As your brand grows beyond a handful of SKUs, effectively managing your supply chain becomes a growingly important part of your business. A larger supply chain leaves more room for inefficiencies.
You work with multiple suppliers and partners simultaneously and your products likely travel across multiple regions around the world, so where do you even begin?
In this article, we break down what supply chain optimization is and elements of supply chain optimization to keep in mind as your business expands.
What is supply chain optimization?
Let’s begin with outlining what a supply chain is first. A supply chain is all the links and nodes that get your product from raw material to finished product. The entities in a supply chain typically fall into one of these categories:
- Vendors, consultants, and internal teams
Thus, supply chain optimization is all about saving time and money by considering how each of these entities interact with one another.
With so many moving parts, one way of approaching supply chain optimization is by breaking down the supply chain optimization process into three phases: supply chain network, supply chain planning, and supply chain execution.
- Supply chain network optimization
This phase of supply chain optimization addresses the network processes of your supply chain entities. Network processes can include elements like manufacturing locations, manufacturing schedules, location of your warehouse facilities, and how products flow between those warehouses.
- Supply chain planning optimization
This phase of supply chain optimization addresses the strategic planning around the demand and supply of your product. Strategic planning can include forecasting demand, inventory level planning, and optimization of manufacturing and distribution to account for this supply and demand.
- Supply chain execution
This phase of supply chain optimization addresses the more granular, day-to-day execution elements that compromise your supply chain. Execution elements can include warehouse, inventory, and order management systems and software, transportation management, supply chain visibility, and other execution applications.
These three phases of supply chain optimization are to help you isolate the individual processes that a supply chain can encompass. In turn, this helps you build a strategic approach to tackling the overall problem of supply chain optimization without leaving any stone unturned.
However, this doesn’t answer the question of what you can do to get started optimizing your supply chain today.
So to answer that question, we’ve outlined several rules of thumb and general tips you can use to optimize your supply chain, regardless of your industry or product type.
11 Supply Chain Optimization Tips:
While no business is the same and one supply chain very much does not fit all, these general tips are good rules of thumb to always remember and keep in mind.
- Outsource and leverage existing services
Trying to keep your entire supply chain in-house is likely to generate a host of inefficiencies and cost you more time and money than leveraging existing expert supply chain services. While it’s necessary to keep elements of your supply chain in-house, focus on how you can outsource areas of your supply chain like procurement, logistics, and even customer support. While it will cost you a fee, the net benefit is worthwhile.
- Communication, communication, communication
The easiest way to immediately optimize your supply chain is to enhance communication between all the entities in it: vendors, distributors, logistic partners, retailers, you name it. With fluid and transparent communication within your supply chain, you can better ensure the timely fulfilment of your product. Especially if you’re working with several suppliers, effective communication between you and all of them is going to be your first and foremost priority.
- Utilize supply chain management software
Optimizing your supply chain means all entities in your supply chain work cohesively. There is a handful of management softwares like Elemica that can streamline your supply chain processes by bringing them into a centralized platform. With all this data in a centralized place, all your different supply chain systems (suppliers, inventory, fulfillment, etc.) can work in tandem and not in silos. Streamlining business and increasing transparency in this way reduces the potential of errors being made along the way and helps your supply chain work cohesively.
- Forecast demand and manage inventory levels accordingly
Optimizing your supply chain means being able to adapt to demand and supply fluctuations for your product. You want to be constantly communicating with your supplier about the demand for your product so that the supply side of your supply chain always stays in balance. To do this, evaluate historical trends of demand for your product and predict times of the year when demand might be highest.
Planning ahead and prioritizing your inventory levels in this way will help prevent needing urgent order fulfillment (which can cost significantly more to your business). There are also a handful of AI-built tools to help keep track of your inventory and automate orders as a way of optimizing your inventory and supply chain.
- Ensure high-quality products
An optimized supply chain also means having superior product quality, at an affordable rate of course. Better product quality means fewer defects, more streamlined quality control, and fewer returns – all of which help improve your supply chain. To get better product quality, you must partner with the right manufacturer by knowing what their strengths and weaknesses are.
Be sure to be thorough here and continue looking for the right supplier to match your business needs until you find it. You don’t want to settle for the sake of simplicity as that can cost you more time and money down the line. If you already have a manufacturer, constantly be looking for better alternatives.
- Ensure quality control is being done properly
Quality control is a common failure point for many overseas manufacturers. So much so that manufacturers may pay off quality control specialists to look the other way. A kink like this in your supply can introduce a host of inefficiencies to it.
For that reason, you’ll want to work with a trusted quality control specialist or be collaborating with a trusted supplier who delivers consistently high quality. Either way, make sure to have the proper controls in place with your supplier.
- Understand your customers’ demands
We all know faster delivery times are crucial to most product-based businesses, but you may find your customers can tolerate longer wait times. Perhaps paying extra for faster transportation is not as necessary and you can afford to go with a slightly slower but significantly cheaper option. Conversely, perhaps your business needs the fastest shipping times possible, in which case you need to properly set up your supply chain to accommodate those requirements.
The point here is it’s important to understand what your customers’ tolerance is with regards to fulfilment times and to then find options that best accommodate those requirements, at cost.
Caption: This isn’t a FedEx ad, but rather a reminder to always consider your range of freight options. There are faster alternatives to sea freight.
- Track and monitor prices of your raw materials
If you look at historical prices for your raw materials, you’ll quickly notice those prices fluctuate throughout the year. One way you can get your product costs down is by working with your manufacturer to buy your product’s raw materials at a time of the year when prices are at their lowest. This requires having a strong relationship with your supplier and that comes from constant communication.
- Use analytics wherever possible
Analytics tools will give you the most accurate and reliable information on your customers and supply chain. You’ll want to pay attention to seasonality fluctuations in demand for your product (and raw materials as aforementioned). Try to find common trends across price and demand and use this data to plan so you aren’t left paying more for urgent delivery at the last minute.
- Always be looking to negotiate and renegotiate
Cost-optimization is at the forefront of supply-chain optimization. This can quickly and most easily be achieved by properly negotiating with vendors in your supply chain for lower costs and renegotiating expiring contracts.
- Don’t be afraid to pivot if its justified
Sometimes optimizing your supply chain means completely rejigging it. This can mean relocating your manufacturing and warehousing to a new region altogether. Our advice here is to always be looking for alternatives that might better serve your business. If you maintain this outlook of always looking to optimize, you will naturally find the best and most cost-effective solutions for your entire supply chain.
All in all, while it is entirely feasible to optimize your business’ supply chain on your own, our suggestion is to look into a full-stack product development partner like Gembah. A partner like Gembah brings you both a network of vetted supply chain experts and professional expertise to help you navigate and optimize your supply chain right off the bat.
If you’re interested in learning more about how Gembah’s supply chain optimization solutions can work for you, speak with an expert here.