30 May Everything You Know Is Wrong – And Other Perils of Life In Supply Chain Management
There’s plenty of information out there about supply chain optimization and the benefits it provides. And rightfully so—far more than manufacturing costs or marketing outreach, the supply chain is a lynchpin for a company’s profitability. Naturally, there are established conventions for optimizing these processes that have become the industry standard.
But are these standards letting business owners get the most out of their supply chain management? Or is the field ripe for further disruption? While outsourcing processes may be slow to change, there’s plenty of untapped potential in the current era of supply chain optimization.
You Can’t Predict Demand
As we know, part of the typical model of supply chain optimization is based around accurately forecasting future inventory demand. While this is fine in theory, the unpredictability of consumer demand is difficult to overcome. Traditional supply chain optimization can identify where value is being lost in inefficient workflows but fails to deliver concrete improvements on inventory management protocols.
Worse yet, many of these strategies are narrow and only address singular aspects of the supply chain rather than the entire system as a whole. Streamlining transportation workflows may be a necessary step, but if the rest of the supply chain spectrum isn’t addressed, its benefits are limited.
To properly manage supply chain optimization, businesses need to take a comprehensive approach to each stage and establish a system where inventory can be delivered to each consumption location without being bogged down by excessive costs.
A New Approach: Inventory On Demand
Rather than making piecemeal improvements to each process in the supply chain in hopes of cutting costs, business owners can achieve the maximum number of cost reduction opportunities by changing the way they handle their inventory.
Enter Inventory On Demand (IOD): A system of outsourcing inventory management that offers a higher level of competitive advantage than any other available. Broadly, IOD is a new way of handling outsourced inventory that directly matches inventory with consumption. This approach creates top-to-bottom efficiency of manufacturing and distribution infrastructure, but the benefits don’t stop there. Transferring inventory ownership to a third-party provider unlocks myriad logistic and balance sheet inefficiencies while simultaneously mitigating risk for key reporting periods.
How Does It Work?
The IOD system allows a third-party provider to take ownership of a client’s inventory from the factory floor all the way to final fulfillment. After the material is manufactured, it’s received by the IOD provider and routed through the most efficient transportation channels until it arrives in a regional distribution facility. From there, inventory is held until a customer pull trigger is activated, after which the inventory is deployed as-needed to the point of consumption.
While similar in principle to established supply chain optimization practices, IOD features several key advantages that set it apart.
Inventory Matched with Consumption
The primary advantage of IOD is that it delivers inventory as-needed. With a properly managed IOD warehouse, businesses will never have surplus materials sitting around and will never have to scramble to expedite shipping when extra inventory is needed. This results in more efficient inventory production, fewer transportation costs, and faster fulfillment of customer orders.
Standardized processes for transportation and inventory housing mean less damage and less loss of stored inventory, guaranteed security compliance, and accurate information about the status of each order when reporting. Standardization allows businesses to achieve the most economical workflows possible while guaranteeing high service levels.
Establishing efficient workflows saves time and also reduces inventory costs related to transportation and storage. Providers of IOD have streamlined transportation channels and move inventory along the most efficient paths—there’s no duplicative transportation.
This focus on distribution also includes the customs and handling fees that come with high-volume imports and exports. Smart routing of inventory minimizes international handling fees and ships goods to regional distribution centers as cheaply as possible.
IOD allows businesses to defer ownership of outsourced inventory during the two riskiest periods of the supply chain—distribution and delivery. The approach reduces the number of assets that business owners need to manage and decreases the risk of being liable for lost or damaged inventory.
Switching to IOD
Overall, deploying IOD as part of supply chain management can improve a business’s gross margin return on inventory invested—increasing profits by reducing waste.
IOD allows for more granular forecasting of customer needs, but the benefits aren’t limited to cost savings or inventory management. IOD is a critical step in the evolution of business process outsourcing. The accountability undertaken by IOD providers supports trust with the clients they serve. This trust is essential to outsourced partnerships that allow both parties to improve the efficiency of their processes and create a stronger customer experience across the board.
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