From raw profitability and growth to the ability to delight customers with quick turnarounds, supply chain optimization is the missing ingredient for many organizations in a wide range of industries. No matter what you manufacture or transport, you’re missing opportunities to reach the next level if you ignore these 15 tips for optimization.
1. Make a Plan and Measure Performance
Supply chains are the backbone — or perhaps the lifeblood — of the world economy. Research consistently shows that around 79% of companies that invest in supply chain improvement and optimization significantly outperform and out-earn competitors who have not.
This supply chain leadership doesn’t just happen, though. Companies with the greatest success in logistics are those that see the whole picture, plan ahead and know which metrics to measure to understand their victories and failures. Some of these KPIs include:
- Fulfillment accuracy
- Customer order cycle time
- Cash-to-cash cycle time
- Inventory velocity and days of supply
- Per-unit freight cost
2. Outsource Where You Can
Whether you’re in eCommerce, manufacturing, or something else, maintaining a supply chain involves lots of workflows, time, and labor. To streamline the whole process and restore focus on your company’s product innovation and other core competencies, it can pay to outsource key parts of the supply chain.
Outsourcing customer service and returns, logistics and tracking or the procurement process, are all strong options that have helped companies tighten their belt and restore efficiency to their enterprise.
3. Offer Incentives to Eliminate a Time Crunch
Surveys generally show that modern consumers want and expect free and speedy shipping whenever they place an order online. The good news is equally compelling evidence shows what companies can do to simultaneously placate their end-users and remove some of the time crunch from supply chain and logistics processes.
Research revealed that as many as 83% of consumers are willing to add at least two days to their order turnaround time if it means receiving free shipping. Businesses can also offer discounts or freebies, like Amazon does with Prime, to buy themselves time as well as customer patience and loyalty.
4. Adopt New Order Picking Technology
Order picking can be one of the more stubborn supply chain bottlenecks. From mis-stowed products to employee errors and goods sustaining damage in racking locations, there’s a lot that can go awry and lead to customer disappointment. Technology is one way to pick up some of the slack.
Pick-to-light systems are easy to install and dovetail with existing ERP and WMS systems. Many companies that adopt these systems report up to a 50% improvement in pick productivity and greater than 99.9% picking accuracy.
5. Reevaluate Warehouse Locations
Warehouse locations are under intense new scrutiny as the U.S. and world economies change. Many companies are taking a new and urgent look at where their warehouses are. Taxes, tariffs, offshoring and reshoring manufacturing and, of course, the “Amazon Effect” — heightened expectations among customers about the cost and speed of shipping — all play a role in the drive to reconsider and redraw distribution networks.
6. Cut Waste with More Effective Routing
As companies take a fresh look at warehousing locations and other factors, it’s equally important to consider transportation and delivery routes themselves. The methodology behind drawing up these pathways can make a significant impact concerning profitability, efficiency, and waste reduction.
Some of the hidden costs of poor route optimization include:
- Higher fuel and labor costs
- A greater environmental impact
- Delays and dissatisfied customers
Some routing optimization techniques include bypassing distribution centers as often as possible, consolidating freight to maximize vehicle capacity and employing carriers who know the specific region in question.
7. Use Big Data and Predictive Analytics Where Possible
Some of the largest companies in the world use big data systems and predictive analytics to get ahead of consumer demands and optimize their supply levels. For example, when allergy medication goes out of stock during times of peak demand, manufacturers stand to lose up to 10% of their retail sales. Big data points the way forward for these and much smaller companies. Predictive analytics is an increasingly vital part of enterprise resource planning (ERP) systems.
Intelligent, prediction-focused analysis helps plumb the depths of customer buying patterns, seasonal market changes, actions taken by competitors, geopolitical and climate-related disruptions and interactions with business partners to determine how much product is needed, where it should go and when it must arrive.
8. Hold Partners Accountable for Performance
From your customer’s perspective, there’s no difference between the performance of your company and the performance of your suppliers, distributors, and delivery companies. With this in mind, companies must hold their partners accountable for maintaining exceptional service standards.
The KPIs to measure here are similar to the in-house KPIs we discussed above, such as order accuracy and fulfillment time. You can’t divorce your own company — but you can and should reconsider who you’re in business with if the partner you have now can no longer uphold the performance metrics laid out in your service agreement.
9. Rethink the Returns Process
The return rate for online orders is 30%, more than three times than for brick-and-mortar purchases. Moreover, 70% of consumers desire free return shipping, and 92% are likely to make an additional future purchase if the return process is user-friendly.
You can do several things to optimize the returns process for the sake of your employees and your customers:
- Make it simple and quick for the customer to initiate a return online.
- Develop a comprehensive strategy for handling returns across multiple sales channels.
- Employ no-hassle packaging that’s easy to reseal and reuse in the event of a merchandise return.
- Look atdata captured from customer returns as a way to inform your product design, merchandising and inventory strategies.
10. Stay Organized and Accurate
You cannot get your goods to their intended destination if your house isn’t in order. As a result, many companies with supply chains rely on Six Sigma and other organizational principles to keep things lean, ordered, and accurate.
Six Sigma focuses on eliminating several types of process waste, including fulfillment defects, extra processing and rework, product damage, overproduction, underutilized talent and more. Exploring this philosophy in your supply chain operation may include doubling-down on FIFO — first in, first out — adding detailed training for employees and structuring process improvement efforts.
11. Reevaluate Pallet Choices and Other Products
If you’ve worked in the supply chain for a while, nobody needs to tell you how important pallets and product skids are. However, there’s a chance that your choice of pallets and shipping cartons may be holding back your optimization efforts.
One example is shifting from wooden to plastic pallets. Plastic almost always completes more shipping, racking, and handling cycles than wood, which keeps waste and costs low. Plastic pallets are also far less likely to splinter or break and damage your material handling equipment.
The shape of shipping cartons and case packs is another factor to consider. Choosing a more sensibly sized or shaped package could help optimize the amount of freight you can move in a single truckload.
12. Develop and Implement a Cycle Count Program
Optimizing the supply chain and meeting customer expectations every time relies on 100% inventory accuracy, and this accuracy requires an ongoing and systematic cycle count program.
Nothing is more frustrating for customers than placing an order only to be told the product isn’t available. It’s not good for efficiency or customer relations. Many benefits come with ongoing cycle counts, one of which being that you don’t have to shut down to do a full inventory.
If you don’t know where to start, look at your most essential and fastest-moving products and begin to build your cycle count system and methodology around them.
13. Take a Look at Your Supply Chain Leadership Structure
Who’s calling the shots? If yours is like many companies, executives may lack the interest or expertise to lead your supply chain effectively and make realistic and timely decisions. For this reason, many organizations build their supply chain structure around a centralized model with thought leaders and decision-makers representing each business unit.
Business is a complex beast, so having dedicated, passionate and knowledgeable leaders for all supply chain activities helps keep procurement and fulfillment from competing for attention with other priorities at the executive level.
14. Use a Transportation Management System
Transportation management systems (TMS) are logistics software suites designed to optimize the physical flow of goods and materials into and out of a company. A good TMS can cut down on uncertainty and delays across many supply chain activities, including but not limited to:
- Compliance and documentation
- Route planning and optimization
- Vehicle and order tracking
Modern TMS products may even employ machine learning to optimize parts of the supply chain. As an example, a TMS may provide analytics that detect which carriers are regularly late, which shipping routes may no longer be optimal and the ideal time to deliver invoices to eliminate late payments.
15. Double Down on Improving Communication
Companies with top-tier communication skills and channels put themselves in an excellent position to outpace their peers. Timely and error-free order fulfillment or material procurement requires the utmost transparency between manufacturers, suppliers, freight companies and retailers. Excellent communication is especially crucial in cases involving multiple suppliers.
Honest and transparent communication eliminates surprises and redundancy and ensures emerging problems get nipped in the bud before they become major headaches.
How to Optimize Your Supply Chain and See the Improvements
With communication in mind, plus the rest of these tips, your supply chain will be back in fighting shape and leading your industry in no time.
Guest blogger – Megan Ray Nichols
Megan Ray Nichols is a freelance technical writer. She also runs her own blog, Schooled By Science, a blog dedicated to making complicated scientific topics easier to understand. You can follow Megan on Twitter @nicholsrmegan to keep up with the latest news.
Header image – Yozayo, Getty Images