The simplest way to explain a supply chain is this: how stuff gets from there to here. Your business’s supply chain is like its circulatory system. Your business won’t function correctly if you don’t get the supplies you need at various parts of your business. For example, if you run a fleet of delivery vehicles, you’re not going to do much business without enough diesel to run the vehicles.
For this reason, supply chain optimization is of great importance to every organization, and in a recent Supplier Management report by Levvel Research, it ranked as the number one goal.
So, to ensure that your supply chain is optimized sufficiently and stuff gets where it’s going to help run your business, there exist a few tips.
Ways to Optimize your Supply Chain
The people who supply you have people who supply them. And, those people have people who supply them, and so on. Eventually, all chains run back to a raw material, but in between, all links in the chain could benefit from supply chain optimization.
To be as efficient as possible, you have to be in constant communication with each part of the chain. To use a historical analogy, imagine how much more successful Rommel would have been if he hadn’t had to wrangle with German High Command before getting what he needed to keep the Afrika Corps running smoothly. Although he knew what was what, his chain wasn’t integrated.
Now, if we take the example of a company with a fleet of delivery trucks. You will have to keep the trucks filled with fuel, maintained, and repaired when needed. For those three things, you will have three supply chains: fuel, spare parts, and tools.
Supply chain optimization requires that you be in contact with all aspects of each of those supply chains. That includes the drillers, refiners, and transporters of fuel. That also includes the miners, metallurgists, machinists, transporters, and retailers for both the spare parts and the tools. Supplier Relationship Management (SRM) is an important initiative that can help enhance your supply chain’s performance, with integration and communication key components.
Necessarily, you won’t need to speak with certain links as much as others, but you must negotiate with all of them to be able to have a handle on your supply chain. If you do, then you can create flows and processes that affect and improve them all.
2. Inventory Management
Supply chain optimization demands that businesses know what’s where and when it’s there. Once you know, you can manage each item or groups of items to ensure it’s used the way it’s supposed to be used. Let’s say that our hypothetical company with a fleet of delivery trucks is a food company that delivers organic produce to both stores and individual customers.
One of the biggest advantages of managing your inventory effectively is that you avoid product spoilage. No one wants to order fruit and vegetables and have them show up moldy and wilted. If you know that case of tomatoes is on loading dock No. 4 at a particular site, you can make sure it’s picked up on time.
You also have to know how much stock you need. If you can only sell 500 cases of organic tomatoes, you don’t want to pay all the costs for getting 600 cases because 100 cases will become dead stock instantaneously. And, it will spoil forthwith, which will have wasted the time and money you had invested in getting it somewhere.
Logistics is, basically, the art of hauling goods from one location to another. It’s more than that, obviously, but that is at its core. Your stuff has to get where it’s going quickly so that you can meet customer demand. With perishable items like organic produce, it’s crucial that nothing interrupts your produce as it makes its way along your logistical trail.
To see how logistics is essential, let’s look at how various chains interact. You have an order of 50 tons of grapes that are to be delivered to the warehouse of a well-known supermarket. One of your delivery vehicles breaks down on the way to the warehouse, and there is a three-hour delay. Needless to say, the supermarket isn’t happy with you. Nothing spoiled, but the supermarket didn’t meet its deadline for the weekend sale that included organic produce.
The chains involved in this include:
- The supply of spare parts that could have been used to fix the truck before it broke down
- The supply of tools that should have been used by the mechanics to ensure the truck didn’t break down in the first place
- The drivers of the trucks themselves
The fault in the truck could have been as simple as a faulty intake valve. For want of a $20 valve and about 30 minutes labor, an entire business relationship got stressed. By planning ahead when it comes to the spare parts, you can avoid these headaches.
Phone calls are great, but in a business arena where minutes sometimes matter, quicker communication is necessary. In a recent blog, we discussed the benefits of supplier management, including how supplier management technologies are leading to increased efficiency for organizations.
Levvel’s Supplier Management report also focuses on the top strategies for managing suppliers, with updated technology considered the top strategy.
Depending on the size of your business, you may require a solution powered by Artificial Intelligence (AI) technology to keep track of your inventory and automate orders. If our hypothetical organic produce business has 50 trucks and a few warehouses and distribution centers, you might be able to achieve supply chain optimization with just a few PCs.
Companies the size of Amazon need entire divisions that are supported by the most powerful technology and secure, cloud-based management protocols and software, along with thousands of people who maintain some semblance of control over the unimaginably colossal enterprise that is their supply chain.
Even our example company needs fleet-management software, tamper-proof timecard systems, energy-efficient process flows, and communications tools to be successful at supply chain optimization.
5. Speaking of Communication…
Fortunately, this is the easiest of all to implement. You, your employees, and your suppliers just have to talk to each other. Whether that’s over the phone, in text, by email, or even video chatting, it’s the most important factor of all when it comes to supply chain optimization.
Yet, according to Deloitte’s Chief Procurement Officer Survey, only 6% of respondents claim to have full transparency of their supply chain.
This figure needs to improve if more organizations are to achieve true supply chain optimization. Without transparency and constant communication with stakeholders, you won’t get the full picture of any situation just by getting an alert on a piece of technology.
Along with giving your employees a voice and visibility, they also need to be given training in order to enhance their ability to deliver within the supply chain. The Deloitte report also looks at the planned areas of training within procurement with technical procurement, such as negotiation skills and strategic sourcing, leading the way on 41%, ahead of soft skills, including relationship management and collaboration skills coming in second.
When giving the opportunity, people can offer insight into better processes, and you can discuss things to determine the best course of action for all parties involved.
Supply chains can be extremely complex and difficult to manage at times, particularly for organizations that deal with a large number of suppliers and several different products and services. Supply chain optimization should be prioritized by all organizations in order to achieve efficient product/material flow and financial flow and can be done so when the aforementioned strategies are taken into account.