Most organizations rush into the project of reducing inventory, followed by quick moves to improve the capacity of the business without factoring in the level of customer satisfaction. Then they try to reduce the budget for supply chain management hoping to save money. Eventually, the company circles back to where it all started, inventory, and realize that it is absolutely necessary to effectively manage their inventory.
All business aiming to be successful must realize that the key supply chain elements including cost, capacity, inventory, lead time, customer service level, and product portfolio complexity are all entangled. As such, they should be managed as pieces of a whole. Supply chain management is a balancing act that aims to achieve the best combination of elements to support the overall business strategy and meet customers’ expectations.
Finding a balance is key to avoiding costly vicious cycles. The best approaches that you can adopt to ensure there is a balance in your supply chain system are further discussed below.
One way is by Implementing inventory optimization techniques and tools to help you achieve your lowest possible inventory level and highest-level of margin at the product family or SKU level. With optimized inventory, you can enhance service to your customers while realizing a higher gross margin and enjoying a shorter cash conversion cycle.
This simply means matching supply chain planning with execution. Smooth integration of financial planning and budgeting processes with the adequate tools will help you grow your top line and reduce your costs. The proposed approach includes managing supply constraints, establishing a formalized demand planning process, and ensuring customer collaboration. Your business benefits from a shorter cash-to-cash conversion cycle and greater forecast accuracy. Ultimately, your customers enjoy better services.
The focus should be placed on supplier selection, performance management, and supply chain visibility. This will help you have a better understanding of supply chain data as well as quality and manufacturing processes at the supplier level. You will be able to enjoy improved collaboration and better contracts that reduce the total amount you spend on an average while driving increased on-time deliveries and higher annual savings.
Producing the right product, in the right quantities, at the right cost, and in the right location is the key to reducing your cost-to-serve. Comprehensive analytics to determine the best footprint, flow, and location for your facilities should be employed. Lean techniques and tools like slotting analysis and pick path optimization to streamline operations and enhance productivity should be looked adopted. You win with a manufacturing and distribution network that supports customer delivery requirements at the lowest cost-to-serve, dramatically improving your gross profit margin.
As a company, you should develop and hone the critical supply chain planning and inventory skill sets needed to drive gross profit in your business. Through a combination of classroom training, coaching and modelling in real-life applications and scenarios, you should teach your team how to leverage your existing platform to make better and faster decisions. When your supply chain talent has the fundamental skills to operate effectively, it can drive improvements in gross profit and a reduction in working capital.
When you are able to adopt the approaches outlined above, you should be able to satisfactory strike a balance in your supply chain management.