Increasing digital reliance and evolving customer behavior are making it difficult for businesses to cope in an ever-changing business landscape. Nowadays, keeping up with the latest technological advancements and putting the right strategies in place enable businesses to reinvent the production process to keep up with changes in the market. Without the necessary planning, businesses can experience serious consequences that may put their entire supply chain at risk.
In this article, we will discuss some of the best tips and strategies that you can use in order to optimize your entire supply chain. Keep reading to find out more!
What does the term supply chain mean?
Now that customers are expecting to receive their goods quicker than ever, optimizing the supply chain management process has become a pivotal factor that can either bring success or failure to a business. But first, what exactly does the term supply chain mean?
In business, supply chain refers to the process of managing the efficient flow of goods and services from procurement to production. It puts emphasis on the coordination and management of people, information, and resources needed to deliver goods or services to the consumer.
What is supply chain optimization?
As the name implies, supply chain optimization means improving the entire production cycle while minimizing operational costs. However, it’s not as simple as it sounds. When it comes to supply chain optimization, businesses need to consider all possible eventualities to be able to plan for risks and other factors that could derail an order.
Pro tip: Make sure that your supply chain optimization efforts are aligned with your company’s overall goals. Supply chain management, from manufacturing to distribution, should match a company’s general performance metrics for easier tracking and to ensure competitive success.
What are the benefits of supply chain optimization?
Let us be the first to tell you that supply chain optimization is no easy feat. Yet, effective supply chain optimization and management offer a plethora of benefits that can improve customer satisfaction and your bottom line. Check out the most common benefits of supply chain optimization:
- Helps an organization reduce costs
- Better collaboration among departments
- Increases the efficiency of production processes
- Boosts revenue and profitability
- Higher efficiency rate
- Higher customer satisfaction
- Improved supplier relations
- Mitigates risk
- Provides a more agile structure
- Enables a business to focus on core strengths
Supply Chain Optimization: Tips and Strategies
While there is no single best strategy to ensure supply chain success, there are tips and strategies that businesses can keep in mind to achieve an optimal supply chain process. Here are eight tips that businesses should consider when optimizing their supply chain:
Put a Supply Chain Management Plan in Place
A critical process in supply chain optimization is putting a supply chain management plan in place. While it may seem complicated, supply chain planning simply involves developing a strategy that analyzes the entire production process to ultimately improve the way goods and services are delivered to consumers. A supply chain management plan should also take into account the demand for products as well as every eventuality that may impede the delivery of goods. Overall, a supply chain management plan should:
- Outline a company’s supply chain goals
- Perform research on industry best practices
- Determine clear procurement policies
- Establish quality assurance standards
- Consider international and local laws and regulations
Conduct Forecasting Analysis to Optimize Inventory
Forecasting is another important aspect of the supply chain optimization process as it enables businesses to make informed decisions based on acquired data. Typically, conducting forecasting analysis to optimize inventory involves predicting how much inventory you should have on hand in order to meet future demand. This is achieved through understanding product seasonality, identifying sales trends, and putting focus on inventory forecasting.
For those unfamiliar with inventory forecasting, it is a method that involves the analysis of historical data and past sales trends. It also takes an in-depth look into various factors such as inventory turnover, lead time demand, optimal reordering point, as well as safety stock.
Calculate Your Business’ Optimal Inventory Levels
Wondering how to calculate optimal inventory levels? Unfortunately, optimal inventory levels are unique to each business. Again, there are different factors to consider when calculating your business’s optimal inventory levels. Two forecasting methods that you can use are qualitative and quantitative forecasting.
- Qualitative forecasting – Often characterized as non-mathematical and subjective, qualitative forecasting involves predicting future demand based on trends, seasonality, and current economic climate. It also enables businesses to consider external factors that may influence consumer behavior.
- Quantitative forecasting – On the other hand, quantitative forecasting uses concrete data when predicting future customer demand. Quantitative forecasting takes historical data into account to determine a product’s future demand and future sales performance. While qualitative forecasting mainly relies on trends and opinion, quantitative forecasting is based on numerical information that is not susceptible to misinterpretation or potential prejudice.
Have the Right Amount of Safety Stock
As mentioned above, calculating the right amount of safety stock is important when it comes to supply chain optimization. Safety stock refers to the extra items held by a business to reduce the risk of stockouts. It essentially serves as a buffer that would enable your business to meet customer demand regardless of unforeseen circumstances. To calculate your business’ safety stock, check out the formula below:
(Maximum daily usage x Maximum lead time) – (Average daily usage x Average time in days) = Safety Stock
Take Note of Important Supply Chain Metrics
To identify opportunities for improvement in your supply chain, you must be able to keep track of important supply chain metrics. Monitoring specific key performance indicators (KPIs) will help you identify supply chain inefficiencies that could be affecting your overall performance. Some of these metrics include, but are not limited to, inventory turnover, perfect order rate, delivery time, inventory to sales ratio, carrying cost of inventory, and logistics and transport costs.
Take Advantage of Emerging Technology
Taking advantage of emerging technology enables your business to quickly keep up with innovations in your industry. It also allows you to develop comprehensive strategies and make informed decisions to improve your bottom line.
Nurture a Healthy Relationship With Your Suppliers
It’s no secret that developing and nurturing a strong business relationship with your suppliers means gaining long-term benefits for your business. The stronger the relationship you have with your suppliers, the likelier it is for you to take advantage of dedicated service, discounts, and increased operational efficiency.
Put an Inventory Management Strategy in Place
Inventory management refers to the process of streamlining the flow of inventory to keep track of your stock from the moment it arrives at your warehouse until it has been shipped to a customer. From sourcing to fulfillment, inventory management plays a significant role in ensuring that a business is running as smoothly and as efficiently as possible. If you fail to handle your inventory successfully, it can lead to loss of profit and even business failure.
To avoid this, businesses can make use of various inventory optimization strategies such as the Just-in-Time (JIT) Method, dropshipping, cross-docking, ABC analysis, Economic Order Quantity (EOQ), and consignment inventory.
Pro tip: If you’re seriously considering inventory consignment as a practical strategy for inventory optimization, you should check out Kickfurther. Kickfurther is an inventory financing platform that empowers businesses to scale and grow through the support of individual investors. The way Kickfurther works is that it matches your business with like-minded investors or people that already support your business. This innovative funding platform is a great way for businesses to test market demand while raising the necessary funds to finance their inventory. And, when you sell your inventory successfully, you pay your supporters and not the bank.
Wrapping Up
At the end of the day, there’s no such thing as the “best supply chain optimization strategy.” While supply chain optimization seems like a tedious process, it’s important to understand that it does not only improve critical business processes but also directly affects the overall customer experience. It can also help businesses distinguish potential risks and accurately evaluate various factors to achieve maximum efficiency.
