Global supply chains are undergoing stress and transformation, and supply chain management continues to increase in complexity. Careful administration of the supply chain is important, and the need to optimize has never been more pressing.
Let’s look at:
- What supply chain management is
- The benefits of optimizing your supply chain
- Effective techniques for improving supply chain management
- How automation can add resiliency to your supply chain
What is supply chain optimization?
Before we discuss optimization, it helps to have a clear understanding of the process companies employ to turn raw materials into salable products.
Supply chain management (SCM) refers to the practices and techniques used for:
- Procuring goods and services
- Providing high-quality products and services
- Distributing those products for sale
Some examples of modern supply chain management activities include:
- Requisitioning supplies through the procurement process
- Establishing manufacturing timelines and parameters
- Conducting inventory control and capacity planning
- Coordinating warehousing and logistics activities
- Creating distribution plans for downstream partners
Supply chain optimization is all about making those activities and business processes more efficient.
The main objectives for optimizing supply chain design are to:
- Save money
- Eliminate cash leaks
- Increase product quality
- Distribute goods efficiently
- Respond with agility to changing market and economic conditions
Why is supply chain optimization important?
Supply chain optimization ensures that organizations maintain a competitive advantage in the production and distribution of products. Poor supply chain management is costly and inefficient. It is also more susceptible to business risks such as production delays, inventory shortages, quality issues, and supplier fraud.
Establishing highly efficient supply chain operations helps companies improve outcomes in several ways:
Reducing information silos: Supply chain management doesn’t happen in a vacuum; SCM operates as part of a larger ecosystem within an organization. Siloed information makes supply chain management less effective and more prone to issues. Conversely, a well-crafted supply chain process gives all stakeholders access to the information they need to perform their roles effectively.
Enabling accurate planning: Effective supply chain planning relies on a company’s ability to conceptualize the future. By creating a clear and transparent process and surfacing all relevant data, supply chain teams can engage in better decision making. They can put more accurate budgets, forecasts, demand planning, production schedules, and capacity plans into action.
Speeding response time: Visibility and planning contribute to the overall agility of production and distribution. When supply chain processes are optimized, teams can respond to unforeseen issues and implement solutions with speed and accuracy.
Reducing risk: Many of the techniques in advanced supply chain optimization reduce or eliminate business risks such as delivery exceptions, production delays, supply chain disruption, and data breaches. Because highly effective supply chain optimization creates a plan for vendor evaluation, due diligence, and tracking, the occurrence of high-risk issues decreases.
Key features of effective supply chain optimization
Depending on the organization and its goals, SCM may look different from one company to the next. While every company has individual needs and approaches it in a slightly different way, every supply chain practice will share several key features:
Granular supply chain visibility: Well-crafted supply chain processes give stakeholders across an organization a clear view of planning and production activities in real time. This increases data transparency and stakeholder collaboration.
Order management: Customers are the lifeblood of revenue, so effective supply chain management requires close attention to customer orders. A well-built SCM process will have full capabilities for tracking, capturing, fulfilling, and managing customer orders. Using tools to improve customer experience and meet customer expectations fosters a deeper sense of confidence and increased loyalty from buyers.
Inventory control: Effective management of supplies, materials, and finished products is one of the most important aspects of managing the supply chain. A first-class SCM function, therefore, will feature advanced and technology-enabled methods of tracking and maintaining inventory levels to ensure operational efficiency.
Analysis and reporting: Effective data use is the foundation on which all other optimization techniques are built. A highly optimized supply chain will take advantage of historical and current internal data, external data, benchmarking, and trend reporting in an attempt to offer the most accurate and detailed planning. While no company has a crystal ball, understanding supply chain data improves outcomes and reduces risk.
Sustainability: Impact-focused supply chain management has taken center stage in the industry over the last several years. Optimizing the supply chain gives departments more bandwidth to ensure sustainability in end-to-end supply functions. This can lead to better business outcomes overall and more brand loyalty from buyers who see sustainability as a prerequisite to the customer relationship.
7 Benefits of supply chain optimization
Supply chain optimization can transform every aspect of the product life cycle and create widespread improvements in the creation and distribution of products.
Companies that optimize their supply chain reap many benefits:
1. They experience bottom-line improvements due to reduced operating costs, streamlined operating expenses, improved logistics, etc.
2. They see increased profitability due to more effective spend management, better-negotiated prices for raw goods and materials, and improved product quality.
3. They realize better production efficiency thanks to more accurate schedules, reduced inventory issues, and better delivery timeframes.
4. Departmental alignment is increased so ordering, production, and distribution are approved collaboratively and aligned with relevant budgets.
5. They enjoy more resiliency to navigate changing conditions with collaboration and data-driven responses to disruptions.
6. They achieve better supplier performance for upstream and downstream supplier relationships, best-price goods procurement and distribution agreements, and stronger evaluation practices.
7. They have more accurate planning capabilities, including customer-demand forecasting, production lead time, inventory management, transportation costs, etc.
Top 5 supply chain optimization techniques
There are many ways to improve the efficiency of your supply chain. Here are five effective strategies you can implement quickly:
1. Assess current SCM practices: To improve, it’s best to know where you’re starting. Analyze the major areas of your supply chain management process, from sourcing and transportation to distribution networks and warehousing. Look for areas to improve, and take a staged approach to incorporate new practices.
2. Improve planning: Planning is a dynamic process. Improving the methods and technology used to create future forecasts and capacity plans will ensure that teams work with the clearest possible picture of what comes next. Scenario modeling and advanced contingency planning will reduce the scramble to find replacement suppliers when delays or cancellations occur.
3. Negotiate continually: Benchmarking and continuous improvement in terms and price are central to the cost-saving mission of the supply chain. Effective negotiation should be a regular part of every new or renewed supplier contract. Maintaining a consistent benchmarking and evaluation process ensures pricing and features remain competitive over time.
4. Expand analytics: The most effective supply chain optimization takes the guesswork out of procurement and production through the use of sophisticated reporting and visualization of large datasets. Robust reporting, aided by artificial intelligence and machine learning, offers the greatest potential for maximizing opportunity and reducing risk.
5. Automate and centralize: Supply chain optimization software reduces the manual effort involved in tracking and administering your supply chain. Automation allows users to monitor supply levels, track deliveries, optimize transportation, etc. Automating these important processes reduces the total cost of production while enabling supply chain stakeholders to take on other high-impact tasks.
How Order helps build a resilient supply chain for companies
Optimizing your supply chain starts with using the right tools.
Order improves the performance of your local and global supply chains by creating transparency and accountability in the order process. It automates redundant tasks, centralizes your data for greater visibility, administers purchasing through dynamic workflows, and visualizes complex data at the touch of a button.
Request a demo of the Order platform, learn how the power of automation can streamline your supply chain, and reach your objectives faster.