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Although the impact of supply chain performance on the success of a business is significant, it is sometimes inaccurate in some companies which are even well-versed in supply chain management. Supply chain mistakes like the five common examples below, all have the potential to undermine business performance. Here are five signs that it's probably time to rethink your supply chain network, along with some ideas to save logistics cost.
1. Frequent Changes to Customer Demand and Production Schedule
As customer demand becomes increasingly complex, many demand planning methods are no longer sufficient to adapt to the increase in demand volatility. Changes in customer demand affect the accuracy of sale forecasts. As a result, sales generation activities in many companies have become disconnected from the operational activities required to fulfill the demand. In addition, to meet customer's needs, companies also need to constantly update product features. Enhancing product features requires enterprises to redesign their supply chain to accommodate product changes.
2. Falling Levels of Customer Service
Customer satisfaction is a good indicator of distribution network effectiveness. If your logistics operation begins to see increases in late deliveries and backorders, it could easily be a sign that your distribution network is buckling under the strain of business growth. Service failure occurring affects customer loyalty leading to revenue deduction because of high inventory cost, products return and expensive transport cost. When your supply chain measurement process indicates a decline in customer service level, you might need to review your supply chain systems.
3. Significant rise in the number of SKUs
Because of customers’ changing expectations towards delivery speed, holding more items in stock to complete next-day orders is inevitable. Thus, a high inventory level is a direct result of the larger numbers of SKUs. Cocozza pointed out in his study that SKU proliferation is a real problem being faced by distribution centers and order fulfillment operations [1]. It brings with it a number of challenges and costs that a distributor needs to be aware of. These downsides include:
High inventory holding costs
Reduced available capital
Higher fixed costs
Reduced efficiency
If your company wants to manage a wide range of SKUs, investing in distribution network design will help your management team see if adjustments are necessary.
4. Inefficient supply chain network design
Supply chain network design is a powerful modeling approach proven to deliver a significant reduction in logistics cost and improvements in service levels by better aligning supply chain strategies. An inefficient supply chain network design is unreliable, lacks visibility and innovation. In other words, it does not control the whole connection of resources in a warehouse. As a result, your current supply chain design is no longer optimal for the current product range and delivery locations.
An inefficient network design can lead to excessive handling, too many stock locations, and poor utilization of your distribution centers. The results are high distribution costs and poor customer service. If your company hasn’t reviewed its distribution network in the last five years, there’s a good chance it’s fallen below the bar in terms of optimality, economy, and efficiency. Your business could be missing opportunities to:
Save operating costs by centralizing distribution assets or functions
Improve energy efficiency and reduce environmental impact
Maximize utilization of distribution assets
Reduce freight costs
Create a more flexible and responsive supply chain
Make cost-to-serve savings
Increase customer satisfaction
5. Lack of coherence between manufacturing and distribution
There is no doubt that effective coordination among the functional department can be well above the performance achieved when the tasks are performed individually. According to Bülent Sezen, coordination between operations and logistics functions is the most important factor for high-performance achievement [2]. Logistics function carries an important role in linking the two most important functions of a company namely, operations and marketing. Maintaining balance in every single functional department is indispensable to a logistics company. Too much power and influence in any department can affect the effectiveness of a company's supply chain. The firm should determine the supply chain uncertainty existing and their impact on the efficiency of transport operations. If all that seems alarming, it is necessary for a firm to consider saving its logistics cost.
What do we need to do to save logistics cost?
1. Invest in Supply chain network design
A 2009 Espinoza survey indicated that 70% of a company’s network determines its supply chain efficiency and customer satisfaction [3]. Designing an optimal supply chain network means the network must be able to meet the long‐term strategic objectives of the company. Looking at a supply chain network enables firms to look at the overall movement of materials and information from start to end. Besides, it allows organizations to see the value in creating partnerships among their relationship with both distributors and vendors.
A supply chain network design should be adaptable and changed to meet evolving business and customer needs, and it needs to be flexible enough to drive optimal tactical and operational decisions. To improve supply chain network efficiency, you can also invest in advanced technology. Abivin vRoute is an effective software solution that you can incorporate into your supply chain. It does not only make the route planning real quick, helps minimize the expenses, but it also enhances customer services.
2. Outsourcing
In fact, 85% or more of businesses outsource some part of their supply chain operation or management [4]. The two functions that are outsourced most often are warehousing and transportation.
Outsourcing the supply chain helps companies to be more focused on the bigger picture of their business and growth opportunities. It is also a great approach for managing and reducing costs. Large expenses such as additional raw material storage space may be avoidable with or significantly reduced by working with an appropriate supply chain partner. On the other hand, increasing supply chain capabilities is one of the benefits of outsourcing. External partners, as an example, can bring additional supply chain expertise, solutions, and capabilities well beyond the scope of company’s current operations.
3. Develop Effective Sales and Operation Planning Process (S&OP Process)
Sales and Operation Planning process is a way to manage problems caused by overproduction or underproduction, including wasted resources, poor customer service, and a bad influence on a company’s bottom line. It allows to share information and bring people together in a structured, single plan that is defined across the functional departments. S&OP gives executives a comprehensive overview of the business so they can grasp where it stands.
S&OP offers distinct benefits that old business plans can’t achieve:
Better data and collaboration between departments allow to frequent adjustments in the supply chain, which better balances supply and demand
Improved inventory and backlog management allows for more timely customer service
Unbiased, more actionable data can lead to better Key Performance Indicators (KPIs) for each department, tying indirectly with the company’s KPIs.
In conclusion, when your company has all five signs described above, it is necessary to take action to save your logistics cost. Let us help you! With Abivin vRoute - a Route Optimization and Transportation Management System.