Supply Chain Optimization: Everything You Need to Know
A fast-growing demand in e-commerce and online services has revealed the necessity for many businesses to reconsider how they manage their supply chains. The rise in product demand, need for greater flexibility, and willingness to provide customer service at a high level made businesses turn to supply chain optimization.
Supply chain optimization allows companies to keep their competitive edge in the market, decreasing supply costs and avoiding fragmented supply chain management. In this article, we explain how supply chain optimization helps companies improve their administration, enhance customer satisfaction, and how to build effective supply chain management systems (SCM).
What Is Supply Chain Optimization?
Supply chain optimization (SCO) is a powerful strategy implemented by many businesses to reduce production and operating expenses as well as improve supply chain overall performance and efficiency.
Businesses opt for SCO when they want to improve their financial results, e.g. balance transportation costs with product demands or when they are undergoing a business merger or acquisition process when two businesses need to align their supply chain workflow with each other.
SCO is a complicated process and usually involves several phases:
- supply chain design – when company structures and administers the supply chain so that it can find the most optimal balance between product manufacturing, storage, and transportation costs;
- supply chain planning – involves detailed planning of material delivery to the point of manufacture and a final product journey to a customer;
- supply chain execution – when a company makes the best use of available assets, effectively controls costs, and manages to timely deliver the right items to its customers.
Solid software solutions significantly facilitate the process of supply chain optimization. That’s why before starting their SCO, many businesses turn to a careful selection of supply chain apps. In many cases, businesses prefer to build their own supply chain software solutions. This allows them to precisely adjust the software to the needs of the company, ensure detailed supply chain analysis, and gain valuable insights on possible improvements as well as effectively scale the software in line with the business development.
Benefits of Supply Chain Optimization
With supply chain optimization businesses can gain better working capacity and enhance their customer satisfaction. An effectively designed SCO process helps businesses to:
- decrease silos – carefully optimized supply chains have improved visibility and better data exchange; as a result, it allows many business partners involved in the supply chain to better track the journeys of products or raw materials, timely address any inventory lacks, better anticipate possible overstock or understock challenges and mitigate the risks;
- lower operational costs – SCO allows businesses to improve their logistics operations, making supply chain workflow precise and providing the possibility to find the lowest cost of transportation, storing, product manufacturing, and other services;
- better address client needs – in the conditions of the on-demand economy when customer expectations are high, companies attempt to provide the best service to retain their buyers; streamlining their supply chains helps companies to satisfy their clients with fast product delivery and quickly handle the issues raised by customers;
- gain competitive advantage in the market – with advanced supply chains businesses focus more on supply chain execution rather than supply chain network design; as a result, companies can make real-time decisions and better plan their future business strategies;
- improve supply chain agility – well-optimized supply chains can better respond to the daily business challenges related to customer high/low goods demands, supply distribution, market fluctuations, and others;
- facilitate many supply chain processes – SCO software helps businesses to simply perform complex tasks in supply chain processes, e.g. supplier onboarding and collaboration, acceleration of lead time, solving customer issues, and others.
The Challenges of Supply Chain Optimization
There are a variety of challenges companies face when opting for SCO. Though, according to the latest SpendEdge presentation, if companies manage to undergo the optimization process successfully, they can reduce company expenses by 10% to 40% and significantly improve their decision-making.
The key SCO problems include location, production, and inventory accuracy. Let’s have a closer look at them and possible solutions.
It’s essential for a company to consider where to place their production plants, distribution warehouses, and stocking facilities. Many companies place themselves closer to their end-users while building their manufacture nearer to the source of the raw material. For companies it’s essential to correctly analyze the market demands and properly identify where to locate, considering the regulatory norms of the areas they want to launch their branches in.
Deciding how many items a company needs to produce to satisfy the market demand is one of the most widespread SCO issues today. Besides that, businesses have to consider the quality of the goods they produce. Therefore, companies have to perform a careful market analysis and investigate alternative product costs and market demand. Moreover, they need to make many operational decisions related to workload scheduling, equipment maintenance, product quality estimation, outsourcing of production if needed, and others.
- Inventory accuracy
On average, inventory management costs reach 20-40% of their value. Therefore, for effective work of a supply chain, businesses should accurately track their inventory levels and ensure their timely delivery. For th