26 Jun Make Supply Chain Constructs Work for You, Not Against You
Supply chain VPs are no strangers to the limitations of the modern supply chain.
By their nature, supply chains are inefficient—Original Equipment Manufacturers (OEMs) that utilize global supply chains extend their operations opportunities but often sacrifice logistics speed and cost in the process. The result is cheaper manufacturing—but much more expensive distribution and inventory capital costs.
Despite these roadblocks, supply chain economics can be leveraged in the favor of OEMs. New methodologies for supply chain management are appearing , which offer new ways to optimize inventory, reduce spend, and create a stronger competitive advantage for global manufacturers.
Supply Chain Limitations
It’s no secret that there are many shortcomings even to a supply chain that appears optimized. Inefficiencies related to distribution and outsourced transportation prevent any sort of end-to-end consistency. Inventory levels are difficult to manage. There are no guarantees of quality after products have left the manufacturing dock.
Of these constructs, OEMs should be most concerned about their inventory levels. More than any other variable, inventory levels are the primary driver of supply chain cost—and opportunity.
As we know, typical inventory management practices are designed to fulfill customer orders while providing enough buffer to absorb the uncertainty of consumer demand and helps OEMs reach their target service levels. This is managed by designating acceptable min / max parameters that automatically trigger when inventory dips low enough, creating a system that theoretically guarantees available stock for meeting any projected demand.
However, this outdated system of inventory buffering isn’t reliable enough to keep up with increasing volumes of consumer orders and the need for consistently high service levels. As a business scales, it becomes more difficult to sustain high-volume inventory management, usually resulting in a lack of inventory control, excessive reliance on safety stock, and plenty of manual corrections that lead to expedited replenishment orders and wasted spend.
This brings us to Inventory On Demand (IOD). A new idea for inventory management, IOD lets businesses leverage in-transit goods in the same way they do with warehouse stock. OEMs outsource not just the logistics but the actual ownership of goods to a third party, which is responsible for providing availability at a time and place of the OEM’s choosing.
Make the Supply Chain Work for You
Consider how this methodology works with the supply chain rather than against it. Unlike typical inventory management (a reactive process designed to anticipate fluctuations in consumer demand) IOD takes demand out of the equation.
Businesses are freed from the burden of rushing to fulfill orders through inefficient transportation channels; instead, businesses leverage the constant flow of goods within their supply chains to create a ready supply that negate the need for expedited shipping.
This also applies to how inventory is moved throughout the supply chain. IOD relies on efficient transportation and distribution infrastructure; as such, manufacturing flow logistics are an essential part of getting the most out of IOD services.
In a traditional supply chain, Transportation and distribution are handled by varying sets of suppliers, each of which acts in its own self-interest and has its own standards of service level performance. Trying to optimize the flow of goods in these systems is like trying to swim against the tide—slow, laborious, and inefficient.
IOD, as part of a 3PL’s end-to-end supply chain optimization, works with the supply chain flow by sidestepping reliance on disparate carriers, warehouses and distribution centers. IOD providers take ownership of the supply chain from factory dock to point of consumption; this concept unifies the strategies used to move goods from one region to another and better utilizes the outsourced transportation channels that OEMs rely on.
Rethinking Your Supply Chain
IOD services offer a completely new way to look at supply chain economics. Instead of relying on disparate transportation channels and forecasts that attempt to gauge consumer demand, IOD works to optimize inventory throughout each step of the process. IOD is an inventory management solution that provides reliable inventory control, efficient transportation, and consistent service levels across all aspects of the supply chain.
Executives focused on lean business practices want to guarantee that each dollar put into stock will produce the highest return with respect to its function and contribute to the global service level. While this is a fine goal on paper, it can only be achieved when organizations have supply chains that work with their business models rather than against them.
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