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The Ultimate Evaluation Guide for Supply Chain Optimization

Michael Wilson | Apr 28, 2015

Supply chains can make or break a company's success. This is especially true for larger enterprises, where a relatively minor change in supply chain performance can cause a ripple ...

Supply chain optimizationSupply chains can make or break a company's success. This is especially true for larger enterprises, where a relatively minor change in supply chain performance can cause a ripple effect that has a significant impact on the business.

For this reason, it's critical that every organization puts some time into supply chain optimization. Here are the top ways for companies to improve their supply chain performance in the most important areas:

1. Consider Your Procurement Costs

Procurement is one area where companies stand to quickly and dramatically improve their supply chain value. However, there are several pitfalls that a business can run into when it comes to procurement. For example, research by KPMG shows that lots of procurement functions in the enterprise are spread over too many vendors. This inherently drives up procurement costs because of the challenges it poses to supplier relationship management.

To gain more value from your procurement procedures, make sure to frequently evaluate contracts with your vendors and look for opportunities to renegotiate. Also, make certain that your logistics aren't driving up your overall procurement costs. If you have a supplier that provides a more competitive rate but takes longer to deliver, it might not be worth it to use them in lieu of a local option.

2. Understand Your Inventory

Inventory is an important element of the supply chain, yet many companies don't have as clear of an understanding of their inventory as they should. It's important that you know exactly what you need to have on hand to fill orders, even if you experience a glitch or error with one part of your supply chain.

It's vital to understand your inventory. One of the best ways to do so is to upgrade the tools that you use to manage your inventory. According to Bain & Company, best-in-class supply companies are able to improve their inventory levels by up to 50% using analytical tools. This supply chain optimization improvement provides long-term savings that often last for several years.

3. Manage Risk Properly

Risks in the supply chain can be a significant blow to your business. If you aren't prepared for an event like a natural disaster or an accident that delays your distribution, it can be devastating to your business. In 2011, floods in Thailand caused Japanese automakers to lose 6,000 units of production each day. Most of these auto companies had to halt production at their affected areas, causing a hit to their bottom lines.

To improve your supply chain risk management, ensure that you always have a good understanding of what these risks may be. You should always have relationships with some alternative sources for each area of your supply chain, in case your primary vendor is struck by a natural disaster.

Above all, supply chain optimization is about always looking into ways that you can improve value while maintaining the lead times necessary to satisfy your customers. If you identify an area where you are consistently underperforming, IndustryWeek advises that you consider outsourcing these requirements so that you can continue to focus on what you do well. With the proper approach to supply chain optimization, you can ensure that your supply chain adds value to the greater organization.

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