Whether you realize it or not, much of your revenue and profitability are tied up in your supply chain. Your choice of partners and the processes you use to get materials from one destination to another can quickly eat up your budget—and cut into your bottom line.
As we move to a future where the supply chain changes and is tracked in real-time, your efficiency is going to matter even more.
So what steps can you take as a business owner to improve the efficiency of your supply chain?
General Supply Chain Principles
To start, you need to understand and adhere to the following general principles:
Reducing costs. Every optimization should be done with a reduction in some kind of cost. For some improvements, that means reducing the money you’ll spend to accomplish a goal. For others, it means limiting the amount of time necessary to complete a task.
Targeting inefficiencies. If your supply chain is currently running and isn’t “broken," you shouldn’t need to worry about rebuilding from the ground up. Instead, you’ll research and identify specific inefficiencies that need to be addressed.
Maintaining quality. There are many ways to cut costs that could lead to an inferior overall process, jeopardizing the quality of your finished product or the health and safety of your workers. Ideally, you’ll need to work to find ways to improve your supply chain that still allow you to maximize quality.
Experimenting. Supply chains aren’t completely predictable. Some changes you think will improve your cost efficiency will inevitably result in no improvements. Some changes you wouldn’t expect could completely turn your operation around. It therefore pays to experiment, rather than hypothesize, so you can see the effects of your decisions in real-time, and make more empirical decisions.
Targeting Supply Chain Inefficiencies
Inefficiencies can come in all shapes and sizes, but these are some of the most common areas to target—and how to correct them:
Partner reliability. First, take a look at your partners, and how reliable your partnership is. You may have worked with them for years, but how often are they late on shipments? How communicative are they when something does go wrong? How much do they cost, compared to their competitors? Every few months, run an evaluation to see how they might stack up against a competitor, and consider either renegotiating your agreement or switching providers. You can also maintain your current relationships, but work to improve them by suggesting procedural changes or setting higher standards for delivery.
Tech speed. Look at the tech you’re using, from the RFIDs on your shipments to the computers used by your managers. Tech advances quickly, so if you’ve gone more than a year or two without upgrading your materials, it may be time to consider an improvement. New tech allows your employees to work faster and more efficiently, and may allow them to communicate in new ways. Don’t let lag and technical hiccups slow down your operations.
Equipment reliability. If you’re in manufacturing, or any field that requires the use of external equipment, you’ll need to take measures to ensure the reliability of that equipment. That means regularly inspecting it for damage, maintaining it, and replacing worn-out parts early, before they can cause more damage. A proactive equipment maintenance program can minimize downtime, and keep your machines running smoothly.
Environmental factors. Environmental factors are often beyond your control; a hurricane might disrupt your logistics operations, or an earthquake might damage your factory. You can’t stop these disasters, but you can put action plans in place to minimize their direct impact. For example, you can have standing contingency plans of how to change your operations in the wake of such an event, and how (and when) to restore full operations afterward.
Regulatory and legal factors. Depending on your industry, you may also be subject to facing new regulations and laws. For example, you may suddenly find yourself unable to continue your standard manufacturing processes thanks to a new law. Again, there isn’t much you can do to prevent these occurrences, but you can take the time to create a plan for how to respond to them faster and more efficiently.
Analytics insights. Finally, make sure you have a good analytics system in place. Analytics platforms will not only highlight which areas of your supply chain are most inefficient, but they’ll provide data on how your improvements manifest—so you can gauge how effective your changes really were.
Understand that supply chain optimization isn’t a one-time process; you can’t flip a switch and end up with a well-oiled machine to power your business. Instead, it’s going to take a long sequence of new innovations, changes, and additions to power your company. Start by addressing the biggest inconsistencies in your own organization, and keep experimenting as you iron out those wrinkles.