages are getting delayed, shipping carriers have raised prices, and businesses – whether suppliers, wholesalers, or retailers – all feel the burden on their end of the supply chain process. To meet the new demand, companies will have to adjust their operations for greater efficiency, flexibility, and cost reduction. Supply chain optimization ensures a smoother process and a more successful business model focusing on efficiency and profit.
First, let’s define what supply chain optimization means, the different factors involved, and how the right supply chain optimization techniques and solutions can help you support your key business initiatives and create a competitive advantage.
What is supply chain optimization?
A supply chain encompasses all steps in transferring products from the manufacturer to the end customer. Optimizing this process allows it to function at peak efficiency. To better understand supply chain optimization, it’s important to delve deeper into a supply chain’s three main phases: design, planning, and execution/operation.
The three phases of a supply chain :
1. Supply chain design – the strategic decisions taken by upper management, usually long-term decisions that put future predictions into consideration. Studying the market is vital at this phase. A good example of such a strategic decision could be choosing a warehouse’s location.
2. Supply chain planning – this phase is more concerned with demand and supply in the market; therefore, proper market research is required. That being said, it’s also as important to consider competitors’ strategies to respond to demand.
3. Supply chain execution/operations – the final phase in supply chain operations, entailing the execution of the flow of products throughout the entire supply chain. To improve performance and effectiveness, both internal and external operations should be considered as well. This phase is concerned with everything starting with retailers sourcing products from the manufacturer or manufacturing the products themselves as a brand (which also includes steps such as assembling and product testing). It also focuses on logistics such as receiving goods for distribution to regional warehouses before sales, as well as last mile logistics.
When it comes to supply chain optimization, the focus should be on optimizing it to be customer-centric. Supply chains that are customer-centric keep the final customer in mind throughout every part of the process – especially when choosing a supply chain approach, and a technology solution for better business processes.
4 elements of a customer-centric supply chain:
- Tailored to the customer
- Agile and flexible
- Trustworthy and transparent
Each of these characteristics should inform any supply chain network optimization processes to ensure that the end result improves the customer service, even if the main initiative is around saving supply chain costs, or enhancing the product quality.
Best practices for supply chain optimization
Now that the elements and phases of a supply chain are clear, here are some best practices for how to optimize your supply chain that are applicable to every industry:
Ensure you have the proper team in place for the entire supply chain structure
When you have a particularly large supply chain network, with multiple third party teams and partners, data can too easily become siloed. Products can accumulate different I.D.s as they hop from link to link in the supply chain, which becomes impossible to track.
Integrating the systems and managing the data from one central location using a centralized data management system helps ensure a smooth transfer of data and alignment between different parts of the supply chain
Identify areas where technology can digitize and add transparency
According to a recent survey, only 15% of companies reported having either automated reporting or conveyance processes, and another 46% plan on automating reporting in the near future. There is clear recognition that manually-driven supply chain processes have led to an ongoing lack of supply chain visibility. Digitizing and automating supply chain management using a dedicated technology solution can solve this problem by connecting data from processes and resources across the supply chain network in one centralized place.
Optimizing Your Supply chain network
34% of supply chain leaders feel they haven’t established the necessary partnerships to handle supply chain demand. (GlobalTranz)
Maintaining a healthy relationship with your partners, whether they are manufacturers, suppliers , retailers or logistics providers, is essential for a healthy supply chain network. But many businesses lack communication and visibility into their partner’s performance. And without that data, it’s impossible to have effective decision making.
Proper two-way communication is an integral factor to ensuring a proper handoff of goods across the supply chain and reducing exceptions. Real-time communication and data sharing would reduce errors across supply chain handoffs. And the larger a supply chain network, the more important this becomes. The business objectives that should be considered are methods that maintain the positivity of a company’s relationship with its retailers and suppliers, resolve any potential conflicts, or improve overall performance.
Leveraging technology will come in handy for supply chain network optimization. Digitization (computerized pen-and-paper processes) and automation help to reduce the workload; especially when it comes to handling exceptions. For example, delayed shipping times or customer unavailability during delivery can disrupt the supply chain. However, a digitized supply chain has been optimized to create automated alerts, confirmation messages, or push notifications that lessen the likelihood of such disruptions. And optimizing communications across the supply chain network will enable an organization to get early visibility into issues, so they can be solved quickly.
Improve your route efficiency
By being efficient, a business can do more in less time with less effort which lowers operating expenses and avoids the need for raising prices resulting in satisfied customers. Not only does this result in higher profits for everyone involved, but it still maintains the customer-centric focus. And, since logistics can cause lots of waste, routing shouldn’t be ignored when trying to improve efficiency.
There are various practices for improving routing such as having a detailed routing guide, using route optimization software, or batching multiple shipments together to increase drop density. What’s important is to implement route-improving practices for first, middle, and last miles. Optimizing the last mile experience, in particular, is of great importance when it comes to route efficiency, and optimizing this critical part of the supply chain through automation can make a big difference.
Align with your customer expectations
Improving customer expectations should be one of the outcomes of optimizing your supply chain, especially when it comes to speed, price, and availability. Visibility on both ends plays a large part in this. Digitized inventory management can provide visibility into inventory levels at each location. Machine learning and artificial intelligence solutions even allow a business to forecast demand. So, before a particular product runs out of stock, it would be resupplied to meet demand and ensure short lead times from order to delivery.
Use data to improve demand planning and forecasting
To evaluate a supply chain optimization process, most supply chain managers will look at the bottom line: will it reduce supply chain costs? Will it lower operational expenses? This, as well as increasing revenue, will always be the primary company goals, and a good way to achieve them is to look at inventory holding costs. The cost of storing inventory makes up a major percentage of a product’s total cost. That’s why it’s crucial to properly forecast demand and plan accordingly in order to optimize inventory quantities.
Machine learning would also be very beneficial for proper forecasting. Machine learning automates data analysis as well as analytical model building. In other words, the ability to learn from data and identifying patterns can essentially help improve decision making and performance.
A good example would be eliminating time buffers. If machine learning could predict that the time required for drivers to reach a certain warehouse is one and a half hours rather than two, for instance, then that estimation could be incorporated into dispatching and route planning, reducing lead times across the last mile of the supply chain. That, of course, means the same resources to perform more deliveries, reducing the related transportation cost. More business, less waste.
Always have a contingency plan in place
When things go wrong at any point in the supply chain, it puts companies at risk for customer dissatisfaction, a waste of resources, and unnecessary overheads. And the more successful you are – the more customers you have, the larger your distribution networks, and the more value your supply chain holds for your organization – the greater the risk. Experienced industry professionals have contingency plans in play for every scenario, from temporary transportation delays to unexpectedly losing a supplier.
Exceptions and risk management should consider any circumstances that could disrupt the supply chain and plan ahead of time to avert hiccups. By managing both exceptions and expected risks in a proactive manner with a contingency plan, unnecessary losses and disruptions can be avoided.
Goals of supply chain optimization
No two supply chains are the same. That’s why the best approach for supply chain optimization is to choose an optimization process based on an organization’s business goals and operational objectives. Here are some examples:
As previously mentioned, inventory holding costs are a significant element in the equation, but that’s not the only end goal behind improved inventory control. Having an inventory management system helps a company identify best-selling and slow-selling items. It also helps with deciding where inventory should be stored, which items require quick access, and what could be stored at warehouses in further locations. Generally, inventory control provides information that is invaluable for achieving business goals and improving multiple business processes.
Faster shipping & order fulfillment
For any process to flow smoothly, all parties involved (whether suppliers, manufacturers, distributors, or retailers) must be on the same page when it comes to logistics, in particular. If proper coordination and supply chain optimization is put into action, this would automatically work in the favor of other goals as well. That includes reducing shipping costs, boosting revenues and profits, and, of course, improving customer service.
Efficiency is one of the key aspects of supply chain management and optimization across all industries. For instance, streamlined shipping that reduces lead times across the final mile of the supply chain leads to improved customer satisfaction. It’s a domino effect: optimizing one point in your organization or supply chain network will positively affect lead times and performance across the rest.
Revenue and profit growth
One way to increase revenue is by reducing ‘waste’ along the supply chain (e.g. products that never go to market), and reducing the cost to deliver, reducing operating costs (e.g. getting the same number of drivers to perform more deliveries).
One example of this is transportation costs. You can reduce this across the last mile by using technology such as smart delivery quotes that only show the times when shipping resources are available; real-time tracking for end customers so they know exactly when their delivery will arrive and communication whereby customers can communicate if they will miss a delivery. You can also reduce overhead costs by reducing the number of truck rolls performed (via intelligent dispatch and routing). Every ‘truck roll’ (i.e. a time a truck goes out to perform a run) costs hundreds of dollars. Improving operational efficiency so that you eliminate even one half-empty truck a day per region will turn into tens of thousands of dollars a month.
For a business to increase its supply chain’s profitability, it must work on reducing costs and expenses throughout the whole process; be it overheads or variable costs.
Overheads, or fixed costs, that don’t change according to the production volume. Good examples of overheads would be the rent of warehouses, managers’ salaries, or depreciation of machinery. On the other hand, variable costs are any costs that increase or decrease according to the number of goods produced: the cost of raw materials, distribution costs and shipping costs, for example.
Improved customer service
We live in a customer-centric, service-oriented world. No one does once-off sales anymore; everything is (or strives to be) on a subscription model. But with a subscription model, a company has to consistently and continuously prove the worth of the product or service to customers. For a shipper, that would be a consumer. For a logistics provider, it would be both the shipper and the shipper’s customer as well. Improving their experience is what will guarantee customer satisfaction and a larger market share.
The end goal of supply chain optimization should relate to improving the overall customer experience.
For example, minimizing related costs caused by “where is my order” calls (also known as WISMO calls) will also improve the customer experience. Dealing with WISMO calls requires vast service centers; it’s expensive and can be avoided when you have the technology to provide visibility into orders.
Better technology equals better supply chain management
As your organization’s supply chain scales and your global supply chain network expands, optimizing them will become one of the crucial factors in the success of your company. Traditional supply chains have had to change quickly during the past year, with many unequipped to optimize their supply chain for today’s needs, including optimizing with the end customer and the last mile experience in mind. While every supply chain is unique, they can all benefit from using data-led supply chain optimization software, and a customer-centric approach to supply chain management.