The ultimate guide to supply chain optimisation

What does supply chain optimisation mean?

Put simply, supply chain optimisation means using technology to get inventory to the right place at the right time – at the lowest cost and highest profit for your business.

Supply chain optimisation can be explained as aiming to minimise operating costs and streamline processes throughout the supply chain to improve efficiency, reduce risk, and ensure stock availability at each stage.

Optimising your supply chain will also make it more resilient and ensure processes are in place, so your business is better positioned to react to any unforeseen demand and supply disruption.

Supply chain optimisation best practice

Here are six key areas to consider when looking to optimise your supply chain:

1. Build buffers into the supply chain

You can do this by increasing capacity at each stage of your supply chain. Adding safety or buffer stock can help you with unexpected demand increases.

Time buffers can help by getting inventory in early to allow for any delays in supplier deliveries or shipping.

Capacity buffers help when there has been a delay in the supply chain and could involve bringing in extra staff or automating processes to get back on track.

2. Review your supplier networks

By assessing your supplier network you can understand how critical each supplier is to your business and the impact any disruptions to their supply could have on it.

You may also want to look at alternative supplier setups, such as increasing your network through diversification or reducing shipping times by finding suppliers closer to home.

Some businesses are also starting to integrate aspects of the supply chain that were previously externally run, into their own operations, such as Lidl setting up their own container shipping company to reduce delivery delays and freight rates.

Building and maintaining strong relationships with your suppliers is key. Regular communication with clear goals can help support the smooth running of your supply chain.

3. Use technology to improve forecast accuracy

Accurate demand forecasting supports proactive supply chain disruption management and reduces the possibility of knock-on issues throughout your network.

However, right now, market volatility and demand fluctuations make forecasting even harder than usual. Our article explains how to forecast and deal with fluctuating demand, including using appropriate historical data and incorporating periods of stockouts.

4. Automate processes to build an adaptive and agile supply chain

Automated processes are vital to supply chain optimisation. For example, using inventory management software can help businesses better understand what, when, and how much stock to order at every stage of their supply chain.

Automation can also help increase capacity in your supply chain. You could automate the following: customer relationship management, demand management, order fulfilment, manufacturing flow management, procurement, product development, commercialisation, and returns.

5. Staff

McKinsey and Company have found that demand for labour has outstripped supply since the pandemic. Companies are struggling to recruit and retain staff, making it challenging to meet customer demand.

You need to understand where staff shortages will impact your operations and identify how to hire and retain the right people. Review your competitors and compare your salaries and benefits to identify areas for improvement.

Hire the right employees with the right skills at each stage of your supply chain. Make sure you provide training specific to their role in your company. This should be continuous – not just when they first join.

6. Embed sustainability into supply chain operations

We continue to face a global climate crisis, and consumers want more transparency in their supply chains. This increases pressure on companies to reduce their carbon footprint and build sustainability into their processes.

Due to the complexity of supply chains, it can be difficult to know where to start. Still, there are many opportunities to work with your supply network to find solutions.

Decarbonisation of the supply chain involves mapping your end-to-end supply chain to understand the causes of emissions, product flows, and interdependencies. This will give you an idea of where you focus your efforts and who to engage with to find and implement solutions.

Adopting a circular economy approach to manufacturing can also help eliminate waste of raw materials and pollution. This could involve redesigning products to last longer, be reusable, repairable, or recyclable. For example, soft drink companies now use recycled plastic to manufacture new single-use plastic bottles.

Electric cabs of trucks plugged into charging stations

Other opportunities to reduce your carbon footprint include reviewing transportation methods. For example, are there opportunities for changing to electric or lower-emission vehicles that could also result in lower transportation costs?

Not everything needs to be done at once. Creating a clear sustainability strategy with targets, KPIs and priorities can support buy-in across your company and network. It will also show your customers that you are working towards an achievable goal.

Benefits of supply chain optimisation

Optimising your supply chain can bring many benefits to your company:

If you’re in a competitive marketplace, you need supply chain operations to be cost-effective to hold onto profit margins.
If you can reduce or eliminate stockouts, you’re likely to improve customer service and satisfaction. Good product availability and a positive customer experience will ensure customers return time and again. It will also help you maintain your market share or even steal from your competitors who find themselves unable to meet demand.
An optimised supply chain puts your business in a better position to be proactive and stop firefighting. Using more accurate data will give you a better overview of your operations, so you can have processes that are resilient to supply chain challenges.
In addition, better systems and processes will make you more agile, meaning you can respond quicker to disruption, such as increased lead times or changes in demand. Our whitepaper Building a Resilient Supply Chain explains these areas in more detail.

Supply chain optimisation tools

A crucial part of supply chain optimisation is maintaining healthy inventory levels. It’s critical to keep track of inventory and run regular reports to check whether levels are correct.

Ideally, you should track inventory levels in real-time and follow items along the supply chain, from your suppliers to your customers.

Inventory management can be done in different ways, but not all systems will provide the same level of information. For example, spreadsheets can hold a lot of data but require a lot of manual input, making them high risk. They go out-of-date quickly, and it’s hard to automate their update.

Inventory management or, even better, inventory optimisation tools can provide more reliable and comprehensive data. They can accurately forecast demand, classify inventory items, calculate safety stock and reorder quantities, and provide a wealth of inventory KPI reports. This can help you avoid stockouts or holding too much excess inventory, which could become obsolete.

An inventory optimisation tool such as EazyStock can support your supply chain optimisation, streamlining your processes and providing vital data. If you’d like to know more, speak to one of our team to arrange a demo.