How supply chain optimization helps fuel profitable growth

The promise of data analytics to simplify operations and inventory management is clear, yet the issue of data silos remains a threat.

In brief:

• Supply chain optimization is often hindered by internal silos, disjointed tech initiatives and a reluctance to embrace change.
• Embracing data analytics at scale is key to breaking down collaboration barriers in supply chains.
• Kickstart your transformation with eight strategic actions aimed at enhancing visibility, bolstering resilience and cutting expenses.

Across the globe, organizations are spending millions of dollars in supply chain transformation programs. State of the art digital technologies are often implemented, but a siloed approach for digitalization within a supply chain function (e.g., planning, sourcing, making or moving) fails to deliver the full value and benefits of an overall optimized supply chain. Instead, to help achieve supply chain program success, organizations should strive for an optimized supply chain process that is integrated end-to-end. This will help supply chain leaders improve cost reduction, maximize profitability and raise customer satisfaction scores.

Helping companies scale profitability

For high-growth and portfolio companies, supply chain optimization provides the structure and efficiency necessary to manage increased complexity and volume as they scale, aiding profitable growth. Supply chain optimization can be instrumental to scale profitably in several ways:

• Supply-demand matching through predictive analytics to improve demand forecasts and align the supplies, helping to avoid a negative impact on profitability from overproduction or underproduction
• Cost reduction through reimagined supply chain processes
• Innovation and insights through data analytics to identify new opportunities for innovation and efficiency within their supply chain; can lead to better products, services or processes
• Efficient resource management to minimize waste and maximum utilization, resulting in improved profitability
• Faster delivery and competitive prices to enhance customer satisfaction, resulting in repeat business and revenue growth
• Improved resilience to reduce the likelihood of disruptions due to supplier failures, demand fluctuations, regulatory changes, etc.; can provide predictable growth and profitability

Role of technology in supply chain optimization

Technology is not just an essential tool for optimizing supply chain operations; it's also a strategic enabler for driving innovation, enhancing competitiveness and accelerating growth. Despite the trend toward digitalization, a concerning 22% of supply chain leaders overall describe that their digital connectivity to suppliers is limited to sharing spreadsheets and emails, while 42% report that their organizations are in the early stages of adopting digital tools and cloud-based platforms for various supply chain functions.²

Implementing technology without reimagining the end-to end processes will not deliver the full benefits of supply chain optimization. To bridge the gap between current practices and the full potential of supply chain optimization, organizations should focus on technology initiatives that include:

• Automation: Automating the supply chain processes will improve efficiency and reduce human errors. From demand forecast and inventory management to order processing, automation helps to streamline operations. High-growth organizations should look for moving from automated supply chain to autonomous supply chain operations, capitalizing on their early-mover advantage in digital supply chain.
• End-to-end visibility systems: GPS tracking systems, IoT devices, edge computing and more help provide real-time visibility of the entire supply chain. Technology advancements such as digital twins allow for more accurate tracking of shipments, prediction of probable delays and immediate problem resolution.
• Data analytics: Advanced algorithms, big data and machine learning can pull in and process massive amounts of data to identify trends, predict future demand and facilitate efficient planning.
• Data lakes: Vast repositories for structured and unstructured data at scale enable storage, management and analysis of end-to-end supply chain data.
• E-commerce platforms, CRM systems and delivery tracking: These tools enhance the customer’s purchasing experience and improve their satisfaction, which is essential for a sustainable high-growth strategy.
• Circular economy: Technologies improve circularity and reduce negative supply chain impacts created by supply chains through route optimization, improving energy efficiency, creating multi-tier supplier visibility and reducing waste.

Eight actions to optimize your supply chain

With constant volatility, companies can take these eight actions to optimize their supply chains:

1. Improve supply chain visibility: Companies should invest in technology that provides accurate and timely visibility into every stage of the supply chain. This allows them to react quickly to any disruptions and mitigate risks.
2. Diversify supplier base: Companies should consider locating secondary or alternative sources for key materials or components as part of their commercial supply strategy to mitigate risks associated with geopolitical issues, natural disasters or supplier bankruptcies. Localization and nearshoring options should be explored based on criticality.
3. Adjust inventory policies: Companies should reconsider their inventory level setups. They might need to increase safety stocks for certain items or shift to a just-in-time (JIT) inventory management system for certain others. Vendor managed inventory (VMI) and JIT might be older concepts, but they are even more important today, when margin and cash pressures are high.
4. Enhance forecasting capabilities: Companies can use predictive analytics and AI technologies to improve their forecast accuracy — helping them better prepare for market fluctuations and managing demand variability. Demand sensing takes a next-gen spin on forecasting by going beyond traditional forecasting parameters and including external factors/variables (e.g., customer behavior, social media trends, competitor moves on pricing) to sense and more accurately predict demand.
5. Strengthen supplier relationships: Creating a targeted approach to supplier relationships including creation of true partnerships with key suppliers (vs. transactional relationships) can help companies ensure product availability and negotiate more favorable pricing and terms.
6. Digitally transform: Digitalization of supply chain operations will improve efficiency, enhance data accuracy and facilitate quicker decision-making. Adopting technologies like IoT, AI/ML, blockchain and digital twin in the supply chain can improve current operations and provide flexibility and adaptability for future changes.
7. Invest in talent: The optimization and digitalization of supply chains require technical skills. Investing in employee education, training or recruiting supply chain management experts can deliver long term benefits.
8. Focus on sustainability: Companies must make sustainability a central aspect of their supply chain strategy. Use of diverse suppliers can create more cost competitive options and contribute to community economic impact. And creating multi-tier visibility can help monitor compliance of human rights standards and assist with the verification efforts of ethical and sustainable practices.