Supply Chain Efficiency

Supply Chain Efficiency: What is It and How Can You Achieve It? 

No company wants to deal with waste– it’s costly, inefficient, and bad for the environment. When it comes to building the most effective means to move products from point A to point B, supply chain efficiency is critical. 

We’re going to define what makes for efficient supply chains and look at how to improve supply chain efficiency. 

What is Supply Chain Efficiency? 

Supply chain efficiency is the act and process of optimizing every aspect of the value chain that brings business value to the end customer or user. 

Supply chain efficiency is dependent on four main functions, namely:

• The marketplace 
• The company’s value proposition 
• The business strategy and how it relates to the supply chain 
• Internal processes 

While the marketplace is out of a business’ control, the rest of the points can all be impacted by a company’s way of doing business. 

Overseeing and focusing on achieving supply chain efficiency is of top concern for businesses across industries because it affects:

• Costs
• Customer satisfaction 
• Inventory management
• Profits 

Key Concepts in Supply Chain Efficiency

When seeking to answer, “How do you achieve supply chain efficiency?” it helps to know the key concepts that are involved in the endeavor. These include: 

• Supply Chain Management (SCM: Supply chain management refers to the overall process of managing the flow of goods and services. Supply chain management aims to connect the production, shipment, and distribution of a product to reduce redundancies and waste. 
• Lean Manufacturing: Lean manufacturing is a type of production system designed to minimize waste and continuously improve processes. First created and implemented by Toyota, lean manufacturing is now an approach that’s used globally. 
• Just-In-Time (JIT) Inventory Management: Just-in-time inventory management is an approach in which businesses will order raw materials from suppliers based on production schedules. This way, companies only receive the raw materials that they need when they need them, in an effort to reduce surplus and waste. 
• Total Quality Management (TQM): Total quality management (TQM) looks to reduce or remove mistakes throughout the manufacturing process on a continuous basis. It’s founded in the belief that every individual within an organization can help to improve processes for a better end result for customers. 
• Six Sigma: Another method of supply chain management and efficiency is called Six Sigma, which uses tools to enhance business processes to minimize variation and errors while increasing quality. Ultimately, the goal is for the level of quality to be close to perfect, with only 3.4 defects per million chances. 
• Agile Supply Chain: Agile supply chain is focused on empowering employees to carry out efficient processes. The idea is that having an agile supply chain supports the opportunity to respond quickly and decisively. 

How Do You Measure Supply Chain Efficiency?

For every business, the supply chain moves through its own set of motions. However, there are measurable key performance indicators (KPIs) that help to keep track of how the overall supply chain is performing. 

Here’s a look at some of the commonly used metrics: 

• On-Time Delivery: As the term implies, on-time delivery measures the quantity of deliveries that were made on time. It’s the most commonly tracked metric. 
• Inventory Turnover Ratio: Inventory turnover determines the rate at which stock is sold. It is calculated by dividing the cost of goods by the average inventory during the set period. 
• Fill Rate: Fill rate, or fulfillment rate, is the percentage of orders that can be shipped out of your current stock without having backorders, lost sales, or stockouts. 
• Order Fulfillment Cycle Time: Order fulfillment cycle time is the time between when a customer places an order to when they receive it. 
• Perfect Order Rate: Perfect order rate is the percentage of orders that get delivered without any mistakes (i.e. missing items, damaged goods, or wrong quantities). 
• Cash-to-Cash Cycle Time: Cash-to-cash cycle time is the days between a purchase of materials from a supplier until when the payment is made for the sale of the resulting product. 

What Technologies Aid in Supply Chain Efficiency? 

There are many challenges and hurdles that impact a company’s ability to achieve supply chain efficiency. From supply chain disruptions to inventory management and data security risks (to name a few), many businesses seek supply chain technology to assist. 

And, for good reason, because there are various technologies that exist to optimize supply chain management: 

Enterprise Resource Planning (ERP) Systems

Enterprise Resource Planning, or ERP, systems include a robust suite of tools that support organizational operations. They work to assist in day-to-day activities across departments such as: accounting, risk management, project management, procurement, etc. 

Supply Chain Management Software (SCMS)

Supply chain management software is designed to automate, manage, and optimize the process of the entire supply chain: purchasing/receiving raw materials, transportation, manufacturing products, and distributing products. 

Internet of Things (IoT) in Supply Chain

Internet of Things (IoT) are devices that are connected to networks and systems through sensors. In the supply chain, IoT devices can track and trace shipments in real-time, for example. They add internal control and transparency in the supply chain process. 

Artificial Intelligence (AI) and Machine Learning (ML) Applications

Artificial intelligence is augmenting every industry and process for the better. When it comes to supply chains, AI and machine learning technologies use past data to learn from experience and improve. They are also able to spot patterns that the human eye may overlook. All in all, this leads to better, fact-based decision-making. Take for example aiOla. aiOla is a proprietary AI speech-enabled technology that can understand business-specific jargon, in any language, acoustic environment, and accent to fulfill processes efficiently through speech. In logistics and warehousing, as an example, employees can use aiOla to conduct hands-free and accurate operations management, pallet logging and data control to improve operations. 

As you can see, each technology serves its own purpose. The best case scenario is to select technologies that are interoperable, meaning that they work together with one another, as well as your existing tech stack. This way, you can have a clear picture of your entire supply chain, leverage the technology wherever automation is possible, and reduce errors, waste, and inefficiencies. 

Conclusion 

Supply chain efficiency is a continuous work in progress. That being said, there are clear ways to make the best out of your flow of materials to goods to customers. 

The first step is truly understanding your supply chain processes in order to spot where improvement can be made. Then, you can make use of the most suitable technologies to enhance your processes. Ultimately, it’s imperative to empower employees to feel comfortable to improve their daily activities in an effort to optimize supply chain workflows.