It seems like all anybody talks about these days is how to optimize this while making that more efficient. The word “optimization” has become one of the more prominent — and, frankly, overused — buzzwords of the last few years. That said, there’s no escaping it. Supply chain optimization remains an important aspect of modern supply chain management and has lasting positive effects.
Compare Top Supply Chain Management Software Leaders
What This Guide Covers
- What Is Supply Chain Optimization?
- Types of Optimization
- Best Practices
- 5 Supply Chain Areas That Will Benefit
- Next Steps
- Final Thoughts
What Is Supply Chain Optimization?
Supply chain optimization is an operational methodology that brings out the best in your supply chain with the help of resources like AI, the internet of things (IoT) and blockchain.
Proper supply chain management is a critical component of a successful business. It involves almost the entire company and deals with both suppliers and customers. These processes are also responsible for creating the products and services that make up the core of the organization. The idea is to deliver finished products to your customers using methods that are both fast and cost-effective.
Supply chain optimization software allows you to fine-tune your supply network with self-learning algorithms and advanced analytics — in a sustainable and responsible manner. It plays an essential part in enabling end-to-end visibility, predicting client needs and maintaining a competitive edge.
A streamlined supply chain ensures your business can react quickly to disruptions in supply and demand without compromising on sustainability. In other words, it’s kind of a big deal. This makes supply chain optimization all the more important to ensure you find the perfect balance between affordability and profitability.
Typically, supply chain optimization takes place in three phases:
Supply Chain Design
Step one is to focus primarily on optimizing the location and network of warehousing facilities.
Warehouse management directly influences both procurement and delivery processes, forming a crucial part of supply chain optimization and demand planning operations.
Supply Chain Planning
The next phase of the plan requires an effective supply chain implementation strategy to streamline the delivery of finished goods and services to customers. This includes real-time collaboration between multiple domains to balance operating costs and ROI for increasing profit margins.
Supply Chain Execution
The final phase is to efficiently deploy the supply chain optimization strategy.
This step directly affects various supply chain areas, including demand planning, order management, inventory management, transportation management and trade management systems.
Types of Optimization
Before jumping into your supply chain and tearing things apart, there are two methods of supply chain optimization that we should consider first:
Local
This type of optimization deals with optimizing a single function without taking into account its effect on other portions of the supply chain. For example, say you decide to fully optimize the number of goods you’re shipping per truck. This way, your trucks are always completely full when they leave the warehouse; however, you are going to need a larger back stock of goods to keep up.
This method is definitely more of a double-edged sword than a cure-all for the areas of supply chain management that aren’t optimized. Local optimization could be useful for trying new things and seeing how they affect other important processes before making large-scale changes.
Otherwise, I’d stay away from this method as it can quickly cause a domino effect of a single choice causing widespread issues.
Global
You can make a pretty good guess about how global optimization differs from its local counterpart. This optimization strategy looks at all of the areas of supply chain efficiency that need work and attempts to boost them at as little cost as possible.
It may be impossible to cut costs across the board as you attempt to balance the many moving parts of your supply chain. However, the money you save should always outweigh the money you spend getting everything back into shape.
In order to get the most out of this strategy, leveraging the powerful tools of supply chain optimization software is a good idea. These platforms usually include features that increase your data visibility and show you what needs optimizing before going in blind yourself.
Best Practices
Now that we have a base of knowledge to work from, let’s discuss some best practices to consider when optimizing your supply chain:
Be Responsive and Agile
You may have one of the most efficient supply chains around, but if it can’t quickly react to demand, you’ve got optimizing to do. Including data visibility tools is a good idea here to prevent data silos and gain real-time insights into your supply chain data. Utilizing information like POS sales can help equip decision-makers with a roadmap of possible demand changes. Leveraging social media for demand information is another viable route toward an agile and responsive supply chain.
Positioning for the future before it happens is key to operating at maximum efficiency. If you can see what’s coming down the road, reposition the inventory so that important products are front and center. Not only that, but agile supply chains make for stronger customer service. Companies that are ready for demand avoid stock-out situations and dissatisfied customers.
Focus On Your Strengths
Having a supply chain that can equally and effectively handle every single process would be a dream, but let’s face it, you are going to have some underperforming aspects. Many companies falsely believe that because their supply chain can handle everything in the short term that it is still the best and most efficient choice. This is not the case. Outsourcing certain tasks can often have larger long-term rewards than handling everything in-house.
There are time-consuming tasks that only need to be completed once, like determining distribution networks that third-party providers can handle. In fact, allowing a talented provider to focus on a task while you work on your core strengths is a win in multiple ways. A task that may have rushed were it handled alongside all of your daily supply chain processes can be given focused consideration by a third party. This way, you further strengthen your supply chain while also successfully taking care of important side tasks.
Think About the Global Picture
As time goes on and supply chains continue to grow, the global theater will become more important. Staying competitive requires branching out, especially as supply chains go from local to spanning multiple countries. Manufacturers need to take on multiple channels in order to properly handle inventory levels. Not only that but the ever-shifting global markets and regulations need constant observation. As organizations continue to optimize supply chains on a global level, larger businesses’ carbon footprints become manageable. A sustainable and eco-friendly supply chain is as important for the environment as your organization’s optics.
Acting locally is important too, however. A supply chain can’t flourish without the local support of technology. Upgrade your infrastructure, adopt supply chain management systems and ensure your on-site processes are being taken care of. Also, clearly communicate your vision across all departments and plan for “what if” crisis scenarios.
Consider Automation
Efficient warehouse management is vital to optimizing your supply chain. With the introduction of robotics and artificial intelligence, warehouses have a variety of new ways to speed up and improve accuracy. Human employees have always been most valuable when managing or planning; this way, we can focus on what we do best.
Smart warehouses employ many different pieces of technology that all work together to optimize warehousing processes as best they can. Robots can fully automate the picking process, drastically reducing the time it takes to ship a product. RFID tagging helps organize and control inventory while further improving the accuracy of picking and packing. Finally, warehouse management systems bring in a multitude of features that all work toward streamlined warehousing.
Don’t Get Complacent, Review and Update as Needed
No one wants constant meetings about anything, but establishing consistent supply chain reviews can keep a well-oiled company running smoothly for longer. Regular reviews keep track of efficiency metrics, including physical storage capabilities, distribution networks, warehousing costs, labor charges and more. These audits can also ensure you can consistently meet compliance and regulatory qualifications.
Leading parties in charge of supply chains should always be looking for underperforming pieces that slow down the flow of goods or carry unacceptable amounts of risk. Keeping compliance and work standards current can improve risk mitigation and prevent fraud, theft and other destructive behaviors.
Always hope for the best but plan for the worst. Keep contingency plans in place in case something goes wrong. You need to minimize unnecessary losses and alleviate customer dissatisfaction during supply chain disruption. We recommend having a risk management plan that can account for lost orders, traffic accidents, customs delays, inclement weather, driver issues and more.
Always Future-proof Your Supply Chain
The COVID-19 pandemic has exposed plenty of vulnerabilities within modern supply chain systems. According to Accenture, 94% of Fortune 1000 companies have reported disruptions to their supply chain in the wake of the pandemic.
While it’s true that a disruption like COVID-19 comes around once in a lifetime, it reinforces the need to stay prepared. Focusing on visibility, resilience and sustainability is the only way to future-proof your organization against catastrophic events.
Increased visibility has become the need of the hour. While the pandemic has had a negative effect on global supply chains, eCommerce has grown significantly during this period.
Multiple innovations have gained popularity to keep up with the increase in demand, including AI and machine learning, intelligent sensors and IoT devices. With the help of these tools, you can effectively map out your entire supply chain, which is crucial to identifying hidden risks and vulnerabilities. When a crisis comes knocking, you need to have enough data available to assess how long you can hold out.
Example of using RF mobile devices to read license plate numbers.
Resilience doesn’t happen naturally. You have to carefully cultivate resilience in your business practices and employees. These involve diversifying your supply base, reskilling your workers and prioritizing long-term goals over short-term benefits. With the rise of digital technologies, most of these practices will gradually become automated via robotic process automation, predictive and prescriptive AI, driverless delivery and more.
The pandemic has highlighted the need for sustainable and environment-friendly business models. One way to minimize third-party risk and environmental waste is to diversify into tier 2 and tier 3 suppliers. Secure relationships with these vendors and keep an emergency stock of raw materials.
While nobody can predict the future, these steps can save you from many headaches.
Get our Supply Chain Management Software Requirements Template
5 Supply Chain Areas That Will Benefit
After employing some of these best practices alongside some technology, you can expect your optimization efforts to positively impact these five supply chain areas:
1. Inventory Control
Inventory management is a crucial part of the supply chain. It affects several other parts of your supply chain, including order fulfillment and production planning. Raw materials, spare equipment parts and finished products all fall under the umbrella of inventory control.
Example of insights gained from intelligent inventory management.
Accurate inventory keeps you from purchasing excess goods that will only take up space or from not having enough and succumbing to demand. Having an organized and controlled inventory keeps mistakes at a minimum and helps fill orders on time without notifying a customer that you don’t have what they want.
2. Order Fulfillment
Speaking of order fulfillment, supply chain optimization also helps increase your on-time orders, order accuracy and the number of happy customers. As we mentioned above, proper inventory management makes sure that you always have enough goods available to ship to your customers. But there are also other components that help improve your order fulfillment.
The delivery of your orders is just as important as producing the goods for them. Supply chain optimization helps, obviously, optimize your order delivery. Two of the main components include discovering new methods to load your shipping transportation faster and finding the most efficient delivery routes. Logistics planning and optimization are also affected by these aspects.
3. Demand Planning
Being able to plan for demand accurately can be the difference between a supply chain that sinks or swims. Optimizing demand planning gives supply chain managers a more accurate view of demand fluctuations and helps them keep the right amount of inventory available. At the same time, you can avoid the excess purchase of less popular goods to free up valuable warehouse space.
Example of using SCM software to review and plan for demand.
Effective demand planning can also help cut costs. If you have an idea of how demand is going to fluctuate, you can put an efficient production plan into place. If your demand planning isn’t up to snuff, you may have to spend some resources to catch up and reduce lead times.
4. Customer Service
Customer service improvement may not be the most obvious benefit of supply chain optimization, but it’s worthwhile nonetheless. Orders that arrive accurately and on time make for happy customers; this isn’t exactly rocket science.
A late delivery isn’t the end of the world, however. A properly optimized supply chain will send out notifications to alert customers about unexpected shipment delays. This system should also be able to find out if a customer has been receiving their orders late and properly compensate if need be. If this happens, you can take measures, like offering discounts, in an attempt to make amends and keep their business.
5. Decision-making
The ability to make better decisions is oftentimes overlooked when optimizing a supply chain. Yet, it may be one of the more important aspects of optimization to consider. As you increase the efficiency and optimization of your supply chain, you’ll be better informed and ready to make more positive and impactful decisions.
This is especially true when with data pulled from real-time analytics. Real-time data allows informed decision-making on the fly, which can help bounce back from emergencies. Visibility into data keeps you from making choices based on old or outdated information. Also, advancements in machine learning enable supply chain optimization software to use company data to build predictive models.
Next Steps
So now you know some areas of the supply chain that can improve with supply chain optimization, but how exactly can you achieve it in the first place? We suggest starting with robust supply chain management software. This software comes with features for managing everything we mentioned above and much more. Essentially, these systems help you take total control of your supply chain processes.
Think about the unique requirements your business needs to stay competitive. Spend some time shopping around and speaking to vendors to make sure that the system you decide on can solve your problems.
If you are in the market for a top-performing SCM system, take a look at your comparison guide to get a look at leading platforms.
Final Thoughts
Optimizing a supply chain can positively affect a number of struggling processes in any supply chain. Leveraging technology, data visibility and proper demand planning can help turn a failing supply chain around and keep it competitive.
Which portions of your supply chain have you recently optimized, and how has it affected the efficiency of your daily processes? Let us know with a comment below!