In today's fast-paced world and ever-growing complexities of the global network, managing supply chain operations has become a herculean task. With evolving customer demands, increasing intricacies of logistics management, keeping a check on warehouse placements, etc., modern supply chain management demands more agility, flexibility, and quick responsiveness towards changes. Supply chain network optimization backed with modern technological developments like AI, IoT, and blockchain are becoming popular to help suppliers with efficient supply chain network design and management. According to studies, network structure determines 75%-80% of total supply chain costs, offering the biggest opportunity to reduce expenditure. Having a robust transportation network in place, well-established manufacturing and distribution units, etc., are the deciding factors of a well-structured supply chain network.
This blog will provide you with an overview of supply chain network optimization, its essential components, procedure, benefits, and some tips to reduce costs. Keep reading!
Overview: Supply Chain Network Optimization
A supply chain network seeks to find the best possible route for shipping goods from the place of manufacturing to the distribution centers where consumers will buy them. Supply chain network optimization refers to performing and determining the optimal combination that finds the best way to coordinate supply operations to save time, money, and resources. Supply chain network optimization is the process of minimizing the supply chain cost by keeping a check on the unused inventory, transportation cost, and manufacturing inefficiencies. It is an approach of business process management that aims to maximize value to the customer, help businesses reach new markets, and gain higher profit margins.
The Components of Supply Chain Network Optimization
The supply chain network forms the backbone for efficient and well-oiled supply chain operations management. With the ever-increasing complexities of the modern supply chain, traditional techniques and anticipation of supply chain flow are not relevant anymore; therefore, modern analytical approaches are preferred by today’s business.
Below are the four crucial components of supply chain network optimization.
- Product Flow Management: It includes the physical delivery of goods to a predefined destination. It involves logistics management, lane and route planning, transportation optimization, and other related factors.
- Placements: Making the goods/services available at the right time and at the right place is of utmost importance for an optimized supply chain. It may include delivery/pickup of goods to places like warehouses, distribution centers, manufacturing facilities, etc.
- Inventory Management and Optimization: One of the most crucial aspects of supply chain management is maintaining safe inventory levels, to avoid any disruption in operations. By incorporating modern methodologies, mathematical and analytics approach, effective inventory optimization can be achieved.
- Strategic Sourcing: It is a process that assists with creating efficiencies across various spending categories. Locating sources of supply, selecting cost-effective and relevant suppliers, giving more visibility into pricing and forecasting are some of the overall targets for strategic sourcing.
Logistics and supply chain operations are at the heart of the supply chain network optimization structure, on which all the components of the network are dependent. To gain more insight into supply chain management and logistics management, check out this blog: Logistics & Supply Chain Management: Everything you should know about.
The Process of Supply Chain Network Optimization
Supply chain network optimization involves mathematical modeling to determine the best suitable, adaptable, and sustainable framework for achieving business objectives. It emphasizes the synchronization of manufacturing units, suppliers, products, customer demands, and other factors involved in supply chain operations. Therefore, the first step in the supply chain network optimization process is defining clear objectives, which ultimately help align all the network components to achieve desired results.
Below is the supply chain network optimization process, broken down into three phases.
- Supply Chain Design: This includes distribution networks by describing where warehouse facilities are located and how products flow between them. It should also include how strategic objectives such as demand forecasting, establishing supplies, and the planning and scheduling of manufacturing operations are addressed in the design.
- Supply Chain Planning: It encompasses scheduling and optimizing the entire supply chain process for the fulfillment of the demand and supply to the end customer. The organization procedure begins from the stage of product development to vendor identification, inventory planning, demand planning, production planning, logistics management, distribution scheduling, etc.
- Supply Chain Execution: After the designing, planning, and forecasting, the next step is execution. It focuses on real-time decision-making and management of all the processes, like order management, transportation management, warehouse and inventory management, etc.
Benefits of Supply Chain Network Optimization
Supply chain network optimization yields immense benefits for businesses looking to optimize their processes and streamline workflow. Network optimization is a dynamic process, and companies can implement it according to the objectives and goals of the organization. However, some expected benefits are mentioned below.
- Cost Reduction: Any business, irrespective of nature, location, etc., proactively looks for opportunities to reduce costs and increase profit margins. There is an abundance of tasks under the supply chain process, if not well-planned, which may lead to unnecessary expenditure and wastage of resources. Likewise, poor warehouse lay-outing may lead to more space consumption, inefficient planning may result in oversupply & overstocking, and last-minute transportation scheduling can lead to high-priced carriers. Similarly, many day-to-day tasks can be easily automated, saving overhead costs. It's safe to say that effective supply chain network optimization can help save a larger chunk of costs.
- Optimized Transportation Management: The transportation costs directly affect the price of the product and result in higher prices for the customers as well as the suppliers. Apart from costs, transportation planning prevents mismanagement of goods, prevents disruption in supply chains, and improves the overall transportation network.
- Enhanced Quality of the Products: The focus on quality helps reduce waste, strengthen brand image, improve customer satisfaction, and drive overall efficiency which is a key element to supply chain management.
- Optimum Supplier Performance: With supply chain network optimization, businesses can improve their visibility into supply chain processes, identify bottlenecks, make strategic and data-oriented decisions. It will result in improved performance, opening doors to more opportunities for improvement and innovation.
Tips to Reduce Costs Through Supply Chain Network Optimization
Organizations can leverage supply chain network optimization to gain a competitive advantage. Implementing proactive changes as needed in response to dynamic business scenarios such as new product introduction, changes in demand patterns, the addition of new supply sources, changes in tax laws, etc. entails supply chain network optimization.
Below we have gathered some essential tips and information to help businesses reduce costs through supply chain network optimization.
- Mapping Out Complete Supply Chain Process: Reducing costs through supply chain network optimization needs a clearer view of the existing supply chain approach and comprehensive information about various aspects. Such as vendor base, raw material suppliers, lead time, third party logistics provider, shipping/transportation routes, overall expenditure, areas of improvement, etc. Therefore, before creating a supply chain network optimization framework it's important to investigate current scenarios.
- Formulating Clear Objectives: It is the first step businesses need to take to implement the network optimization process. While creating a supply chain strategy, it is of utmost importance to draft clear objectives and goals that an organization wishes to achieve through supply chain network optimization. It will serve as a roadmap for the steps to be taken further and help define metrics to calculate ROI. It's important to note that customers' choice and satisfaction should be in the front seat while setting up these objectives.
- Examining Supply Chain Network Design: Designing a supply network for an organization is more than just cutting deals to ensure that businesses meet their customer orders. Successful supply chain network design encompasses more about procuring suitable suppliers, shipping products along the best routes, and making sure that factory locations work in tandem with one another to help maximize efficiency and productivity throughout the business. Network designs are the strategic arrangement of facilities, suppliers, and products that optimize transportation time and cost. They avoid the “build it first, find out if they need it next" growth process experience in most organizations. It includes a robust framework based on software applications to optimize network design.
- Supply Chain Simulation and “What If” Scenarios Analysis: The best way for supply chain management teams to make the most logical decisions is through simulations. A supply chain simulation evaluates the performance and outcomes of moving goods from producers to consumers through an analysis model that includes logical rules. Moreover, by assessing “what if” scenarios, businesses can build resiliency to provide goods even during shortages or disruptions throughout the supply chain.
- Enhancing Supply Chain Visibility and Transparency with Software Automation: Supply chain visibility empowers teams to deeply understand what factors directly influence supply chain costs. So that more attention and time can be invested there. Similarly, with transparency, all the associated members and managers know what assignments are going on and which tasks need to be prioritized. Visibility and transparency allow businesses to run smoothly. However, with increasing complexities, it's not possible to manually generate all the updates and track each supply chain process. This is where software automation comes into play. Optimizing the supply chain network with a software application can result in innumerable benefits as it helps streamline operations, tracks each action, and provides analysis.
Scale Up to Reduce Costs!
By implementing and considering the above-mentioned tips and information to optimize the supply chain network structure, it can help businesses improve efficiency, scalability, and achieve higher profit margins. Undoubtedly, implementing a supply chain network optimization solution represents a significant effort and investment. But it is also an enormous opportunity to unlock value through higher levels of performance and more streamlined processes.
At ESSNPS, our professionals understand the importance of an organized supply chain network. Therefore, we have developed a well-thought-out procedure making the entire supply chain process effortless, right from order placement to delivery of the equipment! Check out our sourcing and logistics services.
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