The Supply Chain Optimization Guide: Leveraging Visibility Software Beyond Your ERP
The Supply Chain Optimization Guide
- Knowledge isn’t just power, it’s profit. Deeper visibility of your supply chain – to the first/last mile – is the future of supply chain optimization.
- ERP systems, while essential, lack the granular visibility you need to optimize your value chain for securing your supply and maximizing profit margins.
- Select the right supply chain optimization software that can integrate with and move beyond your ERP by capturing source-level data, even in remote locations with low connectivity.
In today's fiercely competitive business landscape, supply chain optimization is the key to staying ahead of the game. When done strategically, it can unlock unparalleled efficiency and profitability in your value chain operations. For instance, studies show that cutting supply chain costs from 9% to 4% could potentially double your profits - clearly underscoring the importance of optimization among procurement professionals. Yet, the big question remains: How can you uplevel your current optimization strategies to maximize profit margins and future-proof your supply chain?
The secret lies in integrating supply chain visibility software for first/last mile transparency. In our post-pandemic world, research reveals that increasing visibility is among the top priorities for supply chain executives across various industries. Nevertheless, in 2022 only 37% saw an increase in supply chain visibility. So, as we enter 2024, let's explore how you can turn this untapped potential into your competitive advantage.
Decoding the Elements of Supply Chain Management
Before we dive into strategies for optimizing your supply chain to the next level, we must first outline the fundamental elements of supply chain management (SCM), which include:
- Procurement: At the heart of the supply chain, procurement is crucial in securing durable, uncontaminated raw materials at optimal prices, ultimately enhancing product quality.
- Manufacturing and Production: Manufacturing encompasses transforming raw materials into finished products seamlessly and without delay to satisfy demand requirements.
- Inventory Management: Inventory management is essential for balancing the storage and handling of raw materials, in-progress items, and finished goods to avoid excessive capital tie-ups, stockouts, losses, and delays.
- Logistics and Distribution: Logistics involves transporting and delivering products promptly by integrating distribution network design to enhance customer satisfaction.
- Demand Planning and Forecasting: Demand planning and forecasting involves analyzing market trends and sales data to predict future demand and adjusting operations and inventory levels accordingly.
- Supplier Relationship Management: Building and maintaining strong relationships with suppliers is vital to ensuring the reliability of your value chain and improving productivity.
- Information Technology and Data Analytics: In our digital age, IT systems play a pivotal role in data collection, analysis, and the sharing of information across the supply chain, ultimately driving smarter business decisions.
- Customer Service: The end goal of supply chain management is to meet or exceed customer (i.e. consumers, traders, brands, etc.) expectations. This includes not only the timely delivery of products but also handling recalls and reverse logistics effectively.
- Compliance and Risk Management: Ensuring compliance with laws, regulations, and ethical standards is essential, as is managing risks related to supply chain disruptions, geopolitical factors, and market changes.
- Sustainability: Increasingly, sustainability is a critical element of SCM, and involves integrating practices that ensure environmental stewardship while supporting local workers/communities.
Understanding these building blocks of SCM is the first step toward optimizing your supply chain. Each component plays a significant role in overall supply chain effectiveness, and optimizing these can lead to substantial improvements in cost, quality, speed, and customer satisfaction.
The Three Phases of Supply Chain Optimization
Now that we’ve covered the fundamentals of SCM, let’s explore how you can deploy the basic models of supply chain optimization to increase revenue and cut costs across your supply chain.
The three phases of supply chain optimization are:
Supply Chain Design
This phase is about creating a strategic blueprint for your entire supply chain. It involves forecasting demand and then determining the optimal network of suppliers, manufacturers, warehouses, and distribution centers. Factors like geographic locations, transportation costs, and capacity constraints are crucial in this stage. Effective supply chain design also considers future scalability and flexibility to adapt to market changes or disruptions.
Supply Chain Planning
In this phase, the focus shifts to tactical planning to ensure efficient day-to-day operations. It includes procurement, inventory management, resource allocation, and production scheduling. Supply chain planning aims to balance supply and demand, minimize costs, and maximize resource utilization. Advanced tools and analytics play a significant role here, providing insights for better decision-making and responsiveness to market fluctuations.
Supply Chain Execution
This is the phase where plans are put into action. Supply chain execution covers the physical movement of goods from suppliers to end customers, including manufacturing, warehousing, transportation, and order fulfillment. This phase requires real-time tracking, effective communication, and proactive problem-solving. It's crucial to have robust systems in place for monitoring performance, increasing visibility, and ensuring that operations align with planned objectives.
By mastering these three phases of supply chain optimization – design, planning, and execution – you can create a more streamlined, cost-efficient, and responsive supply chain. This holistic approach not only enhances operational efficiency but also drives a better brand image and competitive advantage in the market.
Common Challenges in Supply Chain Optimization
Supply chain optimization is not without its challenges. Common roadblocks to achieving financial and operational excellence include but are not limited to:
- Demand vs Supply Forecasting: Predicting customer demand accurately is challenging due to market volatility, changing consumer preferences, and external factors like economic shifts or global events. Inaccurate forecasts can lead to overstocking or stockouts.
- Supply Chain Visibility: Limited visibility into the supply chain can hinder a company's ability to track and manage inventory, monitor supplier performance, and respond to disruptions. This lack of transparency can reduce supply chain resilience and effectiveness.
- Cost Control: Balancing cost reduction while maintaining quality and service levels can feel like a Herculean task. Rising raw material, labor, and transportation expenses can impact profitability.
- Supplier Management and Risks: Managing relationships with multiple suppliers and mitigating risks such as delays, quality issues, or supply disruptions is complex. Geopolitical tensions, trade disputes, and natural disasters can further exacerbate these risks.
- Inventory Management: Effectively managing inventory levels to meet demand without incurring excess costs or wastage is daunting. Companies struggle with finding the right balance between too much and too little inventory.
- Ethical Sourcing and Production: Balancing profitability with sustainability and ethical practices is increasingly important but challenging. This includes reducing your carbon footprint, ensuring fair labor practices, and managing waste.
Moving Beyond Your ERP: The Future of Supply Chain Optimization
Make no mistake: Enterprise Resource Planning (ERP) software is vital for any business. It acts as the nerve center, integrating crucial information across various departments – from Human Resources to Sales to Supply Chain. While ERP systems are indispensable and here to stay, they have a notable limitation: supply chain visibility.
Most ERP systems struggle to provide visibility beyond the third or fourth tier of the supply chain, particularly when it comes to raw material sourcing. This lack of transparency can have a domino effect throughout your value chain. It amplifies the above-listed challenges by hampering your ability to accurately predict your supply to meet demand, ensure the quality of ingredients and materials, mitigate risks related to compliance and disruptions, and substantiate claims of sustainable sourcing.
In an era where consumer behaviors and market demands are rapidly evolving, supply chains must adapt, becoming more agile and dynamic. How can this be achieved? By obtaining real-time insights into the very foundation of your supply chain at the first/last mile. When these insights are combined with your existing ERP data, you're empowered to anticipate and navigate supply chain disruptions more effectively, control and reduce costs, minimize inventory losses, and ensure a responsive and stable value chain. This approach is essential not just for maintaining your business but for fostering its growth.
The Business Benefits of Optimizing Your Supply Chain from the Source
As alluded to earlier, source-level visibility and optimization have a ripple effect throughout your entire supply chain, encompassing a range of benefits such as:
- Reducing Costs: Tracking investments and returns and optimizing inventory management at the source can reduce loss and lead to significant cost savings. Additionally, studies indicate that food companies incur on average $10 million in direct costs from a product recall, in addition to suffering from brand damage and lost sales. Source-level visibility allows you to prevent product contamination and improve quality assurance to avoid costly recalls.
- Boosting Revenue: The retail food sector in the United States faces an annual loss in sales estimated between $15 to $20 billion due to products being out of stock or unsellable. This accounts for approximately 2-3% of its annual sales. On top of better demand forecasting, greater visibility means greater control of your supply chain so you can secure and boost your supply to meet demand.
- Improving Supplier Performance: Digitizing your upstream suppliers gives them access to real-time data on inventory for improving their operations. A McKinsey study shows that companies that aggressively digitize their supply chains can experience a 2.3% increase in annual revenue growth. Additionally, digitization connects your suppliers to a transparent system so you can prevent fraudulent activity and swiftly address bottlenecks.
Shambhavi Gupta, a supply chain expert with over 15 years of experience working with ERP systems, shares how source-level visibility is changing the game for forward-thinking companies:
“Source-level visibility and optimization can benefit companies by providing a clear understanding of where their products come from and how they move through the supply chain. This clarity allows companies to identify inefficiencies, reduce costs, and enhance overall performance. By optimizing the sourcing process, businesses can improve the quality, reliability, and timeliness of their supply chain, ultimately fostering growth and competitiveness. It's like having a map that helps navigate the supply chain, making operations more efficient and enabling better-informed decisions for business expansion.”
Supply Chain Optimization Examples
Having established why source-level optimization represents the future of supply chain management, let's examine its real-world efficacy. Dow's project, aimed at enhancing the transparency of waste management at the last mile, serves as a prime example. This initiative focuses on their post-consumer recycled resin value chain REVOLOOP in Colombia. Powered by BanQu's supply chain optimization software, the pilot project, 2Life, was developed to meticulously track waste from its origin through the recycling process and its eventual transformation into new packaging. With this level of visibility, Dow can not only boost operational efficiency and productivity among the informal waste sector, but also further advance Colombia’s circular economy.
Another groundbreaking example is Ardagh Glass Packaging-South Africa’s pioneering initiative, money4glass. In collaboration with BanQu, money4glass aims to drive growth in glass recycling through complete traceability, transparency, and equitability. The use of a secure and transparent system connects recyclers, providing Ardagh with comprehensive insights into all cullet trades and their overall recycling footprint. This heightened visibility enables Ardagh to significantly enhance the performance of their recycling value chain, while implementing direct incentive payments to last-mile recyclers to secure their supply.
Choosing the Right Optimization Software for Your Business
The market is rapidly filling with various supply chain optimization software. However, many of these partners offer only partial solutions, such as smart farming apps, mapping software, or satellite imagery, which may leave gaps in addressing your complete supply chain requirements. The criteria below will guide you in finding an all-encompassing system that consolidates all your supply chain data in a single location, providing enhanced visibility and control over your entire supply network.
First/Last Mile Expertise
To advance your optimization strategies, choose software that can gather data right from the source of your supply chain (i.e., the first/last mile). This means choosing a device-agnostic system everyone can use – even in the remote, hard-to-reach areas of your supply chain with low connectivity – from smallholder farmers to waste pickers to cooperatives and buyback centers. Your optimization software should be easily configurable to capture the data inputs you require, such as agronomy data across the crop lifecycle for predicting yields or the geocoordinates of the farmland. Additionally, it should be able to integrate with mobile money providers for direct cashless payments with farmers and recyclers, enabling targeted incentives for boosting your supply. Furthermore, your software should share a digital receipt of transactions via SMS with farmers and waste pickers. Doing so enables them to prove their work history for improved access to banking, promoting their livelihoods. This in turn fosters long-term, trust-based relationships with the workforce that sustain your future supply.
End-To-End Traceability & Chain of Custody
An effective optimization solution begins with comprehensive visibility of all supply chain tiers, including the often overlooked deeper levels, to ensure thorough tracking of elements like real-time stock from upstream suppliers. This level of traceability allows you to monitor the chain of custody from the origin of materials and ingredients through each stage of manufacturing and production, down to their final destination on the shelf. Such solutions maintain source-level data with the chain of custody even through transformations, like cotton evolving into thread and then fabric. This complete picture is essential for understanding and managing the intricate details of your supply chain, so you can spot areas for improvement.
Knowledge isn’t just power, it’s profit. Data integrity is the lifeblood of smart and strategic supply chain optimization. Inaccurate or unreliable data can lead to costly decisions, both in time and resources. For example, suppose you receive reports indicating higher inventory levels than what is actually available. In that case, you might decide not to reorder specific products and, consequently, be unable to fulfill customer orders. Therefore, when selecting an optimization partner, prioritize software capable of capturing primary, transaction-based data, as this ensures verification and authenticity. Unlike aggregated data, which lacks detail, primary data directly linked to source transactions offers greater granularity and reliability, especially when validated through blockchain technology. Moreover, ensure your software also integrates smoothly with your existing ERP, inventory management, and other legacy systems. This integration eliminates data silos to reduce the risk of errors or inconsistencies.
Real-Time Tracking & Reporting
Real-time tracking and reporting at every supply chain tier is an indispensable aspect of a traceability solution, offering rapid oversight of inventory movements and early issue detection. This capability not only bolsters quality assurance efforts but also fortifies your supply chain's stability. From ensuring adherence to quality standards, preventing the circulation of contaminated products, and enhancing demand vs forecast accuracy, it plays a crucial role. These benefits collectively aid in preventing expensive product recalls and safeguarding your brand's image from potential harm.
User-Friendly & Secure Platform
Select optimization software that's not only easy for suppliers to adopt but also integrates effortlessly with their existing systems, minimizing data duplication and facilitating smooth implementation. Prioritize a solution with robust security features, such as blockchain technology, to safeguard supplier information from manipulation and unauthorized access. This approach protects confidential data so your suppliers will be more open to using your chosen platform.
BanQu: Advancing Supply Chain Optimization through Source-Level Visibility
BanQu's state-of-the-art supply chain optimization software excels in global first/last mile traceability. Utilizing innovative blockchain technology, BanQu enables you to connect your suppliers’ data to the chain of custody within a single platform, reaching even to the farmers and waste collectors at the source. With BanQu, you can capture and leverage your procurement and production data, providing real-time insights into the source of your supply chain such as resource inputs, crop yields, geo-located waste streams, inventory levels, and supplier performance. Are you ready to tap into the full potential of your value chain? Contact our team to schedule a consultation today!