Supply chain optimization: 7 SCM tactics to fix fragmented purchasing

An organization’s supply chain is crucial to its profitability and customer experience. Supply chain optimization is a process that helps these organizations keep costs low and get products to customers where and when they need them.  

According to data from an Intuit QuickBooks survey, domestic supplier costs are the second-largest driver of increasing business costs. Workers' wages are the only driver that has a bigger impact on rising costs. Supply chain optimization is a smart way to reduce costs and increase profitability. 

Read on to learn why supply chain optimization (and management) matters, the tactics businesses can use to streamline operations, and how you can leverage innovative ERP systems and accounting software solutions to increase revenues and profits.

What is supply chain optimization?

Supply chain management oversees all activities related to producing and delivering a product or service to customers. It refers to the practices used to procure goods and services, produce high-quality products, and distribute products according to customer demand. 

Modern supply chain management includes the following activities:

• Requisitioning supplies through the procurement process
• Establishing manufacturing timelines and parameters
• Conducting inventory control and capacity planning
• Coordinating warehousing and logistics activities
• Creating distribution plans for downstream partners

Why does supply chain management matter?

Effective supply chain management ensures that organizations maintain a strong position in the market. It directly impacts a company’s profitability, efficiency, and customer satisfaction, which are crucial for building a firm’s competitive advantage. 

Failing to take supply chain management seriously is a costly mistake for businesses. An inefficient supply chain makes sourcing materials and delivering finished products more expensive. Failing to optimize the supply chain opens a company to significant business risks, including: 

• Production delays
• Inventory shortages
• Quality issues
• Supplier fraud

No matter if your company has a B2B, B2C, or a hybrid B2B2C model, efficient supply chain management can improve the following outcomes: 

• Reducing information silos
• Enabling accurate planning
• Improving response time
• Limiting risk
• Boosting sustainability

7 tactics for effective supply chain management

A supply chain inventory optimization strategy can help businesses become more efficient, reduce costs, and enhance customer service and satisfaction. 

Every company’s supply chain is unique, and effective supply chain management will vary from one company to the next. Despite those inherent differences, seven general practices are common among businesses of different sizes and industries that you should plan to use as part of your supply chain management. 

1. Forecast and plan ahead

Effective planning is the backbone of efficient supply chain management. A supply chain planner must align production, storage, and transportation to match expected demand. 

Supply chain management planners can leverage modern ERP and supply chain management software to make more accurate and reliable forecasts. Improved technology, coupled with external data such as weather reports and regulatory changes, aids companies in predicting demand, anticipating constraints, and prioritizing orders. 

2. Outsource strategically to simplify logistics optimization 

Depending on the size and scale of your business operations, managing your company's logistics may be too complex to handle internally. Identify and collaborate with strategic partners, such as contract manufacturers and third-party logistics providers. 

Outsourcing some elements of the supply chain management will carry additional expenses, including: 

• Service fees
• Setup costs
• Integration costs
• Logistics/transportation markups
• Reduced flexibility

However, these may be more than offset by the benefits outsourcing provides. Total out-of-pocket costs may be lower, expanding to markets is easier, and businesses have more flexibility in managing capacity.

Outsourcing also takes these tasks off your team’s agenda, allowing you to focus on more important core competencies. 

3. Build strong supplier-retailer relationships

Effective business transactions are built upon strong relationships. Your company should cultivate a healthy relationship with business partners for supply chain management. Every actor in the supply chain, including manufacturers, suppliers, distributors, and retailers, must coordinate actions for the supply chain to work as efficiently as possible. 

The easiest way for all parties to be connected is through a fully integrated system that facilitates real-time information sharing. The faster and easier it is to share data and information, the better the decision-making, especially during disruption periods. 

4. Invest in technology and automation

Automating routine tasks improves overall efficiencies by allowing your workforce to spend less time on menial tasks and more time on projects that deliver value. Supply chain optimization software that seamlessly integrates with other core business processes can improve efficiencies and foster better strategic decision-making.

5. Build a multichannel, responsive supply chain

Consumers expect to be able to purchase products from multiple channels. Your supply chain should accommodate those needs through a multichannel, responsive system that meets customers where they are. 

This process entails optimizing your company’s order management process to balance customer expectations and profitability better. Customers expect prompt order fulfillment and accurate delivery. Failing to meet those expectations can damage your reputation and drive customers to your competitors. 

One way to develop a more responsive and customer-focused supply chain is through order management software that centralizes orders, tracks returns, and establishes a more efficient fulfillment process. 

6. Renegotiate regularly

Almost everything in business is negotiable, and the same is true for the terms your business established with supplier and merchant partners. Regularly negotiating with suppliers and vendors helps keep costs down and maintains favorable terms. 

Companies should seek to renegotiate:

• Prices and fees
• Delivery timelines
• Product quality
• Fill rates
• Service legal agreements
• Shipping terms

7. Watch the metrics

Supply chain optimization is not a one-time project. Regularly reviewing key performance indicators (KPIs) is a crucial step for companies to track the efficiency and performance of their supply chains. The KPIs that your firm should monitor are:

• Cash-to-cash cycle time
• On-time delivery rates
• Fill rates
• Inventory turnover ratio
• Supply chain efficiency
• Forecast accuracy

KPIs without context make it difficult to draw informed conclusions. Benchmarking these metrics against industry standards makes fine-tuning processes and achieving continuous improvement easier. 

The role of technology in modern supply chain optimization 

Emerging technologies are radically transforming the way supply chains operate. Supply chains are seeing automation, responsiveness, and sustainability through the expanded use of the following technologies:

Artificial intelligence and machine learning

AI and machine learning improve the speed and accuracy of decision-making. These tools make it quicker to review historical data and produce better, more accurate forecasts that reduce excess inventory and unnecessary costs. 

Internet of Things

The Internet of Things describes devices with sensors that can communicate with each other through the Internet or other communication networks. This helps companies track goods, monitor assets, and perform predictive maintenance. 

Blockchain

Blockchain is most commonly discussed in the realm of cryptocurrency, but it has many uses in the corporate world, too. Blockchain technology adds security and traceability to transactions, building authenticity and transactional trust among supply chain partners.

Cloud computing

Harnessing the power of cloud computing allows for real-time coordination among suppliers, distributors, and customers. This is especially valuable for companies with a geographically dispersed workforce. These benefits enable companies to scale operations by ensuring all team members and vendors have access to data.

Robotics and automation

Robotics and machine automation are a smart way to streamline repetitive and mundane workflows, such as data entry and invoice matching. These technologies free up your staff to work on more strategic tasks while reducing manual errors.

Real-world examples of successful supply chain optimization

Companies worldwide are optimizing supply chains to reduce costs, streamline operations, and improve overall customer experience. Below are two examples of companies that have used supply chain optimization to improve efficiency across their organizations.

Example 1: Cohu

Cohu wanted to standardize their organization's common cloud-based systems, processes, and shared services. They aimed to increase efficiency, scale quickly, and achieve a unified identity. As part of that process, Cohu partnered with Oracle Cloud ERP to assist in transforming and optimizing its supply chain.

Cohu simplified its process into a single supply chain system. This meant their production managers no longer had to work with multiple processes and workflows when engineering change orders. They extended their supply chain to suppliers, allowing them to share quality control data about components more quickly. 

These changes reduced quality concerns and minimized production delays, as team members were able to spot issues earlier and convey them to supply chain partners more quickly. 

Example 2: Honeywell

Honeywell is a large manufacturing company with a footprint in diverse industries. The company wanted to create an Amazon-type marketplace for used aircraft parts. The goal was to develop a platform that established greater trust among buyers and sellers while reducing purchasing time. 

Honeywell partnered with Hyperledger Fabric to incorporate blockchain technology into their marketplace. Blockchain removed uncertainty from the transaction by quickly and easily checking the certification and origin of the used part. Improved trust reduced friction in the marketplace, making it faster, easier, and more secure for buyers and sellers to trade with each other. 

Boost productivity and enhance profitability

Optimizing the supply chain is key to reducing costs, maintaining and improving relationships with suppliers and vendors, and satisfying customers. For long-term success with your optimization strategy, leverage innovative AI and automation tools that offer accurate business forecasting and simplified financial management.

Use Intuit Enterprise Suite to make smart, data-driven decisions that can lead to more profitable solutions for your company and its supply chain.