Why optimize your supply chain? What does it mean?
Businesses use supply chain optimization to maximize profits from the production and distribution chain. This can be done by applying processes and tools that guarantee the optimal functioning of a supply chain. This includes the optimal placement of supplies within the supply chain, in order to keep operational costs to a minimum.
Supply chain optimization addresses the general supply chain problem of delivering products to customers at the lowest total cost and highest profit. Taking into account the costs of stock, transport, distribution and production. One of the most obvious ways to cut costs (and conduct supply chain optimization) is to make the best use of transport and storage costs while taking into account product or packaging sizes. However, there are many other ways to optimize logistics supply chains. In this blog, you can read more about some of these ways that can be applied in 2020. All of the information is also briefly summarized in the infographic below.
Challenges businesses face in their supply chains
Supply chains are often the least understood part of strategic business management. For example, according to GEODIS, on average only 62% of the companies surveyed have (limited) visibility into the logistics chain. 17% had extensive visibility and 15% of the companies only had visibility on the production process. This is alarming considering the activity in supply chains usually generates up to 90% of the overall business costs (Logistics Bureau, 2020).
There are several challenges companies face when it comes to their supply chain. Businesses struggle not only with streamlining and optimizing their processes, but also with the following:
Shortages and uncertainty from suppliers
In addition, it can be difficult to make a decision about where to start optimizing as a company. There is a lot of internal agreement needed to optimize and implement new processes. It may be that employees have difficulty adapting to the new situation, or that co-decision makers do not agree with the way in which costs are spent on optimizing the logistics chain.
What does optimization do?
As mentioned earlier, companies mainly optimize their supply chains to save on costs. In addition, supply chain optimization has a number of positive effects on daily processes, such as accelerating the circulation of items in the chain. Other significant positive developments are listed and explained below:
1. Inventory control – Strong control and a complete inventory overview prevents the purchase of unnecessary products and provides insights into when new items need to be bought. Moments when no stock is available are also avoided, because companies have more information on the amount of stock left.
2. Order fulfillment – Optimized order fulfillment in supply chains gets shipments out quicker and with more accuracy.
3. Demand planning – An optimized supply chain can anticipate what the demand will be and thus improve demand planning within an organization.
4. Customer service – A successfully optimized supply chain delivers products on time and without errors, making the customer more satisfied and improving customer service.
5. Decision making – Data collected from supply chain optimization gives managers the ability to make informed decisions about the future.
In addition, a Deloitte survey from 2014 found that 79% of companies with well-functioning supply chains achieve above-average revenue growth within their industries.
What are the trends to watch?
Naturally, the ways in which companies will innovate depend on what the current trends and developments are. Consider, for example, how the consumer society has grown, and the need for instant gratification has increased. This means that one has a desire for immediate need fulfillment and wants everything quickly. Therefore, companies are required to work and deliver faster, and an important goal for supply chain optimization is to accelerate business processes.
‘Instant gratification’ is not the only trend that needs to be taken into account, so below are five more trends that will be important for companies in 2020.
1. Rise of the circular economy
Within supply chains, this specifically refers to a system called “return logistics”, in which materials are not finite but are used again. This is not only a way to close the logistics chain and complete the circle, but also a way to reduce costs and shortages because items are returned to you.
Perhaps the biggest trend of 2020, and in recent years, is sustainability. There is an increased awareness and importance of the environment and our influence on it. This is why operating more sustainably throughout the entire chain is an important aspect of the production process. It is also a way to increase customer loyalty, especially among those who value sustainability, and improve a company’s image.
Digitization refers to the application of new techniques and technology in the supply chain. We live in a time in which there is an abundance of innovative technology, so why not take advantage of it? For example, companies can replace outdated and obsolete processes with new and better working methods. By redesigning the logistics chain and merging cutting edge, new technology with existing practices, you can increase your standing in a competitive environment.
Customers like knowing exactly what they are buying, how it is produced and where it originated from. This is one of the reasons why companies are freeing up space on their websites to leave reviews and testimonials. In this way, (potential) customers can learn more about the company and the product and make a well-considered decision. By offering more and better insights into the supply chain, consumers can obtain more information that is potentially more in line with their needs and can work convincingly.
5. Agile Logistics
This is a term used to describe flexibility in logistics processes. Global changes require companies to be more flexible and agile to deliver stability and quality and respond to changes on short notice. This also includes risk management, because flexible companies are more capable of dealing with setbacks and risks.
What are the major technological developments?
As mentioned above, there are various changes and technological developments that can have implications for companies. We already briefly touched on this when discussing the trend ‘Digitization’. However, to provide more clarity on this, we will briefly discuss three specific developments. These are three major technological steps, with major potential consequences for your company.
1. The Cloud – The “Cloud” is, as it were, a server on the Internet containing a database for your information. These servers are accessible from different locations. Logistics solutions with Cloud data storage provide increased flexibility and make administration easier and faster. You can access your information anytime, anywhere, and use this information to make your business stronger.
2. Internet of Things – This technology refers to semi-intelligent devices and embedded systems, which think for themselves and improve processes without the help of people. Therefore, it has garnered the term ‘Internet of Things‘. This automation leads to an improved return on investments and increases (real-time) visibility in the chain, production and stocks.
3. Blockchain – Blockchain allows all aspects of an organization or procedure to be integrated into one platform, improving transparency and customer service. It is a system that records all kinds of data in one place. Visually, it can be seen as blocks that link together and can branch out separately, but all connect to one main system.
What are the next steps? The effectiveness of the methods listed above can obviously vary per company. It is also important to make good internal agreements. Our consultants from Tconsult are happy to take a look at your business processes, so that you can increase your knowledge and control on the supply chain and start innovating.
We have also developed a tool that allows companies to start supply chain optimization in an easy, low-maintenance way. Our app and Cloud platform TellApe uses IoT and Cloud data to provide more and better insights into your chain, specifically in regard to the transactions made with your multi-use packaging. TellApe allows you to view the numbers, locations and flows of reusable transport items. For more information about these and other solutions, feel free to get in touch.