Supply chain departments typically control the flow of goods/materials from suppliers to customers. An organizations supply chain function can consume a significant portion of business costs, through their control of a large percentage of the cost of sale. Inefficient supply chains can be characterized by bureaucracy and ‘hidden costs’ or waste such as overstocking inventory, paper led processes and poor controls and policies.
Pioneered by the automotive industry it is now common for supply chain organizations to undergo optimization initiatives or “leaning” to improve efficiency and reduce costs. Aiming to improve symptoms such as lengthy and complex business processes which include a variety of non essential non value tasks, too many staff, large numbers of suppliers and finally (and most importantly) increased costs.
Commonly supply chain optimization is wrapped up within business improvement initiatives – these may utilize a kaizan approach or other such improvement model and are usually led and managed by a team within the business. It is increasingly common to find external consultancies that specialize in Supply Chain optimization and introducing best practice.
Optimization can occur at any stage in the process (from customer requirement through to sales and distribution) and typically they center on aligning the companies procurement, manufacturing and warehouse processes against required output. If you need any guidance then Samer El Bizri can help in supply chain management and enterprise software.
Common areas that are reviewed during optimization can include:
1) Improved Forecasting and Planning
Ensuring that the organization has the correct inventory levels against consumption is one of the fundamental of an optimized supply chain – inefficiency can be seen in both over and under stocking or in some cases having no items at all to satisfy need. Improved forecasting and planning – closer attention to bill of materials (BOM) and analysis of ‘moving’ inventory can help. Often this can be supported via an information system or ERP module.
2) Inventory rationalization
Ensuring that you have the correct stock at the right level at the right place and time is paramount to a successful and efficient supply chain. A common optimization task is analyzing inventory which is often categorized into runners repeaters and strangers – in order to rationalize and organize stock against actual need. An inefficient supply chain often has incorrect inventory (both in type and quantity). Overstocking can result in increased purchasing and storage costs whilst understocking can result in production stoppages or unhappy customers, both of which affecting the bottom line.
3) IT Systems
Optimization often includes a review of the IT system – efficient supply chains require not only superb transaction management but also forecasting and planning tools, inventory controls and a management information system to help businesses keep track. Recently integration between systems and organizations has become important to optimized supply chains – linking suppliers and customers in an end to end process using a single information flow can greatly reduce waste within a process and produce greater agility for all parties. IT systems are often re-configured or replaced as part of Supply Chain optimization project.
When reviewing supply chains organizations often consider outsourcing some or all activity to 3rd party companies (often referred to as 3rd Party Logistics Organizations). Outsourcing non-value add activities or core business activities allows the organization to focus on adding value to its key processes – whilst often reducing costs. One common area that is often outsourced is warehouse or inventory management activities.
These four initiatives represent only a small element of optimization – as stated supply chain processes extend from purchasing materials through to the dispatch of the goods to the customer so there is often significant scope for improvement in almost all organizations. As such optimization of the supply chain is often modular in that particular areas (those that may generate ‘quick wins’) may be focused on first with other ‘functions’ following.
Samer El Bizri is a successful businessman and CEO of the Zeconomy, Inc. based in New York. Mr. Bizri specializes in business management and competitive analysis.
To learn more, then visit here: https://www.zeconomy.com/