Supply chain optimization addresses the general conundrums of delivering products to consumers at the lowest cost and highest profit possible. With the need of getting products faster and cheaper comes the necessity of optimizing your supply chain to reduce costs and improving each part of your end-to-end supply chain.
Companies have made improvements in automating parts of the supply chain, and while these innovations have significantly reduced costs by reducing manual effort, we’re still at the very beginning of the era of automation. However, it’s true that without a doubt, automation is the way to go, as technology is essential to optimize your supply chain and logistics management.
But rest assured that optimizing your supply chain is not as hard as it seems. Besides, it’s the biggest opportunity for most companies to significantly reduce their costs and improve performance. For most supply chain and logistics operations, optimizing the supply chain reduces costs by 10% to 40%.
Supply chain and logistics optimization is neither easy nor cheap, but it is the biggest opportunity for most companies to significantly reduce their costs and improve their performance.
In this article, we will focus on 5 ways to optimize your supply chain management. Keep reading and find out what you can do to optimize your end-to-end supply chain.
What does it mean to optimize your supply chain management?
The supply chain aims at predicting future requirements to balance supply and demand. From a strategic standpoint, companies have to think of the capacity and the flexibility of their supply chain.
The supply chain ecosystem has become a complex ecosystem of people, processes, and technologies. It’s here in the technology part where we want to stop and think.
Technology has become one of the main disruptors in the supply chain industry. Nowadays, more and more companies are using technology to change the business paradigm.
By optimizing, we mean achieving the most efficiency at the lowest cost.
That being said, as the supply chain is an interaction of different functions, optimizing the whole supply chain often means optimizing each of the pieces separately.
The supply chain has many mobile parts
Optimizing the supply chain, including suppliers, manufacturers, and packagers, means integrating all available assets and delivering maximum value. With that in mind, companies should build an integrated supply chain that ranges from long-term strategic planning to sales and day-to-day operational concerns.
A proper supply chain optimization strategy seeks to find a balance between responsiveness and efficiency at the lowest total cost.
Besides, in a properly optimized supply chain, all the functions collaborate with each other, sharing data and information at the lowest possible cost.
5 ways to optimize your supply chain management
Strengthen your inventory control
Inventory control is the process employed to optimize your company’s use of inventory, generating maximum profits from the lowest amount of investment.
Also, given the importance of inventory on customers and profits, inventory control is one of the first steps you need to take to optimize your supply chain.
Inventory control systems help you track inventory and provide you with the data you need to manage your inventory efficiently. Besides, every company’s goal should be 100% inventory accuracy, and the only way to accomplish that is by strengthening your inventory control.
No matter which system you decide to use, make sure it includes the following elements:
- An inventory identification system
- A central database for your inventory
- Tools for scanning barcodes or RFID tags
- A process for labeling, documenting, and reporting inventory
- Software to analyze data, generate reports, and forecast demand
This will help you increase your inventory accuracy and help you assess what you have accomplished by conducting a systematic analysis of your assets.
2. Invest on customer demand planning
Demand forecasting is the process in which historical sales data is used to estimate the expected forecast of customer demand. And, yes, your customers might send you forecasts and blanket orders, but do your customers know what they truly need?
Chances are you know better than they do.
If you don’t know what we’re talking about, take a look at your customers’ demands. You can use your customers’ demand information as a starting point.
Take a look at this image from Deloitte so you can get a better picture of how you can use technology to optimize your customer demand planning.
Companies without strong, integrated planning processes take four to six months to sense shifts in demand and adjust to these changes.
Despite the changes in the supply chain industry, many companies still face situations where the parts of the supply chain are not properly integrated. This can not only impact your finances but also wreak havoc in your organization.
Luckily, technology can help you plan your demand. Here are some of the things you can invest in to optimize your customer demand planning:
- Get your process and sub-processes correct from the beginning
- Integrate each piece of your business so you know you can meet demands
- Only use the forecasting tools that work for you and your company
- Deploy internal collaboration and sharing before external collaboration
- Seek opportunities to influence your demand by using the right marketing channels
3. Invest in GPS tracking apps
A GPS tracking unit is a device that can track your location in real-time. You can use it with your business assets or install geofences to monitor your employees’ whereabouts while on the clock.
However, it goes beyond employee monitoring and location tracking–it helps you manage your company’s logistics needs by giving you full visibility over your assets.
GPS trackers can streamline your supply chain management and help you keep an eye on personal property and valuables that are moving from one place to another.
However, it all depends on the use you and your business have in mind, because GPS tracking devices can come in a wide variety of styles, each designed to meet a set of specific needs.
Here are some things a GPS tracking app can help your business with:
- Check where your employees are at a certain point in time
- Ensure quality control using location tracking
- Set a geofence to keep your assets safe
4. Create a tier 2 supplier management system
Contrary to popular belief, your supply chain doesn’t begin with your suppliers.
In fact, it starts with the suppliers of your suppliers. If you don’t know who these companies are and what they do, your supply chain needs optimizing.
These suppliers are called “tier 2” suppliers, and negotiating with them might lower your suppliers’ cost of goods and lead times. But, even better, it can help you gain more visibility over your products so that you can negotiate your pricing with your clients.
To enable your organization to drive more value out of your supplier relationships, your supplier management needs to be organized around a set of core processes. These processes focus on four different sub-processes: supplier segmentation, supplier governance, performance management, and supplier development.
- Share your plans with your strategic suppliers and create joint initiatives
- Make your stakeholders part of your supply and procurement process
- Create value along all the parts of the supply chain
- Segment your suppliers into different categories
5. Start thinking of COGS management
Your supplier’s cost of goods sold is a sum of the direct costs attributable to the production of the goods sold in the company. This includes all the variables: labor costs, indirect expenses, distribution costs, and human costs.
The COGS is usually subtracted from your company’s revenues to determine its gross profit, which is, in the end, the measure that evaluates the efficiency your company has in managing labor, supplies, and production processes.
To adequately price your products across your supply chain, finance should build economic models that maximize profit. Pivotal to creating such a model is a granular understanding of your customer analytics on a product-by-product basis.
In our opinion, the company-wide deployment of such information can help businesses clear the way and make informed decisions about everything in their supply chain.
Besides, once a company has an understanding of the impact of data on customers and products, it gets a window into other areas of operations.
Take a look at this graph to see the areas you need to focus on.
However, to truly assess your costs, you need to identify all the components of the supply chain, especially if they add or subtract value from your business.
Try these simple optimizations for yourself and see how you can optimize your COGS:
- Keep a close eye on your shipping arrangements, especially expedited shipping
- Control your discounts and promotions to identify margin leakages and reduce costs
- Educate your marketing and sales teams by assessing your current pricing strategies
- Centralize your management so that all the parts have access to the same information
- Create visual forecasts to better analyze your costs
IOTrack is a smart, data-caching device that monitors location, time, temperature, impact, and positioning, which ensures enhanced visibility and reduction in product damage or loss.