Supply chain optimization is a strategy made up of practices and procedures that aims to create an optimal, cost-effective operation for manufacturing and distribution companies.
As many companies in the industry have learned during the past few years, supply chain operations can be subject to labor shortages, raw material shortages, factory closures and fragile logistics systems, all of which can cause pauses in operations, throw off profit forecasting and upset customers.
Supply chain optimization is never a “one-and-done” assessment. It is a process that should be internally audited frequently to ensure that your company is not leaving any money on the table.
In this blog post, we outline the benefits of optimizing your supply chain and offer strategies to help you do so.
The Benefits of Supply Chain Optimization
Supply chain optimization can be triggered by significant events, such as a merger or acquisition, a financial hit, a global pandemic, a need to make up for losses from rising transportation costs or any number of other events.
As technologies advance, companies in the industry are relying heavily on technology and organizational changes that help to ensure an accomplished forecast so that the company not only survives but reaps the following benefits:
1. Improved Inventory Management
Although inventory holding costs are necessary, this is one of the first areas to optimize. With an inventory management system, companies can identify the highest- and lowest-selling products and components to better understand production numbers.
Inventory management can also optimize storage location so that products can be accessed quickly and others can be stored in a location closer to the manufacturing facilities to cut down on transportation costs.
2. Faster Lead Times
Timely delivery is at the top of nearly every manufacturing company’s priorities list because it connects to quality assurance, testing, efficiency and safety. Additionally, faster lead times can lead to reduced shipping costs, increased profits and improved customer satisfaction.
3. Higher Customer Satisfaction and Retention
To remain competitive, manufacturing companies need to consistently and continuously prove the advantages of working with them. OEM suppliers focusing on providing high-quality components for product manufacturing need to constantly analyze their overall processes to look for ways to improve customer satisfaction and gain a larger market share.
4. Increased Operational Efficiency
You can think of the supply chain as a line of standing dominos: When one link is optimized, the entire supply chain will feel the effects of previous links. This makes overall operational efficiency a key aspect of supply chain optimization.
This also has the opposite implications: One faulty link can negatively impact the rest of the chain. Implementing risk management strategies creates supply procurement diversity, resulting in higher lead times and a lower cost of materials and components.
5. Revenue and Profit Growth
Supply optimization can help increase revenue by eliminating waste, which can accrue through faulty raw materials and useless components produced under poor manufacturing practices.
Waste reduction can also apply to the cost of delivery. In this case, by decreasing the number of drivers that perform deliveries, companies can cut down both labor and fuel costs.
Five Strategies for Supply Chain Optimization
The global market is incredibly dynamic, and although there is no single set of procedures that will guarantee success, manufacturing enterprises should start their supply chain optimization with these five steps:
1. Develop a supply chain diversification strategy.
Supply chain diversification is one of the leading strategies to cut down on overall operations costs. In fact, many multinational firms that seek supply chain diversity have used the “China plus one” strategy. With this strategy, companies have moved operations — or parts of operations — to other Southeast Asia countries that are experiencing economic growth and that have a workforce, political stability and infrastructure.
Vietnam has been a key part of this strategy for two primary reasons:
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It is in close proximity to China.
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By 2030, the country plans to improve its transportation infrastructure by constructing 5,000 kilometers of expressways, a deep-water port and high-speed rail routes. Additionally, Long Thanh International Airport near Ho Chi Minh City is slated to be completed by 2040.
2. Develop core strengths and outsource the rest of the processes.
One of the most significant issues that manufacturers run into is trying to perform too many tasks that could be outsourced and produced at a lower cost.
For some companies, partnering with a manufacturing company that can produce every component in-house is attractive. However, this requires a significant amount of capital, labor and machinery. Instead, focusing on a few manufacturing procedures can increase component quality.
This is also an opportunity to partner with a third-party provider that specializes in specific production practices that can be equally beneficial to both parties.
3. Optimize forecasting and inventory management.
By conducting inventory management, companies can improve fulfillment and product availability, reduce unneeded inventory and reorganize to help improve margins and profitability.
There is no longer any reason to not implement the latest technology to optimize processes. These highly advanced tools provide opportunities to utilize data and test for optimality throughout the supply chain.
4. Use mobile technology and centralized management software.
Manufacturers can improve everyday processes, workflows, field sales and marketing, and direct service to the customer by implementing mobile technology and a computerized maintenance management system (CMMS). These tools can provide information on provenance, raw material origination and additional information, such as sustainability practices used in the process. This knowledge can provide a boost for the brand.
5. Build a responsive supply chain through a multichannel approach.
Using multichannel programs allows your team to change the expectations derived from forecasting to build a responsive plan to address supply chain disruptions.
This information can be collected from point of sale and social media, allowing your supply chain management team to identify trends and demand changes earlier to enable a faster response. Faster responses enable you to improve sales and services levels and to reassess inventory to maximize benefits.
Supply Chain Optimization with a Flexible OEM Supplier
You need a solid, dependable manufacturer that can produce high-quality components, deliver products on time and help mitigate supply chain issues when they arise.
At VPIC Group, our focus expands beyond facilities to include risk mitigation plans. We keep a constant watch on marketing trends and fluctuations in cost patterns, and we maintain strong raw material supplier relationships.
VPIC is your answer when it comes to reassessing your approach to supply chain optimization. Contact us today.
