Wolters Kluwer’s Vice President, Global New Client Engagements, Alessio Lolli, outlines the five supply chain performance drivers for fostering efficiency and responsiveness in a business’s operations.
For supply chain planners, striking a balance between responsiveness and efficiency is tricky. Let’s explore how supply chain drivers can be optimised for responsiveness or efficiency so you can determine the priority for your business.
While supply chain efficiency has long been the primary goal of many organisations, as a priority, efficiency now competes directly with the need for responsiveness. We’re operating in a time where instability, supply chain disruption, and rising costs reign supreme.
The increased productivity and lowered costs efficiency offers have – in many cases – been pushed down the agenda in favour of a supply chain that can accommodate unexpected fluctuations in the market and changes in customer preferences.
The tricky thing is, that this reprioritisation might not be forever. In today’s climate, your priority could be responsiveness. But, in calmer times, you’d optimise for efficiency.
For companies battling between responsiveness and efficiency, this article will explore how performance drivers can be optimised in favour of supply chain efficiency or responsiveness.
Supply chain performance driver #1: Production
Production optimised for responsiveness: The key to responsiveness in production is to ensure production lines have the capacity to pivot to meet fluctuations in consumer demand quickly. A few ways to do this:
- Ensure your factories have excess capacity;
- Use flexible manufacturing techniques to produce a wide range of items;
- Have multiple, smaller production facilities close to distribution centres and customer hubs to decrease delivery time.
- Production optimised for efficiency: Conversely, if you need to foster efficiency, you’ll want to take the opposite approach. To prioritise efficiency:
- Schedule your production facilities to have little excess capacity;
- Focus on producing a limited range of items;
- Centralise production in large central plants for better economies of scale (even though delivery times may be longer for some customers).
Supply chain performance driver #2: Inventory management
Inventory management optimised for responsiveness: Optimising responsiveness can dictate stocking higher product levels and at more warehouse locations. Efficient inventory allows for unexpected fluctuations in demand that can be met promptly. However, this approach incurs higher storage costs, which must be weighed against the benefit of widespread availability.
Inventory management optimised for efficiency: To foster efficiency in inventory management requires reducing inventory levels of all items, especially those that do not sell frequently.
Careful analysis is required to pay back successfully, as lowering inventory levels can result in stock-outs, unmet demand, and missed revenue opportunities. You can also limit stock to select central distribution centres to limit economies of scale and attain cost savings.
Supply chain performance driver #3: Location
Location optimised for responsiveness: Location, location, location. To prioritise responsiveness means maximising convenience. You’ll want to establish operations within a close range of customer groups.
For example, fast-food chains use location to respond to their customers by opening many stores in high-volume markets. Having many locations allows chains to respond quickly to consumer demand — but this approach also increases operating costs because now they have to staff and run many stores.
Location optimised for efficiency: Efficiency is achieved by operating from a select few locations and centralising activities.
For example, e-commerce retailers serve global markets from a few central locations performing various activities. While this centralised approach allows e-commerce retailers to run efficiently, it also makes them susceptible to disruption.
Supply chain performance driver #4: Transportation
Transportation optimised for responsiveness: Faster modes of transportation, such as air freight, offer faster and more flexible delivery. The downside? They’re expensive, which can limit the quantity of goods you can ship.
FedEx and UPS are two companies that provide high levels of responsiveness in the last mile of delivery, using expedited transportation methods to deliver products often within 48 hours.
Transportation optimised for efficiency: Transportation efficiency can be achieved by moving products in larger batches by bulk carriers, such as ships or railroads, less often. While bulk carriers are a great option when your goal is volume and cost reduction, you sacrifice speed and flexibility by using this approach.
Using a centralised distribution centre instead of multiple separate locations is another way to improve efficiency and save on costs, but, again, it will sacrifice delivery speed and responsiveness.
Supply chain performance driver #5: Information
Information optimised for responsiveness: Knowledge is power. The technology for collecting and sharing information has become more widespread, easier to use, and more affordable. Supply chain solutions can now use internal performance and external market data to re-plan supply chain plans based on real-world events and scenarios.
For example, if a TikTok video causes a sudden surge in demand, supply chain planning software can illuminate the supply chain effects. It can tell you how much supply you’ll need to produce and how much inventory to send to which distributors.
Information optimised for efficiency: With all internal supply chain data centralised in one location, supply chain planning software that uses advanced AI-based analysis can also illuminate inefficacies and optimise efficiency.
For example, AI-based software can recommend assembly line schedules to optimise the production of a certain product.
Striking a balance between responsiveness and supply chain efficiency
The good news is you can have responsiveness and efficiency too. AI-based supply chain planning has evolved to give you the best of both worlds. CCH® Tagetik Supply Chain Planning is our finance-forward, predictive planning solution. It connects demand, inventory, supply, production, sales, and operations planning with financials, giving you a 360° view of your supply chain.
With CCH Tagetik, your supply chain plans dynamically update as situations unfold and plans are executed, showing you the ripple effect of any customer, product, or supplier change across all supply chain, operational, and financial plans.
With real-time data, scenario analysis, and AI to create accurate predictive forecasts, you’re armed with the knowledge to be responsive while optimising operations for efficiency.
Alessio Lolli, Wolters Kluwer’s Vice President, Global New Client Engagements
For more information on the Australasian Supply Chain Institute, click here.