A strategy is a crucial part of any business, and it is even more important when thinking about a complex system like a supply chain. The term ‘strategy’ is often confused with what it’s not, or is considered to be a vaguely-meaning fancy word. However, businesses with a well-thought-out, long-term strategy reach and exceed their goals and are better at surviving turbulent times, compared to short-sighted management techniques.
What is a supply chain management strategy?
Supply chain management strategy is a set of decisions, choices, and ways of management that bring the most efficiency at a lower cost and protect the company from certain risks. Strategy in supply chain management involves deciding on supply chain structure, working models, suppliers, level of agility, products and locations, partners, transportation strategy, and more.
3 options to include in your supply chain management strategy:
1. Predictable planning
One of the key aspects of efficiency in supply chain management is demand-driven decision making. Bringing predictability into your supply chain can boost profitability and lower manufacturing costs. Predictable planning means investing in talents and technology to enhance analysis and data-driven conclusions that will allow you to forecast changes in demand and trace key trends in the market.
2. Agility and resilience
Recent events have shown that you cannot predict certain things, and market conditions are changing too fast. That’s why the most prominent strategy for modern businesses is building resilience and flexibility throughout their supply chains. This includes a variety of suppliers and partners, agile inventory, better cooperation between parts of the supply chain, and more. Rigid structures are fading away because flexibility lets you adopt new strategies faster, and survive shuffles in the market.
In order for a supply chain to be resilient, it has to be integrated. From production to retail, cross-cooperation in the supply chains is the cornerstone of efficiency. The more transparent and accessible operations and interactions within the entire structure are, the easier it is to see gaps and quickly fix arising issues.
Supply chain management is a set of activities that includes supply, production, and distribution of a company’s goods. This production cycle plays an enormous role in any business. Proper supply chain management can reduce transportation costs and enhance productivity, and in order to succeed, companies should learn how supply chain management works.
What processes does supply chain management include?
A supply chain process can be described as a simple example: imagine a cake. First, raw eggs are transported from the farm to the grocery retailer. Then, the eggs are bought by a bakery to bake a cake. The cake is then either set out in the bakery or delivered to a grocery store to be sold to the final customer. All of the processes that stand in-between the raw egg and shelve-ready cake are classified as a supply chain.
So, how does supply chain management work? As a first look, the process can seem very complicated. However, supply chain contain many important key components that make it work properly.
What are the core components of supply chain management?
Essentially, transportation is one of the main components that make the supply chain work. Transportation plays a crucial role in every step of product movement, allowing companies to focus on arranging well-organized, smooth logistics for their goods.
Communication and visibility
Supply chains are different in every industry. No matter if it’s a small local business or a large enterprise, supply chain management is a complex process. With so many links involved, it requires proper handling. Without efficient communication between manufacturers, suppliers, vendors, distributors, and retailers, supply chains would fall apart in no time. That’s why consistent communication between all parties is crucial for efficient supply chain management. Another essential part of a successful production cycle is visibility into the supply chain. That means you can easily access and analyze all the needed information to make strategic decisions.
A complex supply chain suggests high financial responsibility. Bills, invoices, and reports are key points you can’t run production without. Accounting plays a large role in supply chain management since all of the payments have to be documented and stored in a proper way.
Of course, supply chain management involves numerous other activities and processes. However, the above listed are the primary parts of any supply chain. Today, companies constantly work to enhance their efficiency by applying various supply chain management practices and technologies. With more innovations and automation, it becomes easier to focus on the strategic part of the supply chain management than on its execution.
Clear visibility of all processes is important for any business – you cannot run your business efficiently with your eyes closed. Good business runs as a well-oiled machine, and you cannot achieve that without the full visibility – especially when it comes to managing your supply chain.
Of course, supply chain visibility has been important before, but even more so now. What changed?
Managing the complexity
Supply chains are becoming more global and complex. It’s much more complicated to manage your extensive supply chain efficiently and ensure smooth day-to-day operations. Losing visibility of the processes will decrease the service level and trigger unexpected issues and extra costs. Staying on top of your complex supply chain from production to the final delivery is crucial.
Beating the competition
The competition is continuously getting tougher, regardless of the industry. While you are struggling to stay ahead of your competitors – so are your customers. Logically, they require higher quality service – faster and more efficient.
The customers are less likely to accept constant delays or issues which result in them letting down their customers and losing the competition. Even if they are an end customer – they are likely to switch to your competitor, who can provide better service. Good supply chain visibility is one of the most important components for ensuring the stable workflow and high service levels.
Analyzing, Anticipating and Reducing Cost
We have covered the importance of supply chain analysis in previous blogs – it’s a must-have tool to anticipate potential risks and make data-driven, evaluated and objective decision. Quality analysis is impossible without the supply chain visibility. The current market is getting more fast-paced and staying ahead of the game is the best way to ensure your business is successful. Moreover, it gives you an opportunity to pinpoint the inefficiencies which lead to extra costs and make your operations more cost-effective.
Implementing and investing into your supply chain visibility might seem overwhelming at first, but it is absolutely crucial to the success of your business and will pay off and help you keep your business ahead of your competitors in the fast-paced and rapidly developing markets.
Managing a supply chain is all fun and games until you bring efficiency and profitability into the mix. No matter how good the product is, a poorly-managed supply chain will give your business no chance at real success.
A supply chain is a complex network of multiple elements, each having its own characteristics and priorities. These elements must work in sync with one another to produce results while keeping costs down and increasing customer satisfaction.
Managing this complex structure efficiently is crucial for the overall success of the company. Staying on top of the constantly changing market, customer demand and their expectations can be a challenging task.
Taking an analytical approach to supply chain management helps businesses shape their decisions and ensure long-term benefits
Get smarter and optimize processes
Proper supply chain analytics determines a set of metrics and KPI’s which are used to evaluate historical data, identify and eliminate major process disruptions.
Changes and improvements based on this data increase overall efficiency and lead to cost optimization and higher customer satisfaction rate as a result of a more reliable and consistent supply chain.
It’s all about the data
Analytical data determines unbiased trends and predictions, which trigger evaluated decisions backed-up by the quantitative and proven data. Decisions based on the objective analytical results help shape the company strategy. Any strategy capable of ensuring long-term goals and success should be responsive and able to adapt to the fluctuating market and demand.
Contingency planning and risk evaluation
Evaluating risks and their potential impact on the business is one of the main purposes of analytics. It’s aimed at forecasting and anticipating changes which can cause financial losses and service disruptions. Being prepared and having contingency plans in place helps a business to keep its balance and avoid negative impact.
Did someone say sales boost?
Our end goal is to sell products to generate revenue. Efficient, profitable sales and business development efforts are a must-have for any successful business.
Analyzing the patterns and the underlying reasons for redundant stock or underdeveloped markets and applying this data to accurate forecasting contribute to more targeted and thus effective sales and development strategies.
Underperforming suppliers, production disruptions, delivery delays, and any other negative factors tend to pile up and cost businesses a fortune. Investing in the supply chain analysis helps to optimize processes and raise service standards continuously.
Efficient and flexible supply chain, synchronized with the current demand and expectations, ensures customer satisfaction and loyalty, and well as stable growth and overall profitability.
Proper supply chain analysis can help businesses stay ahead of the market fluctuation, maximize their profit, and increase the service level while keeping costs down and minimizing risks.
Need help optimizing your supply chain analytics? Contact us.
Managing your supply chain is a part of your everyday business. What some professionals don’t know is that there are hidden costs in your processes that often go unaccounted for, and can result in your business losing track of your actual costs.
In this day and age, free shipping is an expectation of customers. But as shippers, we understand that there’s no such thing as free shipping.
Not surprisingly, larger retailers, like Amazon and Wal-Mart, can offer free shipping easier than smaller retailers. The Wall Street Journal reported that Amazon spends an estimated $4-5 per package while an average business can spend around $7-8 for ground delivery.
Consequently, smaller businesses are struggling to meet free shipping expectations while maintaining margins. Most companies seem to be simply eating the cost. According to Kurt Salmon, only 10% of online retailers charged a shipping fee during the 2015 peak holiday season. This trend does not seem to be going away anytime soon. As eCommerce continues to grow, free shipping is an expectation, not a luxury.
“Unsaleable” shipments account for an average of .83% of gross sales, according to Deloitte research. Damaged shipments account for about half of unsaleable goods, which can reach as much as $7.5 billion annually.
Causes of damage can be rooted in package design, improperly loaded pallets, poorly applied shrink-wrap, and other additional in-transit factors.
Regardless of the cause, claims processes, potential customer relationship damage, and costs of the product(s) are all costly. To help diminish these potential costs, it is important for shippers to have a plan in place to alert the customer and replace the shipment as quickly as possible.
Regulatory and Compliance Costs
In the past 9 years, the U.S. trucking industry had to adapt to 600 more federal regulations, according to Inbound Logistics. These heavy regulations affect everything from emissions, hours-of-service, to electronic record keeping.
With all these regulations, there are compliance costs incurred. Unsurprisingly, most of these costs are passed along to shippers.
Another hidden cost passed along to shippers is traffic congestion. Forbes Magazine reports, that congestion costs the trucking industry almost $50 billion annually and 728 million hours.
It seems like a no-brainer, but inefficiency can be a huge ball and chain to a supply chain. McKinsey & Company examined over 40 companies worldwide and found dozens of “slightly suboptimal processes and the lack of a lean mindset” that were wasting money on inefficient processes.
These inefficiencies include the design of the warehouse. In many cases, warehouses need reconfiguration to meet today’s technology-driven industry. In some cases, companies can save up to 50% of pallet picking time with a simple redesign of their warehouses.
Another inefficiency found was excess packaging costs, stemming from something as simple as small items packed in large boxes filled with packing peanuts.
By understanding and acting upon the hidden costs in your supply chain, your company can better focus on the bottom line of increasing revenue, cutting costs, and maintaining quality.
Supply chain visibility, brilliantly compared to a pipeline by Merrill Douglas in Inbound Logistics: You turn a faucet based on demand. Then, product flows through a network of pipes, all uniting in one channel that delivers the goods you and your customers need. Now, imagine those pipes are made of glass and you’re watching the supply chain move. Is it getting clogged? Is one pipe slowing the process? There’s highway construction slowing down the truck? That explains it, that is supply chain visibility.
The more you see and know, the more you can apply that knowledge to improving processes. Visibility provides shippers insight into arrival dates, freight conditions, delivery performance, inventory, inbound freight activity, labor management, consolidation options, and even sustainability.
With insight into so many important functions of the supply chains, shippers are then able to moderate lead-time, mitigate risk and reduce costs.
5 Facts about Supply Chain Visibility
Transportation accounts for almost 50% of the average company’s logistics costs.
79% of companies rank visibility “very important” to value creation
40% of shippers admit they lack visibility across the extended supply chain.
85% indicate they plan to increase their current level of end-to-end supply chain visibility.
71% of 3PLs said the greatest value data provides is improving process quality and performance.
Large and even medium-sized, companies that are strictly domestic are becoming increasingly less common. Today, the clear majority of enterprise-class companies are global because the benefits of low-cost sourcing into other countries and selling into new foreign markets cannot be passed up.
However, despite overcoming the challenge of becoming global, many companies are still operating under sub-standard global processes and technologies adapted from domestic operations. Two examples of this are global transportation and supply chain visibility. (Read more: 5 Secrets to Master Supply Chain Visibility)
Companies are learning that it’s not enough to track goods at home; supply chain managers must monitor their global shipments and compensate for the added challenges of moving goods internationally.
To avoid losing money because of the wrong international shipping processes, ask yourself these questions:
Do we over-rely on expedited shipping?
For some shippers with time-sensitive and perishable products, expedited shipping is an absolute must. Other organizations, however, use expedited shipping to do damage control when another area of the supply chain has failed.
Overusing expedited transportation can quickly result in profit loss, especially when it’s used as a compensation tool for supply chain failure.
Instead, supply chain managers should adjust their supply chains to allow for extra transport hours while still meeting customer demand. This way, shippers can reduce unsustainable shipping costs without sacrificing customer service.
Better planning and supply chain visibility can reduce expedited freight use by 15-20% annually. This change will translate into significant monetary savings for global companies.
Are we incurring demurrage and detention fines often?
Demurrage refers to transportation delays caused by the late pickup of cargo, and detention relates to the late return of equipment, such as empty containers. Demurrage and detention fees are charged by the transportation asset provider for the time that its equipment is unavailable or idle. These fees are only charged when the unavailability is not the provider’s own fault.
Although there is normally a grace period for demurrage and detention fees, depending on location, these fees can reach hundreds of dollars per container, per day. Needless to say, they add up quickly.
Demurrage and detention charges normally occur for a few reasons: planning schedules are out of balance, communication and notification are poor, and/or there are delays in clearing Customs.
If your company incurs these fees, you’re likely not monitoring cargo arrival carefully, or you don’t have a clear understanding of accurate in-transit cycle times.
Real-time visibility and asset management can accelerate and compress the supply chain, providing companies with reduced trailer assets, inventory, and associated carrying costs. An AberdeenGroup study reported that companies that pre-clear their entries with Customs can save 1–3 days, where cargo would otherwise sit at the terminal, and real-time visibility and coordination can help reduce demurrage and detention fees by 25–50%.
Do we have weak communication with trading partners?
Just as customer service reps’ time would be better spent providing real customer service that builds relationships and cultivates repeat business rather than answering trivial questions, purchasing specialists would work more efficiently by utilizing two-way communication with both vendors and shippers.
A small feat, such as the ability to enter information into a system one time and share it across multiple parties, drastically reduces errors and speeds up order fulfillment. According to the AberdeenGroup report, a US-based consumer packaged goods company used a similar SCV solution and reduced their days of inventory in hand by 24% while reducing lead times by 28% and improving on-time customer delivery by as much as 74%.
Moving away from closed systems that require re-keying of data and multiple calls and emails to place orders should be a no-brainer, considering that today’s technology can help facilitate and streamline communication like never before. Customer and supplier portals may free your staff, allowing them to address more strategic initiatives and increase productivity.
To wrap up your analysis, answer these questions:
What is our ratio of standard shipping to expedited shipping?
What percentage of our cargo incurs demurrage and detention fees?
How many inquiries that we receive per day relate to order status?
From here, you can begin implementing processes that improve efficiency in the areas stated above and decide if improved supply chain visibility and global transportation will produce tangible results for your company.
The 3 main goals of supply chain visibility are 1) to reduce business and supply chain threats, 2) to improve performance and service, 3) and to identify inefficiencies and opportunities in the supply chain.
Supply chain visibility refers to the knowing where products and materials are, at any point in time, in the supply chain. It’s a fundamental part of enhancing logistics functions and results in monetary and time savings. However, supply chain visibility is limited.
41% of E2open survey respondents reported that their supply chain visibility extends as far as tier one relationships with contracted manufacturers. Supply Chain 24/7 supports that result, noting that about only 30% of companies have automated data and event monitoring and/or have optimized process capabilities in place.
According to Jeff Dobbs, executive at Diversified Industrials and partner with KPMG, “obtaining real-time visibility across all tiers in the supply chain can significantly increase speed to market, reduce capital expenditures, and manage risk.” He also mentioned that moving toward a demand-driven supply chain is probably the single most important step a manufacturer can take.
So, how do you create visibility in your supply chain?
By following these 5 steps, you’ll be on your way to reaping the benefits of supply chain visibility:
Define what visibility is for your organization.
Work with your partners and suppliers to set expectations of data analysis.
Implement technology and gather necessary information.
Analyze data, identify ways to optimize processes and reduce inefficiencies.
Transportation management software is an easy and efficient way to get started as it supports shippers by automating processes, managing data, and monitoring operations.
We’ve heard enough about creating supply chain visibility, but what are the benefits of it?
Reduce forecasting error and overall costs
Increase data-driven decisions
Boost productivity and efficiency
Improve safety, optimize freight moves
Deliver higher quality products and service
With supply chain visibility, companies can focus on best management practices, specifically in resiliency and efficiency. Real-time data is valuable in order to mitigate risk, notify customers or partners of delays, and drive the ability to make quick decisions. Visibility brings real value to the supply chain, expands operational consistency, creates actionable data, manages processes, and improves performance.
Supply chains are multifaceted and can be a noteworthy source of competitive advantage. To improve supply chain management efficiency and effectiveness, companies have to improve predictability, optimize costs, minimize working capital, mitigate risk, and analyze data.
Companies who strategically improve even one area of the supply chain create a ripple effect of operational advantages. A resourceful, successful supply chain helps businesses save money – from faster delivery time, shorter factory processing time, better inventory management.
What is supply chain efficiency?
Supply chain efficiency is an organization’s core standard of performance. Efficiency measures the ratio of work performed in a process and whether the process is using the best practices and making the most of available resources. Therefore, supply chain efficiency doesn’t always guarantee effectiveness. A supply chain might efficiently lessen costs, but if the end consumer is unhappy with the product, it’s ineffective. So, an effective supply chain focuses on the outcome and external standards.
Well-built supply chains improve margins, support expansion, drive positive consumer experiences, and reduce operating costs. Determining the best way to move a product to its destination takes consideration of optimizing order processing, receiving procedures, outbound schedules, and reverse logistics.
The role of distribution networks in supply chain efficiency
A distribution network is a system a company uses to get products from the manufacturer to the retailer. Companies who leverage the supply chain as a strategic capability have built a durable distribution network. A fast, reliable network is a competitive advantage because customers are able to get products whenever they want them.
Today, the trend is for distribution centers to be located close to major markets in order to reduce inbound and outbound miles. “The ability to get a product to market in 1-2 days when your competition can only deliver in 3-5 days is a serious weapon,” says Wulfraat, President of MWPVL International.
How to improve supply chain management efficiency?
For an efficient supply chain, companies create reliable transportation solutions. A transportation network empowers a company to reduce shipment costs and increase service levels with little disruption to any processes. Also, an effective transportation network starts with shipment visibility. Visibility improves routing, capacity, and profitability.
Shippers work with 3PLs to explore new transportation solutions. Also, organizations have to impress customers and innovate processes. 75% of 3PL users say 3PLs provide new and innovative ways to improve logistics effectiveness. The most frequently outsourced logistics activity is domestic transportation (80%). Regardless of mode or freight volume, 3PLs can assess and tailor solutions to a company’s needs.
So, shippers need to first analyze the existing supply chain processes, distribution network, and transportation solutions to find pain points and opportunities. Looking at current and predicted delivery lead-times, logistics expenses, and inventory assets are good data points to find a path to efficiency and effectiveness.
Partnering with a 3PL adds value and efficiency to an organization’s supply chain. The technology and resources that third-party logistics companies provide create flexibility, contain or reduce costs, increase space, enhance visibility, and most importantly, enables the organization to focus on their products and customers.
The number of online shoppers is estimated to reach 270 million by 2020. In 2015, online sales totaled $335 billion, and a recent report from Forrester predicts that online sales will grow by an average annual rate of 9.32% over the next 5 years.
Demanding e-commerce shoppers are challenging the way businesses approach fulfillment. Among the many different solutions employed across a number of industries, automation in the supply chain has been the most successful.
Automation in the Warehouse
Automation in the supply chain helps increase speed, accuracy, and productivity. Today’s warehouses are no exception – they are hi-tech and extremely efficient, using automation to rapidly fulfill orders.
“To be great in e-commerce, you need to be sophisticated inside the warehouse,” said Karl Siebrecht of Flexe. Robotic installations in the US were up 11% in 2014 over the previous year.
Amazon’s use of robotics proves that automation is more proficient than an all-human staff. Amazon, an e-commerce leader, has about 30,000 robots in its warehouses all over the globe, which created an estimated 20% reduction in operating costs.
Robots benefit e-fulfillment centers and DCs by:
Loading and unloading
Picking shelves, putting away returned products
Handling heavy material
Moving products to workstations
Automation in Transportation
According to Henry Maier, of FedEx Ground, e-commerce is the greatest driver of change and growth in the transportation industry.
E-commerce has considerably shortened truckload’s length of hauls, as shippers build centralized DCs and warehouses for e-fulfillment to be closer to customers for faster delivery.
“Length of haul has gone down a great deal, and one of the unintended consequences of that has been miles-per-truck are down,” said Derek Leathers of Werner Enterprises. He continued, “From 2007 to today, total trucks and capacity are down between 12-15% and miles are down nearly 25%.”
Businesses are under pressure to reduce costs and send orders to customers faster. Since e-commerce sales are unpredictable, flexibility and scalability in transportation strategy are vital. Transportation management systems (TMS) provide shippers with visibility, freight bill consolidation, and carrier selection.
Having multiple carrier options permits you to choose the best rates and transit time, which means containing costs and better service.
Since your customers aren’t willing to pay for shipping, but still want their goods as soon as possible, it’s worth evaluating your different choices through a technology platform like a TMS. As order sizes vary, you might consider an LTL carrier. When the customer selects a later shipment delivery, you could choose a carrier with a lower rate but slower route. Regardless of your needs, having more carriers to choose from provides you with more competitive rates.
Benefits of using a TMS: You can automate manual processes, like your BOL. You won’t have delays when your preferred carrier is unavailable, you can simply select a different carrier. You can evaluate various freight rates on the same shipment from multiple carriers. You can track your shipment from origin to destination, you can optimize modes and routes. You can give customers real-time information and improve their experience. You can easily manage historic data and instant notifications. And, you can fully adjust your transportation strategy to fit your e-commerce needs.