Does your manufacturing business have an optimized supply chain? If (apart from the odd delay here and there) you never get any complaints from customers, you may think you do.
Supply chain optimization means that you’re providing your customers with the products they ordered on time and at a minimal cost to you.
The first part seems easy enough. Your customers are (hopefully) straightforward about the products they want and the delivery date. You can easily check if you’re fulfilling that part of the equation.
But what about the costs? How do you find out if you could achieve the same thing for less money?
True end-to-end supply chain management includes more than just optimizing the way you get raw materials and send out your products. In fact, this type of supply chain optimization means that you check how your suppliers get their supplies, and follow the product on its way to the retailer.
Why is that important?
Because your suppliers can’t fulfill your order until they’ve received their own supplies. The more they pay their suppliers, the more they’re going to charge you.
Similarly, a delay in their operation usually means a delay in yours. If you don’t want to keep your customers waiting, you’ll have to pay more for a faster logistics option, which means you won’t get the goods to your customers at an optimal price.
But what the end result you are looking for ?
- Lower inventory spend.
- 100% customer on-time delivery.
- Cost of goods reductions.
- Lead time management.
- Optimized production and production planning.
- Strains of “Kumbaya” reverberating throughout your warehouse.
How can you begin to optimize?
1. Know your suppliers’ suppliers
Unless you get raw materials directly from the source, your suppliers have suppliers as well.
You can help your suppliers negotiate a better deal with their providers. To do so, you need to be aware of how their suppliers operate. Find out everything you can about their business, including costs and lead times.
As a manufacturer, you’re a very important part of the supply chain. The demand you create contributes to the livelihood of your suppliers, and in turn, to their suppliers’ as well. Whether you realize it or not, your word (and your wallet) carries power. Support from you can help your suppliers get a better deal for themselves.
The demand you create contributes to the livelihood of your suppliers, and in turn, to their suppliers’ as well. Whether you realize it or not, your word (and your wallet) carries power.
Alternatively, you can use your business connections to get new providers for your suppliers. Or, if several of your suppliers work with the same provider, you can connect them and suggest they negotiate a more favorable volume pricing for both of them.
Since your suppliers now have a better deal with their providers, it’s time to renegotiate your own deal with them.
Taking their now-optimized supply chain into consideration, you may want to include an annual price reduction in your supply agreement. Depending on your market share and order volume, you may ask for a certain percentage of price reduction for each year that you order your supplies from them.
Or you can join forces with other manufacturers and negotiate a better volume pricing deal for yourselves.
3. Trim your own processes
Are your own processes optimized? Take a look at all your business tasks and determine if you could save time and money by changing anything.
For example, with inventory optimization and better payments you can shave off a considerable amount of costs from your budget.
Based on your business needs, you can choose a comprehensive platform that includes accounting, inventory, and sales, or a simple supply chain management software may just do the trick for you.
Automating your processes and introducing various business platforms, like a supply chain management software, can help you stay on top of your processes. Based on your business needs, you can choose a comprehensive platform that includes accounting, inventory, and sales, or a simple supply chain management software may just do the trick for you.
Logistics are a real wallet drain. Carriers always offer faster and more expensive options, and if you’re in a hurry, it’s tempting to choose a better package that ensures your customers get their products overnight (depending on location).
However, that’s far from optimal. If all your processes are optimized, you should be able to go with cheaper (and potentially slower) logistics options and still get the products to your customers in time.
Once you’ve optimized other parts of your supply chain, renegotiate your deal with your carrier. You may find that with the time you gained through optimization, you can downgrade to a lower cost shipping package.
5. Planning demand
Now that you’ve optimized everything else, it’s time to take a look at your customers’ demand. Assuming that they have a solid plan for their operations (and who doesn’t), they should be able to forecast their demand. Chances are, they’re already doing it for their own business planning purposes.
Why not ask customers to share their demand forecasts with you? It’s in their best interest as well. If you’re aware of their long-term projections, you can better plan to meet their needs.
If you’re aware of their long-term projections, you can better plan to meet their needs.
If you know exactly what your customers want and when they want it, you can plan your own production accordingly (leaving a certain margin of error, of course, to allow for last minute changes).
And with this information, you can go back to the beginning and re-optimize your own orders from your suppliers. This is how optimization becomes full circle, and you can start the process all over again, saving even more money and time for your business.
Supply chain management optimization is a never-ending process. There are always new circumstances, like a new supplier or a new software that allow you to further optimize your processes. Stay updated.
Since it can save your business a considerable amount of funds and time, supply chain management optimization is definitely worth your attention.* This blog provides general information and discussion about global business payments and related subjects. The content provided in this blog (“Content”), should not be construed as and is not intended to constitute financial, legal or tax advice. You should seek the advice of professionals prior to acting upon any information contained in the Content. All Content is provided strictly “as is” and we make no warranty or representation of any kind regarding the Content.