The supply chain is a fundamental component of any company’s operations, and its level of optimization determines the efficiency and profitability of transporting goods from suppliers to customers. In this context, and also considering the increasing competitiveness across all market segments, it is essential to develop an optimized supply chain in order to attract and retain customers.
In an ever-changing economic and social environment, companies are making efforts to streamline and optimize their supply chains in order to eliminate, as much as possible, any disruptions within the supply chain.
What does supply chain optimization mean?
Rapidly changing market conditions, the unprecedented growth of the industry, and the widespread adoption of technology have an impact on the efficiency of a company’s operations. In order to reduce operating costs, increase profits, reduce risk, and achieve a high level of customer satisfaction, companies need to focus on their supply chain.
Supply chain optimization helps companies determine the unique network configuration they need to operate a profitable and sustainable business and deliver products to customers quickly and efficiently. Data from Cushman & Wakefield Echinox shows that 80% of the capacity and value of a supply chain is determined at the design stage, making its optimization a critical part of the planning process.
Shortening the inbound supply chain (also known as nearshoring or reshoring) by partnering with suppliers that are closer to your facilities and, consequently, reducing loading and unloading times, is one way to optimize the supply chain.
At the same time, multi-sourcing, meaning distributing sourcing activities among multiple suppliers, ensures that if one supplier or a supply route encounters problems, alternative sources can ensure business continuity.
Another approach is to build downstream inventory or create inventory closer to where demand is generated. This does not necessarily address the root cause of supply risks, but a “buffer” stock can support business continuity when flows are volatile.
Although the real estate component – warehouses and logistics spaces – represents only 5% of a company’s total supply chain costs, compared with 45% for transportation, 30% for labor, and 20% for inventory, a company’s real estate strategy can have a significant impact on operating costs. This is because when real estate assets are located in the right place and equipped to perform the right functions, significantly higher returns can be achieved.
10 techniques for optimizing the supply chain:
- The proximity of warehouses or production facilities to both supplier locations and customer locations.
- The number of locations in the network should be directly correlated with the volume of inventory held within the supply chain. The more locations the network comprises, the greater the inventory required.
- The location and operational nature of real estate assets within the supply chain have a significant impact on labor costs. Areas with limited labor availability involve lower costs.
- Investments in management software enable real-time inventory monitoring, transport route optimization, and reduced delivery times.
- Building strong relationships with suppliers can lead to better payment terms, faster deliveries, and better synchronization of the flow of raw materials.
- Maintaining an optimal balance between available inventory and market demand is a constant challenge. Excessive inventory can generate additional storage costs, while insufficient inventory can lead to lost sales.
- Using specialized software to reduce delivery times and fuel consumption.
- Using more economical transportation methods, such as intermodal transport (which combines multiple types of transportation), to reduce the number of trips.
- Implementing an efficient returns management system can help reduce these costs.
- Establishing key performance indicators (KPIs) is crucial for evaluating supply chain efficiency. These may include delivery times, return rates, costs per unit delivered, or customer satisfaction levels.
