10 Ways to Optimize Supply Chain
Updated: 5 days ago
79% of companies with effective supply chains were able to achieve high-level revenue growth. In contrast, companies with poorly developed supply chains were only able to obtain above-average growth 8% of the time. Loosely translated, it's exceptionally difficult to perform better than average if your supply chain doesn’t have sound architecture from raw materials sources to customer delivery. By the same token, one feature that practically all successful enterprises share is a best-in-class supply chain model.
Supply chain optimization is about establishing your fundamentals holistically and effectively, and then taking advantage of some of the available enhancement techniques to gain incremental advantages over your competition. Read on to learn about 10 ways you can make a world-class supply chain!
Supply Chain Optimization Methods
To maintain a high performance over time, a well-constructed supply chain needs to be prepared to handle both internal and external changes and disruptions. These techniques can help your system function smoothly in good business cycles, as well as cope with adversity when it invariably occurs.
Creating a standardized process is a foundational part of making a supply chain efficient, manageable, and scalable.
Non-standardized supply chains (or supply chain components) require specialized knowledge, whether in a geographical or functional area of an organization, which often renders managerial knowledge and experience non-transferrable and non-applicable in other areas of the organizational supply chain. Eliminating “special cases” and process exceptions wherever possible increases efficiency and reduces costs in the form of extra time and resources required to manage non-standard process components.
2. Make Costs Salient
The cost of most transactions along the supply chain are subject to market forces, and fluctuating prices reflect this dynamic. Upstream and downstream costs should be made transparent so that managers along any given part of the supply chain understand the financial effects of their decisions along the entire supply chain.
A centralized price-sharing system helps SCM managers understand how costs across the chain are interrelated, and allows leadership to build a cohesive strategy with all supply chain components moving in rhythm towards a common, optimized goal. Potential issues can be identified earlier as well, allowing more time for risk management and avoidance.
3. Improve Returns Management
Returns management is a business detail that is often viewed as unimportant, and is frequently deprioritized in lieu of downstream activity. An inefficient returns management system can quickly become an issue, especially when returns are triggered by an external source or component in a supply chain, such as a quality control issue with a supplier. Managing returns and replacements are critical to customer satisfaction, but visibility of issues (or lack thereof) causing returns reverberates across an entire enterprise supply chain.
4. Organize a Responsive Supply Chain
Comprehensive risk assessment is critical in identifying problems before they happen, and mitigating them when they do occur. Good business analytics and forecast data will help project shifts in demand and sales trends, as well as supplier and materials-related issues. Having workable, actionable contingencies for supply chain adversities is a key differentiator between competitors in a given industry.
Monitoring market data, social media, POS data, and other sources of information can help project coming shifts and potential disruptions in a supply chain, and help mitigate impacts to operational flows.
5. Use Data Analysis
Every transaction or delivery in your supply chain creates a potentially useful data point that an organization can aggregate to build higher-level metrics of a supply chain's functionality. Integration of systems and platforms to allow data sharing and visibility up- and downstream allows an organization to study patterns and discover opportunities to increase efficiency and cut costs. The Connected Enterprise concept is highly useful and applicable in supply chain management.
6. Use Mobile-Based Technology
Also tied to the Connected Enterprise and IoT concepts, the wide array of mobile devices utilized in supply chains allows for unprecedented levels of data collection, and the most successful companies use as much of this data as they can gather to make informed decisions at all levels of an enterprise.
7. Outsource Weak Points
If a component in a supply chain is identified as overly costly or specialized, companies often find that outsourcing is a more effective solution than managing the cost and effort required in-house. Highly technical or highly specialized components of a supply chain can be successfully farmed to professional outsourced firms with proper vetting, risk assessment, and contingency planning, to the overall benefit of a supply chain’s efficiency and cost.
According to MicroSourcing, "59% of businesses surveyed said outsourcing was used as a cost-cutting tool."
8. Track Vendor Quality
A supply chain is ultimately dependent on the quality output of vendors. A systematic and standardized methodology for tracking the quality of products received from suppliers is critical in timely identification of issues. Having alternative vendors and supply sources on tap helps ensure supply chain consistency with minimal operational disruption, though costs typically fluctuate during shifts in supply sources.
Robust monitoring of vendor performance will also benefit in future negotiations, where an enterprise will have effective leverage to potentially procure better product quality and better pricing.
9. Improve Inventory Management
Discrepancies between inventory records and actual inventory occur even in good management systems. Identification of triggers or process gaps that cause these discrepancies, and working to repair and close them, can have a tangible effect in both directions on your supply chain. Effective inventory management saves costs in production, stocking and restocking, order management, taxes, and more.
10. Automate Purchasing
Automated purchasing triggers based on inventory levels or sales systems are simple, but highly effective mechanisms. Sales pipelines and manufacturing process times and variables are primary order triggers, but other factors like supplier lead times, volume discounts, and quality control statistics are also key metrics in setting automated order levels and purchasing strategy. A well-tuned automated purchasing system requires minimal control and attention, and allows employees to focus on more analytical issues and problem-solving tasks.
Improve Your Supply Chain Strategy Today
If your organization needs help understanding how your supply chain model and strategy can be digitized, optimized, and integrated across your organization, contact TechFides for a consultation today. TechFides was formed with the clear purpose of guiding business organizations through the process of assessing, understanding, planning, and implementing optimal IT strategies.