Before we analyze and discuss the need to optimize a supply chain, first let’s define what a supply chain is and check out the different types of supply chain models. If you are reading this you most likely know, but for anyone who’s new to the job of supply chain management–or new to logistics in general–it’s always good to start with the basics.
What’s a Supply Chain?
A supply chain is the system of getting products to buyers. It’s the people, places and things involved in the sourcing, supplying, manufacturing, warehousing and warehouse management, shipping and receiving of goods sold. These are intricate processes involving planes, trains, trucks, ships, warehouses, distribution centers and retailers.
6 Supply Chain Models
There are six models of supply chains, and in some you’ll see overlap:
Agile Supply Chain Model
Focuses on flexibility and the ability to pivot as needed. It adapts to customer demands and supply chain disruptions quickly and efficiently in order to keep consumers happy.
Continuous Flow Model
Relying on the stability of the marketplace, this traditional model is best when a business produces the same products continuously with little to no fluctuations in demand. Efficiency is the priority.
A hybrid of agile and continuous flow, the custom-configured model does some additional customization at the assembly and production levels.
Efficient Chain Model
Speed and cost cutting is the name of the game for this model among highly competitive markets. Think of low-budget fashion, for example. This model can get hit hard with disruptions.
Fast Chain Model
Think of products with short life cycles or products that follow a specific trend (like fashion). Their supply chain model is usually a fast chain model; they have to hustle and get their products from point A to point B before the season or trend completes.
This model adapts quickly to the highs and lows of seasonal peaks and the like. Therefore, a fast chain model is also a flexible model where there are periods of high demand and thus high volume of product and periods of low demand/product.
The Evolution of the Global Supply Chain
Here’s a quick timeline of supply chains (in the U.S.) from a local agrarian economy through to today’s global economy.
Pre-Industrial Revolution (pre-1900s): Supply chains were shorter and simpler with little terrain to cover. For example, food went from the local farm (think wheat) to the mill (where wheat becomes flour) to the baker (who turns flour and other ingredients into bread) to either a market stall (maybe a horse cart) to home.
1870s–1900: Though the first industrial revolution began in Britain in the 1700s, in the U.S. the second industrial revolution began in the 1870s. During this time, machines (e.g., sewing machines, assembly line, telegraph) were developed that increased volume and speed in manufacturing, agriculture and communication. In addition, there was the invention of the automobile, the steamship and the plane. And railroads expanded. By 1880 the U.S. had almost 18,000 freight locomotives. The first semi-truck saw the light of day in the late 1800s, and Mack Trucks were founded in 1900.
1920: Diesel engines introduced.
1925: Warehouses began using pallets.
World War II: Logistics was key as we manufactured military supplies in the U.S. At the same time, we needed to get supplies to troops in Europe. Efficiency in warehousing and related tasks, including racking, loading, unloading, and consolidation grew.
1950s: the shipping container was created and paved the way for today’s global supply chains.
1960s: Shipping containers became fully standardized. Computerization increased with IBM’s 1968 launch of the first inventory management system. Developed at the behest of NASA who, once they sent a spaceship to the moon, wanted to track all of the parts it takes to build one.
1975: The first real-time warehouse management system was developed by J.C. Penney. A game changer, the system identified inventory, its location, and amount to be sold. Barcodes and the moving away from manual input happened during this time, too.
1980s: The integration of processes arose and the birth of the term “supply chain management.” The rise of personal computers, outsourcing, and using 3PLs and 4PLs.
2000–Present: We started to focus on supply chain excellence. Plus, countries in Asia (especially China, Korea and Japan) became a leader in suppliers and exporters of goods. Artificial intelligence also increases to improve supply chains.
Supply Chain Optimization
For any business that has to get their products to buyers—whether b2b or b2c, e-commerce or brick and mortar—the trifecta when it comes to supply chain optimization is lower operating costs, higher profit margins and customer satisfaction.
And while we tend to focus on retailers when it comes to supply chains, remember that manufacturers need to optimize their supply chain networks as well and ensure the raw materials they need get to them so they can make the goods. And the raw materials have their own supply chain process too. It’s all a complex web of transports, but it doesn’t need to be a tangled one.
Supply chain optimization involves the design, planning and execution of your supply chain.
The first 5 is more big picture items:
1. Your information is siloed
If your supply chain isn’t connected through technology and your various processes in the system are not shared, there is a lack of end-to-end visibility. Centralized management software integrates a business’s different departments. Up to the minute inventory tracking is a must-have. Shockingly, 43% of small businesses don’t track their inventory. Likewise, solid communication between suppliers and retailers.
2. Your customers are not satisfied
Today’s customer is fickle and impatient and will move on to the next in a heartbeat if your supply chain can’t innovate and optimize. Depending on your product, agility (see supply chain models above) and streamlining for efficiency is key in order to draw in and retain customers.
3. Your brand is losing its competitive advantage
Maybe you need a rebrand or maybe it’s your supply chain management. If it’s the former, hire a branding agency. If it’s the latter, take inventory of your existing processes, technology, and partnerships. Are you staying atop the latest developments and innovations? Do you need to look into third party fulfillment companies?
4. Your supply chain is slow to respond
Natural disasters, pandemics, changes to customs and tariffs, or issues with global transport have to be anticipated and preparedness has to be buttoned-up. Regardless of whether or not you follow an agility supply chain model, being agile as a company and within your supply chain is always important.
5. You’re in denial about the importance of sustainability
Think of sustainability as the 3 Ps: planet, people, profit. By prioritizing sustainability of your supply chain, you also support your company’s (and Earth’s) longevity. By understanding the people that are impacted by your company (from your employers to the neighborhoods that surround your operations) you can make changes that improve communities. It’s where innovation that leads to optimization happens. And in the end, it’s a money saver. Just note that if you’re going to go sustainable, do it the right way.
The next 5 are more specifics:
6. Your routes map is a mess
If you have the kind of software that can map up all of your routes and it looks like your toddler colored in the map with no open spaces, it’s time to re-examine and clean things up so those routes are more clustered and less chaotic.
7. Your miles per delivery (MPD) is too high
As a general rule, you don’t want any deliveries that are over 1,000 (some say the sweet spot is 150-300 miles per delivery). In other words, you want your MPD to be an MVP.
8. Your last mile logistics are lacking
The last mile–the final step in the delivery process when product goes from warehouse to truck to buyer–can be fraught with challenges. It’s important you implement updated technology that will best serve same-day delivery logistics, which is estimated to grow by almost $63 billion in the next four years. Third-party fulfillment companies are a way to improve last-mile service, to save money and keep customers coming for more.
9. Your fuel costs per trip is too high
When it comes to optimizing your supply chain, a key metric is the miles per gallon your drivers are doing. Of course today’s high price of fuel in the U.S. has been a big burden on businesses, but you can still consider factors like vehicle idle time and ensuring your trucks are full in order to save the number of trips.
10. Not enough safety stock
Every supply chain needs strong warehouse management with the right amount of distribution centers for the right amount of inventory, including that additional quantity to ensure you aren’t caught empty handed, so to speak. There’s many factors that go into calculating your safety stock and it’s important to have that buffer built into your inventory.
In conclusion, there are a number of signs your supply chain network needs optimization, but with laser focus, a commitment to your customers, a willingness to innovate and/or pivot, you can streamline and optimize your processes that keep your business out of the red and right on track.
About Westhub Logistics
At Westhub Logistics we practice a client-first approach. We stand out with an unprecedented standard for personalized 3PL services. Our first goal is to listen to your needs and provide you with unique solutions. WHL can work with you to create a customized FBA plan, and you won’t have to pay for unnecessary services. If you are seeking logistics support, we’d love to hear from you, our team is ready to help. Give us a call today 408-585-9346 or send us an email at firstname.lastname@example.org
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