Baranwal Consultancy And Services

Supply Chain Optimization

Supply chains are the lifeline of your e-commerce business. Whether you’re a manufacturer, distributor, or retailer, you are part of a web of logistics. Supply chain optimization is the process of refining your supply chain to operate at its best. This means finding ways to better align your operations, inventory, purchasing, and distribution.
If done well, optimizing your supply chain can create a competitive advantage for your business.
An overall 79% of surveyed companies say that using supply chain optimization techniques improves revenue significantly.

In this article, we will get to know about:

What is Supply Chain Optimization?
Benefits of Supply Chain Optimization.
10 tips for optimizing your Supply Chain Optimization.

What's Supply Chain Optimization?

Supply chain optimization is the process of adjusting your supply chain to operate at peak performance. This means ensuring the optimal placement of inventory and minimizing operating costs, including:

Manufacturing costs
Transportation costs
Distribution costs
Fulfilment costs
Customer service costs

Benefits of Supply Chain Optimization

Creating a responsive supply chain lets you adapt to logistics trends and demands without incurring high costs. Here's what you can expect from success in supply chain optimization

Improved inventory management:An accurate sense of inventory levels is vital to cutting costs and ensuring you can meet demand. This lets you avoid out-of-stock scenarios while preventing the purchase of excess products, and the higher shipping costs that come with, plus the added costs of storing excess inventory
Better order fulfilment:: Streamlined operations lead to faster delivery times and happier customers. By identifying faster transport methods and more efficient delivery methods, you improve fulfilment.
Customer service:Reliable, timely deliveries lead to fewer returns and lowered customer service costs.
Optimal decision-making:Better visibility of costs helps you choose the best path forward. Analyzing your cost balance of transportation, distribution and manufacturing will reveal savings opportunities and operational efficiencies.
Minimize operating costs:Common areas for savings include planning, managing teams, sourcing, transportation, last-mile delivery, and more. Benchmark your costs to compare yourself to industry norms, then adjust from there.
Better supplier relations:Lean supply chains involve collaborations with key providers that help you reduce inventory, accelerate fulfilment, and ensure product availability via party logistics.

Best Practices of Supply Chain Optimization

An effective supply chain optimization strategy hinges on effective analysis followed by planning. Begin by examining the current state of your supply chain, including:

Facilities
Inventory
Transportation costs
Provider relationships
Operational practices

Next, analyze your supply chain with an eye for demand forecasting. How does your current model for production, inventory, transportation, and delivery work to meet this forecast?
To optimize your supply chain, you'll need to bridge the gap between forecast demand and current operations.

Every company's situation varies according to its customers, production, and supplier relationships. There's no standard fix for supply chain optimization but you should pay attention to a handful of key metrics in your analysis, including:

Fill rate
Inventory turnover
Supply chain time cycle
Cash-to-cash time
Days sales outstanding
Perfect order rate
Gross margin returns on investment

Benchmark your company against industry standards to gauge your performance. Once you have identified areas to save, accelerate or streamline – plan to make these changes in an appropriate window of time.

10 Tips for Optimizing Your Supply Chain Process:

If you've decided to take the plunge and look at how to better manage your supply chain, there are a few steps you can take. Here are a few ways to optimize your supply chain network:

Outsource Business Activities:
If you want to streamline your business, then you may need to consider outsourcing certain aspects of it. Often, businesses shoot themselves in the foot by trying to do everything in-house. Outsourcing things like procurement, logistics, or even customer service can benefit your business and put it on an optimal path for success.
Establish Communication Between Suppliers and Retailers:
This is perhaps the most important aspect of optimizing the supply chain. There must be a good, transparent communication between the retailer and supplier or manufacturer. This ensures timely fulfilment of demand and avoids any confusion. If you’re using more than one supplier, then this is even more important as you’ll need to build good communication with each one.
Use Mobile and Internet Technology:
For retailers, mobile technology can be very helpful for marketing, direct sales, and information. The internet is also very important because it allows retailers to communicate by email. Further, social media allows retailers and customers to judge trends and be proactive. Similarly, retailers can leverage these technologies to offer things like location-based discounts and services to increase sales.
Use Centralized Management Software:
Optimizing the supply chain process requires all the facets of a business to work cohesively as a single unit. There are many management software available that integrate a business’ different departments so they work effectively with each other. For example, the right software can help your sales, inventory, and finance systems work together. These software can make the relevant data available in a centralized database to which all the different systems have access, allowing all business processes to be streamlined.
Use a Multichannel Approach for Demand and Supply
Use a multichannel approach to build a responsive supply chain. Inventory management is very important for an efficient e-Commerce business, and demands must be communicated to suppliers quickly and effectively. Plus, a multichannel approach will help you plan for your business and assist with forecasting trends.
Ensure High-Quality Products
Optimizing your supply chain also means getting superior quality products at affordable rates. For that, you need to understand your manufacturer or supplier very well. You need to know where their strengths are, and what their limitations are. Shop around until you find one that suits your business’ needs. Create a proposal and request quotes and information from a few prospective suppliers or manufacturers until you find the right one.
Plan Ahead:
Planning is crucial for timely order fulfilment - it will help you avoid all manner issues with your logistics chain. Urgent order fulfilment doesn’t mean you have to pay more for shipping or air deliveries. However, if you fail to plan, you will rack up significant costs very quickly. Think ahead to ensure appropriate inventory management and order fulfilment.
Align with Your Customers’ Demands:
Knowing what your customers want (and when they want it) allows you to judge future trends and keep your stock at appropriate levels. Analyze your sales data to determine future demands and trends and communicate these to your supplier(s). This will help you with your inventory management.
Use analytics tools:
There are many tools available to help you analyze whatever data you have so that you can better understand your market and customers. It’s very important to know things like what your customers want, how they shop, and what seasons are good for your sales. Make sure you’re analyzing your data properly before you make pivotal business decisions.
Negotiate and Renegotiate:
It’s very important to negotiate with your suppliers to get the best rates possible. But don’t forget that you can go back to renegotiate whenever appropriate. Cost-cutting is the ultimate goal of the optimization process, so you should take every opportunity to do this. Remember: if you can reduce the cost of your inventory, you’ll be able to improve your profit margins.

Author

Nikhil Shinde
SAP IBP/ Asprova Consultant Baranwal Consultancy and Services (BCS), Pune, Maharashtra, India

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