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supply chain optimization

What Is Supply Chain Optimization & Why Do You Need It?

Nathan McGuire
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September 17, 2021
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What Is Supply Chain Optimization & Why Do You Need It?
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Supply chain optimization means operating a supply chain at peak efficiency based on key performance indicators, including total operating expenses and gross margin return on inventory invested—whether for retail logistics or another industry. The goal in any supply chain network is to deliver products to customers at the lowest total cost to the company and to gain the highest level of profit from the customers. This requires a dedicated effort to balance the costs of manufacturing, inventory, transportation, fulfillment with ensuring customer expectations are met. In other words, it’s time to put the data to use to enable proper supply chain optimization. As reported by Forbes, “Companies are awash in data. So much so that somewhere between 60-73% of enterprise data sits idle on servers somewhere in the cloud, a squandered resource never tapped for the benefit of the business. Why? Turning data into useful insights and tangible ROI isn’t easy; the challenges are myriad, having as much, or more, to do with organizational dynamics and culture as with technology.”

Not only do such aspects need balancing but for the best results in supply chain network optimization, all parts of the network must work at the same pace. Supply chain optimization typically starts with a thorough analysis based on forecast demand, followed by the development of a production and inventory plan to meet the forecast. The study includes inbound raw materials or components, manufacturing, transportation, and distribution. This optimization within the supply chain network allows businesses to examine the possibilities for better integrating e-commerce through an omnichannel strategy. To that end, let’s take a look at supply chain optimization and what it means for your supply chain.

What Is Supply Chain Optimization?

The supply chain is a network of organizations, individuals, activities, information, and resources involved in producing and selling goods and services to consumers. When trying to gain supply chain efficiency, it’s important to understand the definition of network optimization and its goals. 

The supply chain network design and optimization process enable businesses to maximize gross profits, minimize operating expenses and ultimately create a successful customer experience. Companies partner with consultants and service providers to help manage the optimization process and implement technology and organizational changes to ensure beneficial results that lead to business growth. A high-performing supply chain enables business improvement in efficiency and performance through technology such as machine learning, automated processes, AI, the loT, and many more. The three phases that occur within a successful supply chain process are:

  • Supply chain design: Describes the network design process, strategic objectives, and the planning and scheduling of manufacturing operations such as demand forecasting; establishing supplies, warehouse facilities locations, and product flow between the sites; and packaging optimization.
  • Supply chain planning: Developing a strategic deployment strategy to help with inventory planning, coordinating assets to optimize the customer experience, and balancing supply and demand.
  • Supply chain execution: Focusing on execution-oriented systems, such as warehouse and inventory management, transportation management, and inbound freight management. Additionally, execution applications like real-time decision support and supply chain visibility.

Of course, those three phases are only the tip of the iceberg when thinking about potential optimization opportunities. After all, optimization opportunities may exist within any process that’s redundant, and what’s more redundant than the supply chain? Nothing. That is why automation can be a game-changer that gives rise to radical transparency. That level of deeper insight helps all users in your company understand the best ways to reduce transportation spend, eliminate inconsistencies, deliver on time and in full, and keep everything moving along. Still, there are a few other ways to look at optimization too, including both local and global optimization.

What Is Local Optimization in the Supply Chain?

Local supply chain optimization is an approach that focuses on improving a single specific network function without considering how that might impact other parts of the supply chain. For example, trying to optimize the speed of distribution by sending trucks out for delivery without capacity filled could cause a rise in cost distribution. Local optimization might include consolidation at the warehouse to ensure the truck can be fully loaded prior to transportation.

What Is Global Optimization in the Supply Chain?

Global optimization takes into consideration the potential effects that certain changes may have on each part of the supply chain, regardless of domestic or international. With global optimization in the supply chain, the goal is to keep every part of the network flowing smoothly and coherent. That may involve working with different forwarders to find available ocean cargo space at the right rate while also keeping in mind the length of port lead times and sailing schedules. It’s the global, beyond-typical-reach stance that makes this form of optimization valuable.

Why Is Supply Chain Optimization Important?

Supply chain optimization allows businesses to grow at the right pace while also gaining visibility, insight, e-commerce, and direct-sales abilities along the way. The end goal of supply chain optimization is to achieve customer satisfaction with the lowest possible cost to the business. Additionally, optimizations allow businesses to make investments in technology advancements and organizational changes that are needed to achieve corporate goals and objectives. As companies strive to gain a competitive edge in a market where customer expectations constantly evolve, another frequently asked question is, “How can we reduce costs through supply chain network optimization?

Supply chain optimizations helps to correct and overcome issues associated with:

  • Silos: Supply chains have trouble getting needed insight because data is siloed, resulting in low end-to-end visibility. This ultimately impacts the ability to meet customer needs. A supply chain optimized with connected technology will eliminate silos.
  • Client needs: As customer expectations rise, the supply chain must innovate and optimize at every step to meet those needs. Streamlining the supply chain remains a priority for organizations that want to provide exceptional customer experiences.
  • Competitive advantage:  Supply chain optimization focuses on execution-oriented applications; real-time decision support must happen.
  • Agility: How fast can the supply chain respond to changing customer demands, moves by your competitors, or the latest disruptions? Modern supply chains must gain agility to stay competitive.
  • Sustainability: Supply chains have enormous environmental and social impacts. Customers today want to know if the goods were produced in a sustainable and ethical way, using renewable and low-impact extraction methods.

Benefits of Supply Chain Optimization

The advantages of supply chain optimization may include:

  • Improved customer service, due to better forecasting and improved availability
  • Savings in transaction, execution, and labor costs
  • More efficiency and visibility in data-driven decision making
  • Enhanced and simplified supply chain collaboration and onboarding with suppliers, partners, and customers
  • Software that can deliver end-to-end visibility and transparency, allowing for improvements in operations and planning.
  • Increase in quality management in the end-to-end production process
  • Reduced surplus inventory and logistic cost levels
  • Better resiliency, agility, and predictability in mitigating and maintaining business continuity
  • Reduced time, total cost, and risk associated with qualifying and managing new suppliers

How to Optimize the Supply Chain

For companies wondering how to optimize management, how to optimize the network, and how to optimize your supply chain, here are a few tips that will help:

  • Identify areas where technology can help improve and streamline processes.
  • Outsource business aspects such as procurement and logistics.
  • Work with a supply chain solutions provider to improve visibility.
  • Use a multichannel approach for demand and supply.
  • Leverage a centralized management software for all transactions.

What Does Effective Supply Chain Optimization Look Like?

Several powerful technology resources allow for continuous supply chain optimization. Artificial intelligence and the Internet of Things are two solutions that enable connections between traditional business networks to clean, quality data with all partners. Next, automation and analytics will derive a meaningful context from it and generate powerful insights concerning potential benefits, such as when to leverage a different mode and how to maximize its value. Additionally, the loT acts as an interface or sensor, working at the edges to convert the physical into the virtual. 

Key features of effective supply chain optimization include:

  • Visibility: Have up-to-the-minute inventory tracking and available-to-promise data.
  • Intelligence: Leverage composable data and AI services for real-time business intelligence.
  • Order Management: Customize pricing, send quotes, track orders, and manage returns.
  • Reporting and analytics: Evaluate patterns in processes to forecast future demand and sales.
  • Inventory Tracking: Know exactly where inventory is across the supply chain and when to reorder to avoid stock-outs.

Connect With Wicker Park Logistics to Reap the Rewards of Supply Chain Optimization

Having a collaborative relationship with a 3PL results in improved services and optimized supply chains. A 3PL can optimize the network to create a dynamic and responsive supply chain. Wicker Park Logistics can provide the solutions for any problems in your company and create a better position for greater participation in the e-commerce channel. Request a consultation with the 3PL service provider that will best serve your needs, Wicker Park Logistics, today.

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