Best 7 Tips for Supply Chain Optimization

A supply chain is more than just a process for getting products into customer hands—it’s a comprehensive system that tests the efficiency of organizations and their partners. Supply chains filled with inefficient processes, high costs, rushed fulfillments, and uncoordinated suppliers can be a significant drag on business’s profitability and expose supply chain executives to excessive amounts of risk.

This is the value of services like Inventory On Demand (IOD): Businesses can partner with third-party IOD providers to defer inventory ownership and  gain complete control over their supply chain operations. But even though IOD services include top-to-bottom optimizations of supply chain infrastructure, their use isn’t necessary to make modest improvements to supply chain efficiency. Businesses of any size can optimize their supply chains by following a few best practices that support efficient inventory management.

1. Manage buffered inventory

A business’s inventory is the crux of its supply chain. Across all operational costs, there is no better source of supply chain value than inventory optimization.

As supply chain coordinators know, accurate forecasting of consumer demand is essential to a lean supply chain. Having adequate inventory is necessary for on-time delivery and consistent performance levels, but excessive inventory ownership produces high storage and carrying costs. Failing to meet consumer demand often means relying on expedited shipping, an expensive and inefficient fallback.

The biggest way businesses can optimize their supply chains is to reduce reliance on buffered inventory. This is where financed inventory services (like IOD) shine—by outsourcing ownership of goods to a third-party provider. With IOD, the provider is responsible for getting the right goods to the right place at the right time. That eliminates both cost and risk for the manufacturer.

2. Coordinate suppliers

The paradox of the modern supply chain is well-understood by logistics providers: The conflicting goals of outsourcing and lean business practices result in a supply chain torn between two competing concepts. Outsourcing relies on entrusting transportation and distribution to partners, but there is no overarching system of accountability to ensure suppliers are efficient and synchronized.

An optimized supply chain requires that all partners within the system coordinate with one another. Best practices for shipping efficiency and quality must be upheld, but this is difficult to achieve without a single point of contact managing inventory throughout the entire supply chain.

3. Regionalize distribution

One of the sources of value that drives inventory services like IOD is regionalized distribution. Many supply chains don’t have distribution hubs near the point of consumption, instead relying on centralized locations for order fulfilment. This inefficiency creates many unnecessary transportation steps that could be streamlined through regionalized distribution.

Local distribution hubs support higher product availability for all customers, reduce unnecessary transportation expenses, and help businesses achieve better customer service across the board. The costs of those additional facilities can be a barrier to implementation. However, with IOD solutions solve this issue by making third party provider bear the responsibility for efficiently matching need with supply.

4. Consolidate shipments

Due to high fees related to imports, exports, and tariffs, efficient supply chains must manage shipments carefully when dealing with international shipping. Many manufacturers ship finished goods directly to customers; while this method is simple, it frequently results in duplicate export fees and the use of high cost integrators near the point of consumption.

Optimizing the supply chain means assessing the total value of each shipment, particularly for high-cost goods, and organizing transportation that minimizes shipping costs. Services like IOD provide an easy way for businesses to manage this process, offering end-to-end control of the supply chain across each transportation channel.

5. Understand your balance sheet

There are intensive costs associated with the supply chain and material management. Many supply chain executives believe they have a handle on their organization’s balance sheet but fail to account for the hidden costs of supply chain infrastructure:

  • Personnel costs related to hiring and managing transportation providers, export brokers, or compliance experts
  • Carrying costs of holding excessive inventory stores over long periods. Consider how much money might be freed for other uses by reducing inventory pipeline by just one day.
  • Costs related to human and IT systems that must be established for communication among supply chain providers
  • Warehousing costs for storing inventory, both in origin and destination countries

When these costs slip through the cracks, balance sheets fail to provide a comprehensive view of supply chain costs. Understanding these areas of inefficiency is critical to a strong supply chain.

6. Reduce assets under management

Part of supply chain optimization is reducing risk. Executives managing supply chain processes should aim to reduce the number of assets under their management to decrease their liability during transportation and distribution. Solutions like IOD let supply chain managers cede control of finished goods, reducing the amount of managed inventory and freeing up cash flow. This lets businesses focus more on serving customers and achieving performance benchmarks instead of managing the logistics of transportation.

7. Be willing to adapt

Above all, those wanting to optimize their supply chains must not be afraid to adapt their processes to a new type of system. As supply chains mature, the tried-and-true management strategies that have become the norm begin to lose relevance. Business owners seeking a true competitive advantage over others in the global marketplace must be willing to support the evolution of their supply chains.

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