Inside this article
Supply chain management, or SCM, is a complex operation that can either contribute to a drastic reduction in logistics costs and a boost in efficiency or become a significant source of losses.
That’s why supply chain optimization should be at the core of any business. However, there are as many supply chain strategies as there are businesses — and you’ll have to develop the right strategy for your situation. Here, we present some tips for avoiding the most common problems, such as operational bottlenecks and other inefficient supply chain tasks.
Prevent and avoid supply chain bottlenecks
Supply chains are typically among the most complex elements of any business’ operations thanks to the large number of processes the supply chain includes.
Moreover, supply chain activities are also the primary source of costs (and profits), hence the importance of preventing issues and ensuring visibility and efficiency in the supply chain.
The term “bottleneck” is used whenever a delay in a process causes an increase in costs, inefficiencies in the business's general operations and other negative repercussions for your business or customers.
To prevent operational bottlenecks, you’ll need to optimize your supply chain. Doing so can help you maximize resources, reduce errors and solve the issues that are causing bottlenecks in your business in the first place.
But supply chain strategies don’t only address bottlenecks. In order to really optimize your supply network, you’ll also need to start measuring metrics.
Track the most important supply chain KPIs
When the fundamental metrics in the supply chain aren’t properly monitored, supply chain efficiencies are more likely to arise thanks to luck rather than planning.
However, by tracking the most important KPIs, you can optimize your supply chain to help you reach specific goals; understand the sources of issues, like bottlenecks or stockout situations; and, ultimately, when the right decisions are made, make higher profits.
There are endless supply chain KPIs that can be tracked, but these are the metrics that really show how efficient your supply chain is:
- Picking and packing time: This important metric points out warehouse inefficiencies and operators’ performance. It measures how much time is needed to collect the products for their shipment and the preparation of the parcel itself.
- Cash-to-cash time cycle: This is the time that elapses between the investment in a product and the purchase of the product by a customer. This KPI helps businesses understand the amount of cash needed to continue with their operations.
- Inventory turnover: The amount of time an item is stored in your facilities can be a good indicator of product demand, purchasing trends and possible sources of unnecessary storage costs.
- Gross margin return on investment (GMROI): GMROI analyzes how inventory turns into cash above the cost of the inventory; in other words, GMROI tells you how much profit you make out of the inventory after covering its costs.
- On-time shipping: This KPI will help you understand problems throughout the supply chain. Are there inefficiencies when it comes to receiving orders, picking and packing products or dispatching parcels for delivery? Fix the issue and shorten the amount of time customers need to wait to receive the purchase.
- Delivery times: Fast delivery is among the top priorities and expectations of today’s consumers. Making sure that the buyer receives the order in a timely manner is simply the minimum you can do to increase customer satisfaction.
- Return reasons: Knowing why customers return products can give you insights into underlying problems such as wrong or incomplete product descriptions, sizing errors, faulty items, a lack of quality during the production process or inefficiencies in the fulfillment stage.
Why is supply chain visibility important for efficiency?
Supply chain visibility sheds light on the quality of individual components, processes and final products as they move through the supply chain. Visibility in the supply chain is normally fueled by SCM software and all the data it provides.
Thanks to this information, companies can prevent stockouts, avoid bottlenecks, track products from production to delivery and, most importantly, meet customers’ standards in terms of delivery time and quality.
When an online store works with providers, supply chain visibility becomes more important, but also more difficult. At the end of the day, the supply chain is a complex operation that often takes place in different places, by different agents, using different software — and it’s not easy to trace materials from the provider, control the assembly process and oversee distribution channels all at once. This lack of control and visibility represents a challenge in itself, but it truly makes a difference in the supply chain optimization process and overall transparency of the company.
Just as supply chain visibility is crucial, so too is disclosing all the information that comes with it. As new rules come into effect for retailers world-wide — both online and offline — disclosure becomes an essential part of the marketing operations of a business. By this, we mean that communication should go beyond internal processes and should be shared with clients as well. Once you take the effort to optimize your supply chain, thereby lowering costs, increasing customer satisfaction, or both, it’s important to share those developments with your customers.
Move towards a lean supply chain methodology
Lean supply chain management promotes efficiency and optimization. The scope of lean supply chains is clear: to deliver the product with minimal waste but still with enough flexibility to adapt to unpredictable situations.
For instance, as part of your supply chain optimization strategy, you can reduce warehousing costs related to long-term storage and look for materials that produce less waste or can be easily repurposed for use on another product. Less waste from production means that fewer resources are needed to process and transport leftover materials.
These are some of the advantages and ideas behind the concept of lean supply chains and manufacturing. However, there are endless possibilities — and they vary from business to business. If you run an eCommerce business, a good place to start can be to analyze the return reasons to find any possible defects in the manufacturing or to consider the warehouse layout design and how it affects the picking and packing cycle.
Supply chain automation is the ultimate key to business growth
Supply chain automation is the next logical step toward optimizing supply chain operations. By implementing supply chain automation technology, businesses are able to perform some of the most tedious tasks automatically and streamline those processes that perhaps can’t run fully on auto-pilot but can at least be drastically shortened and optimized to reduce human errors.
Thanks to the development of new technologies and the spread of AI-based software systems that are available at a reasonable price, it’s the perfect time to implement automation in supply chain processes. . Considering all the advantages it brings, using supply chain automation software is simply the best decision if you want to reduce manual workload and prevent errors and unnecessary costs as much as possible.
In fact, having as many automated processes as possible doesn’t only affect the workload and errors a business experiences, but it also adds to supply chain visibility thanks to the storage of real-time information and historical data in a single software platform.
While it’s impossible to fully automate your supply chain, Outvio is the perfect solution to get started on supply chain optimization. With this software system you can:
- Monitor warehouse efficiency
- Reduce picking and packing errors
- Shorten order processing cycles
- Lower fulfillment costs
- Access updated information on real-time and historical data
- Obtain analytics to better forecast demand
- Automatically select the most cost-effective courier for every destination and parcel
- Lower shipping costs
- Shorten delivery times
- Customize your very own tracking page with up-to-date information on order status and location
- And much more!
Sign up, connect your online store and discover all the potential benefits for your eCommerce supply chain in less than 10 minutes.
Supply chain responsiveness
Last but not least, supply chains need to be responsive in two directions: from within, responding to the needs and limitations of the organization, and externally, meeting the needs and expectations of your customers.
In other words, having supply chain responsiveness starts by adapting to customer preferences, in terms of quality, delivery times and any other supply-chain aspect, while guaranteeing profitability and flexibility for unexpected scenarios. Businesses with responsive supply chains are more accurate in their fulfillment and order processing operations, have a good internal and external communication flow, enjoy more customer satisfaction and loyalty, and, most importantly, are able to scale their operations with fewer efforts than those businesses without an optimized, automated and responsive supply chain.
The optimization of a supply chain isn’t a goal that can be achieved overnight but rather a consequence of different informed decisions and the implementation of multiple improvements over time. The 6 strategies that we’ve laid out cover the basic strategies that any eCommerce business should consider in order to become more efficient.
However, growth doesn’t come simply by tracking supply chain KPIs. Once you know where the problems are, improving visibility in your supply chain and moving towards a lean manufacturing approach can help your business be more responsive. At the end of the day, pleasing the customer without compromising on profitability is the key to any successful eCommerce business.