Supply chain optimization is the process of increasing the effectiveness and efficiency of a company’s supply chain. A supply chain is comprised of businesses, individuals, and technologies that help a supplier deliver goods to consumers. Many companies use supply chains, particularly manufacturing, producing, and construction companies. These companies need supply chains to move their goods because it improves the workflow operations. Business owners and managers use supply chain optimization to improve and enhance this business function.
Like many other business projects, supply chain optimization typically begins with a review of the current process in order to find inefficient activities or redundancies. Business owners and managers can use business or economic models to review current operations and forecast the results of a change in the supply chain. Basic formulas such as the net present value or return on investment can also have an impact on supply chain optimization, as these calculations measure the cash flow improvements or financial returns from a reduction in business operating expenses. Business owners and managers who do not have experience in this function may consider hiring a consultant to review the supply chain and make recommendations.
Supply chains typically rely on information or forecasts relating to inventory demand from retailers. Suppliers focus on this figure and attempt to forecast production from this demand. Supply chain optimization focuses on using business technology to improve communication and decrease the lead time needed to increase production output or make business decisions. Technology allows retailer systems to use electronic data interchange (EDI) to send information regarding the need for more inventory. This helps business owners and managers spend less time forecasting production output. As suppliers can fill these orders, they can use technology to schedule movements from delivery companies, warehouses, and distributors in the supply chain for future delivery and storage needs. This creates supply chain optimization throughout all companies involved in this business function.
Companies with large Internet sales operations may consider using a fulfillment company to optimize their supply chain. Fulfillment companies typically offer all supply chain function under one company, allowing businesses to decrease operating costs and potentially improving customer service. Another option is to completely remove the middleman from this process and complete supply chain functions on their own. Companies may decide to go with this option if they consistently receive poor service from their supply chain and customers are not fully served by these operations. While a direct investment of this magnitude is typically expensive, it may be the only option to improve supply chain operations.