Done properly, supply chain optimization (SCO) minimizes costs, improves performance, and better achieves customer goals and expectations.
SCO is a term used to describe the process of operating a supply chain at peak performance and efficiency. Achieving this goal happens when a company reaches key performance indicators (KPIs), including profitability. There are countless processes, steps, and decisions that play a role in how well the supply chain functions. By making better use of SCO, organizations achieve goals efficiently.
According to data produced by Flexis, less than a third of supply chain management professionals view their collaborative process as being "effective." With such a lack of confidence in existing operations, organizations that embrace SCO can count on significant improvements in operations and bottom lines.
Types of Supply Chain Optimization
Generally speaking, there are two ways to optimize supply chain networks: local supply chain optimization and global supply chain optimization. The most significant differences in these methods are in their scale and scope. Take a closer look at these supply chain models:
Local optimization aims to improve a single specific function within the supply chain network. This approach to supply chain optimization focuses less on the impact that changes may have on other parts of the supply chain. In most situations, using this method is a way to quickly explore new ideas or test the waters for larger-scale changes. Companies develop and apply various supply chain optimization strategies to see how they may impact other parts of the supply chain before moving forward with a larger, broader, or more permanent plan. Often, these changes aren't evident until they're put into effect and observed in practice.
Global supply chain optimization is a strategy that takes a more comprehensive look at what could occur and what potential effects specific changes to the supply chain may have on each part of the process. This overview takes place before management makes any changes, ensuring that any disruptions and risks are minimal prior to heading into such a large undertaking.
What is the importance of supply chain optimization?
The investment required to make changes to existing supply chains can be problematic for organizations. What's working may be "good enough" from a preliminary view. Yet change could be better and creates a wide range of opportunities, especially when the latest supply chain technology enhances operations or allows companies to do more with less.
Still, many organizations don't embrace the benefits of supply chain optimization soon enough. Supply chain research shows the value of making necessary and beneficial changes.
Organizations without integrated SCO solutions typically suffer from three major concerns:
#1: Lack of Speed in Disruptions
Perhaps one of the most important concerns for organizations is being able to manage disruptions or bottlenecks fast enough and be able to make effective changes soon enough to overcome such challenges. We've seen evidence of this time and time again in the modern supply chain, from the pandemic to blocked seaports. With a lack of capability to recognize potential disruptions or bottlenecks soon enough, adequate solutions are not readily accessible, creating increasing concerns and leading to the lack of supply chain fluidity.
#2: Lack of a Macro View
Another fundamental limitation is a diminished ability to view supply chain logistics from a macro level. That includes a lack of ability to see multiple channels or angles of the supply chain. Often, it's in these details that problems and opportunities develop, which could influence the entire functionality of the supply chain. With a complete overview, organizations gain better visibility into the supply chain's strengths and weaknesses.
#3: Lack of Ability to Utilize Opportunities
Without SCO, organizations typically have a diminished ability to both identify and exploit the advantages or value-added opportunities present. These opportunities often stem from anomalies or unexpected events in the supply chain network. Again, this leads to failed access to cost-savings, time-savings, and resource use efficiency.
What's more, supply chains today are more complex than they've ever been, thanks to an increasingly global industry. As a result, these concerns significantly reduce the possibility of containing costs, increasing production, and maintaining a coordinated network. There's no doubt that this will only continue into the future as a comprehensively connected world continues to place demand for increasingly complex supply chains.
Recognizing these concerns within the organization is critical. Organizations that have yet to embrace change may see evidence of struggle and strain as their supply chains buckle to pressures from consumers to suppliers. The investment in SCO can comprehensively open the door to new opportunities.
The Benefits of Supply Chain Optimization
Utilizing supply chain optimization techniques can create numerous opportunities for organizations. SCO has the potential to make a positive impact on an organization's bottom line, reducing and eliminating costs while improving revenue. Each organization is different, having varied business requirements and opportunities. Yet, there are a number of capabilities most organizations can expect to see from SCO, including:
#1: Reduced Costs
SCO minimizes costs by pointing to areas of opportunity within the organization. Typically, organizations can see a reduction in costs simply because they finally visualize key areas of opportunity that they were previously unaware of. Negotiations with suppliers can also help this.
#2: Improved Collaboration
Better collaboration means more insight into concerns as they develop. It also opens the door for more opportunities for new improvements or advancements. In many situations, improved collaboration leads to a partnership that supports growth for all involved.
#3: Streamlined Points of Contact
With specific points of contact outlined and clearly understood, organizations know who to go to, when to go to them, and how to do so, thereby minimizing delays and ensuring comprehensive communication across all points of the supply chain.
#4: Improved Inventory Management
SCO helps minimize gaps in inventory by shoring up areas of concern, developing secondary suppliers, and improving overall visibility into inventory goals for the foreseeable future.
#5: Increased Profitability
Across all goals, SCO works to improve profitability by reducing costs and improving operations, efficiencies, and opportunities, thereby creating new connections and sales opportunities in some industries.
#6: Increased Access to Information
Data is everything when it comes to properly managing supply chains and forecasting future needs. SCO provides better access to that data while also using available information to formulate solutions. More so, this data creation and collection is often automated, meaning fewer slowdowns in the process of gathering valuable insight into your operations.
#7: Improved Lines of Communication
In every organization, communication can prove valuable. With SCO, there are more specific communication opportunities and insight into who to communicate with to get the desired results. Better communication may help to fend off complications or create better relationships.
#8: Better Supplier Relations
Good supplier relations promote facility success and growth within supply chains. At the same time, good relationships with suppliers can create faster and better access to solutions when problems arise.
Supply Chain Optimization Strategy
Developing an SCO strategy requires more than just testing changes. It also necessitates careful consideration of numerous real-world constraints, including policies at all levels, implementation barriers (e.g., costs and timelines), and other organizational constraints. Naturally, these differ from one organization to the next, but an effective strategy will comprehensively address all perceived risks to create a cohesive and efficient process.
To achieve this, recognize that supply chain models differ significantly, and working with a specialist to develop a strategy is the ideal first step. Several more steps follow to create an SCO strategy that fosters collaboration, reduces waste, and delivers improved value to the customer, including:
#1: Build based on company goals and supplier support
Create a supply chain strategy that aligns with the company's goals as a starting point. Define what those goals are clearly in advance of making any changes. Then, factor in a solid implementation plan that includes critical suppliers for the organization. Any plan without focus on both components – company goals and suppliers – creates obstacles for success, especially when these considerations don't align.
#2: Identify Critical Suppliers
The next step in the process is to create a comprehensive list of all critical suppliers or suppliers the organization depends on due to lack of flexibility, costs, or product availability. Next, identify all risks associated with those suppliers. Then, outline all the costs related to each supplier. Acquiring this high level of information makes it possible to see more opportunities for supply chain optimization.
A significant component of developing optimization is collaboration. More specifically, organizations must collaborate with critical suppliers. Doing so enables the supplier to recognize the strategic goals and encourages them to participate or better align with those goals. Thus, collaboration benefits every part of the supply chain, not just the organization but also each supplier, when done well and with careful consideration.
#4: Implement a Strategic Plan
With the wealth of information and created opportunities evident, it's now possible to implement a strategic plan. Do this for each partner throughout the supply chain critical path. Utilizing supply chain optimization techniques ensures efficient implementation of strategies minimizing risks and lost opportunities.
Supply Chain Optimization Techniques
Working to create supply chain resilience through SCO is the ultimate goal to enhance any organization's work. To achieve this, you need to employ one or more of the following techniques during the process.
SCO techniques help make a business or organization quicker, more cost-effective, and more efficient, which are all core goals of any organization's effort to meet new and growing needs. SCO techniques fall into five main categories, including:
- Building and maintaining relationships within your supply chain
Relationships matter in all organizations, but within the supply chain, they create an opportunity to significantly improve operations when well managed. To do this, consider the following:
- Maintain contact with colleagues across departments. Communicate expectations, changes, ideas, and opportunities openly with all those touched by SCO strategies, including weekly or monthly communications, whether in person or virtually.
- Invest in training programs. Without comprehensive and up-to-date training programs, mistakes happen that could create inaccurate and ineffective measurements of changes to the supply chain. Training programs should be hands-on and as detailed as possible to ensure efficient results.
- Focus on direct communication. Every relationship within the organization's supply chain is valuable. Learn the names of each partner and player in the process. Know how to reach them specifically. Having direct contact enhances reliability and ensures consistency and a guaranteed process when there's a need.
- Encourage managers to be transparent. SCO is not a foolproof method right out the door. Managers need to feel comfortable with communicating questions, concerns, and insights. Because of their insider or hands-on access to changes within the supply chain, they tend to offer incredible insights that can influence success.
- Keep stakeholders and suppliers in the loop. Establish specific goals for communications over the implementation period. Ensure there's an opportunity to reach each stakeholder with updates on how well the strategy is working and the outcomes of those changes, such as improved speed, better costs, and so on.
- Implementing quality control
Any changes within an organization need monitoring to ensure the best possible quality control. That's true of modifications related to SCO. Here are some strategies for doing that:
- Perform quality inspections on all purchased items. Implementing this point might mean training teams to recognize any deviation from the expected condition or final product. Define specific parameters for expectations and communicate them with suppliers.
- Take an in-depth look at your supplier's practices. Supply chain trends continue to show that end consumers and associated buyers want a transparent look into all aspects of the product, including the procedures performed from raw material suppliers through product completion.
- Be consistent in your quality control practices. Once you set standards, maintain those specific goals and expectations consistently. Consistency helps ensure the best long-term outcome by setting an acceptable bar and establishing controls.
- Establish a quality control standard. This established standard differs from industry to industry and product to product. Yet, a firm, clear, and outlined quality control standard is critical to ensure every person and partner is on the same page.
- Implementing price negotiation strategies
Supply chain models cannot function properly without a clear understanding of pricing. Price negotiations are often a hot point for organizations, but gaps can lead to inefficiencies and high costs without optimization in this area. Here are some tips for success:
- Negotiate long-term contracts as partnerships. Long-term contracts pose some of the most significant opportunities for optimization yet are often thought of as third parties. Instead, view, treat, and develop relationships as partnerships to have an equal chance of success for all involved.
- Ensure that the negotiations team is well-matched to the supplier. A strong understanding of the supplier and their goal is important. Remember, too, that negotiations should benefit both parties and consider all aspects of the operation. This type of mutual benefit happens when negotiation teams understand the supplier well enough.
- Make sure you have a deposit ready to go into the negotiation. Money talks, and in situations where there is significant competition, acting quickly can ensure the deal happens. Delays in getting board members or others to agree to costs can slow the process to a halt, allowing time for competitors to poach opportunities.
- Research market data for the supplier's industry. Gather market data about the supplier's industry to better understand their pain points and needs. Go into any cost negotiation with information about what's driving their decision-making and use that to influence the best possible outcome for all parties involved.
- Increasing end-to-end visibility
The more visibility and transparency present in the supply chain, the more available data you'll have to collect and use, creating more chances to view opportunities present. To achieve better visibility, consider the following tips:
- Adopt an automation model the entire supply chain can access. Automation minimizes mistakes and increases efficiency. At the same time, providing access to the supply chain for all stakeholders ensures better communication opportunities.
- Ensure team members understand the importance of visibility. Sometimes, team members do the tasks at hand without much thought about the "what ifs." Yet, with enhanced visibility, they can better identify pain points and opportunities they can use to their advantage. Teach them what heightened visibility means for the organization as a whole.
- Utilize tracking tools to keep your suppliers and customers informed. This point becomes critical in manufacturing optimization and others. Tracking tools ensure best practices for communication and streamline operations, minimize mistakes, and ensure better time management.
- Analyze past and present data to inform your future. Data is valuable from all vantage points, especially when creating plans for the future, including growth and expansion opportunities or changing economic conditions. Ensure there's a plan in place to properly analyze past data to establish better future plans.
- Considering secondary supplier planning
There's always the need for a backup plan because problems occur even in the most well-designed and reliable systems. Having a secondary supplier plan in place minimizes risks while ensuring long-term opportunities. Here are some tips to make that happen:
- Establish a contingency planning team. This team should consist of people who fully understand the function of the supply chain, its nuances, and the goals of both suppliers and the organization. They have a keen eye for problem-solving.
- Develop a backup supply. Like any development of a supply chain, this process takes time and careful planning to alleviate risks. It also means working closely with suppliers to learn what they can bring to the table and how well they can meet last-minute needs or changing requirements.
- Keep your secondary suppliers in the loop. Develop relationships with these suppliers as you would for any other supplier. Work to ensure they're made aware of changing scope, new demands, or fluctuating timelines so they can prepare to meet your needs.
- Establish secondary suppliers in different regions. Because various factors typically impact regional suppliers, expand your search to include suppliers in a wide range of geographical areas. Doing so may help to reduce risks associated with environmental or political concerns.
Supply Chain Optimization Software
There are several SCO software programs required to ensure maximum performance across the supply chain. It's a combination of each of these software features that enables the best possible outcomes. Here's a look at some of the core components:
Inventory management software should provide:
- Real-time inventory tracking opportunities
- Real-time inventory value including accurate inventory values accounting for variations in volume and pricing
- Reorder points and low stock alert features to ensure products don't run out
- Purchase and supplier management tools to help with the speed in ordering
- Proper inventory reporting including data such as margins, unit sales, average days to sell for each SKU, and inventory turnover rate
Order management software and solutions ensure the ideal process and typically maximize profitability. Generally, it should have features such as:
- Automated order placement methods
- Visibility across all aspects of the order process, including using blockchain or other technologies
- Intelligence to ensure you meet performance goals
- Flexibility to meet changing needs
- Delivery and service scheduling opportunities to enhance needs
Logistics and Delivery Coordination
Logistics management and delivery coordination software programs enhance operations. Look for features such as:
- RFID, barcode, and QR based systems to ensure tracking is accurate
- SCM system with real-time inventory positioning, location, and status
- Reverse logistics features when applicable
- Warehouse management applications where applicable
Forecasting Demand and Pricing
Forecasting is a valuable component of any strong supply chain. Look for software that provides:
- Demand analysis tools and systems
- Integration with other software programs
- Visualizing future sales in a clear, concise manner
- Balancing demand and supply
- Numerous forecasting formulas
Order Return Management
There's nearly always a need to incorporate order return management. This type of software should have features such as:
- Returns process optimization
- Inbound carrier rates
- Hazmat returns needs, as applicable
- Methods for tracking customer experience
Benefits of Supply Chain Optimization Software
Evaluating the benefits of SCO software against implementation costs is a common need. Organizations certainly want to invest wisely. However, most organizations find the return on investment (ROI) exceeds expectations in this situation. This significant ROI is something your supply chain specialist from Propel can help you realize as you consider how to best meet your optimization needs.
Propel offers some of the best benefits of supply chain optimization software to companies like your own. We design our software specifically to be collaboration-friendly. It's also modern, concise, and data-driven. It's cloud-based and built using Salesforce for your convenience and assurance of quality and transparency for enhanced communication and integration.
Propel provides a product that provides a 30% faster time to market when it comes to product development using our enterprise-wide collaboration. In addition, it has a 25% more immediate customer issue resolution rate than competitors.
Invest Wisely in Optimizing Your Organization
Achieving success means working closely with those who can facilitate it. There's no doubt that supply chain optimization is critically important to organizations of all sizes and industries. The impact of SCO is clear – it can help your company increase efficiency, reduce costs, and improve overall business performance.
Take a closer look at Propel's benefits when you connect with us today to discuss what's holding back your organization's supply chain and how we can help optimize that process by identifying and using existing opportunities.