We can find supply chains in almost every type of business. If a business makes products, or procures products, or procures then creates products that it after sells to customers, that company has an end-to-end supply chain. One that might require optimization.
But how do you determine if your end-to-end supply chain is in need of optimization? There’s a simple test for it.
If you’re able to get to your consumers what they need, when they need it, and spend the smallest amount of money possible for it, then you don’t need to optimize your end-to-end supply chain.
On the other hand, if you’re providing your consumers with what they need, when they need it, you’re halfway there. This is since you’re not achieving this by spending as little cash as possible. Meaning, you need to optimize your end-to-end supply chain. Still…
How can you determine if you’re losing the smallest amount of money possible? On what you pay for goods, shipping, inventory, warehouses, workforce, overhead expenses, and more?
It’s likely that you can spend less than you think. Now, optimizing your end-to-end supply chain may seem like a long, tiresome task you’ll do for months. But it isn’t. It all begins with the following 7 tips that will help you optimize your end-to-end supply chain—and start losing less cash while providing your customers what they need when they need it.
Managing Level 2 Suppliers
An end-to-end supply chain doesn’t start with the suppliers. Rather, Level 2 suppliers are companies that supply components, raw materials, and even services to end-to-end supply chain suppliers.
If you haven’t even met your Level 2 suppliers, don’t know anything about the products they provide, their costs, and lead times — you’ll need to optimize your end-to-end supply chain.
When you’re able to negotiate with your Level 2 suppliers, you’ll be able to reduce what your suppliers pay for lead times and goods. More often than not, a Level 2 supplier can supply more than one end-to-end supply chain supplier.
This increased visibility leads to better negotiations about volume pricing. Because this is where your particular suppliers don’t have the advantage at the negotiation table.
Moreover, you can aid several of your suppliers to go to a single Level 2 supplier, when consolidating that Level 2 supplier makes sense business-wise.
Managing COGS — Supplier Cost of Goods Sold
Supplier Cost of Goods Sold management is similar to vehicle maintenance. Even though changing the oil and rate tires every X miles doesn’t mean your vehicle won’t experience any hiccups. Even though you’ve bargained a low price with your suppliers doesn’t mean you should bargain once again after your supplier has optimized their business processes.
As a matter of fact, when you’re bargaining with your supplier, you should be able to get a year-to-year price lowering. 3% or 5% to be specific. This should be a part of your supply arrangement. But this is only possible if your suppliers are optimizing their own inside expenses so they aren’t losing profits with this agreement, year after year.
Inside your own business, you need to lower your own process expense. Use lean manufacturing and six sigma for this. Or other process optimization tools. This way, you’ll drive down your internal year-over-year expenses. Moreover, your ERP — Enterprise Resource Planning (software) — needs to tell you what’s occurring. Or isn’t. Still, all this info means nothing if you do nothing about it.
Supplier Inventory Management
Your own suppliers should be doing the same thing as you. Trying to spend as little as possible while they’re supplying you with what you need reviewing when you need it. However, if you both aren’t sharing demand data, they’re risking not having enough inventory for meeting your demand.
Even worse, having too much inventory. If this is the case, they’re spending too much cash to manufacture enough for meeting your demand. They will pass this expense to every customer. Including you. Whether you know and accept it.
When you share information about your demand with your supplier, they will be able to do their own demand planning. Ensuring they’re optimizing their inventory management. This kind of demand data can come in the form of a forecast that has defined time fences. Time fences should convert those forecasts to blanket orders.
Take care when trying to understand the financial implications of both situations. What you’ll have to do if you revise down or outright cancel your demand. You should also take a look at your supplier’s lead times. These are important for managing their inventory. When your supplier has a four-month lead time on raw material, for instance, you’ll have to understand that they can’t react if you increase your demand within those four months.
RFI, RFQ, RFP
Just like you mind your manner during eating in a restaurant, so should you mind your end-to-end supply chain. But when it comes to the end-to-end supply chain, your manners are:
- Request for Quotes (RFQs)
- Request for Information (RFIs)
- Request for Proposals (RFPs)
Those three are the tools your sourcing and supply chain managers use to make sure their suppliers are having:
- Highest quality
- Lowest cost
- Latest tech
In a lot of situations, you’ll use RFI to survey the supplier landscape. You already know your current suppliers. So the RFI gives you the chance to comprehend the financial strength, infrastructure, and capability of new suppliers. It’s a superb tool for identifying a potential supplier.
On the other hand, the RFP is a perfect tool for spotting and solving your supply challenges. A lot of times, your supplier will already be an expert and can approach a supply chain issue with a process or innovation you may haven’t seen before. After you use the RFI and RFP, you will find a dozen or so suppliers that you can send the RFQ to. Of course, reviewing an RFQ requires resources and time. But you can send the RFQ to multiple suppliers. Not a lot of them, mind you. This is too burdensome and doesn’t bring in enough results.
Remember that with an RFQ you don’t only find the best price for lowering down your COGS. But you’ll also make sure you have ongoing supply and quality. Depending on your business and the terms of the supply arrangement, your RFI/RFP/RFQ process may take anywhere between nine months to three years.
Poor planning leads to poor results. Even more, if it happens throughout your end-to-end supply chain. A pure logistics emergency. Ok, that may be the wrong word. Think of it more like overnight and expedited fees. Although, if you’re a CFO, that’s an emergency.
If you’re trying to ship to your consumers what they need, when they need, then it’s possible you’ll fall into a trap of relying on overnight and expedited fees so you make up for the delay in manufacturing or buying. These fees represent an indication that you’re not achieving customer delivery by losing as little cash as possible.
Robust lead time management and demand planning minimize the amount of cash you’re losing on rush fees and logistics expedite. When you comprehend your long-term demand and lead times, you’ll get the best two ways to lower your logistics expenses.
How do you ensure that what your resource planning system or warehouse management system is telling you what you got on hand is in fact what got on hand? One of your primary goals here should be 100% inventory precision. The only approach to this is that you conduct systematic, regular cycle counts and physical inventories.
If you don’t have 100% inventory precision, you likely won’t be able to ship to your customer timely. Moreover, lower inventory accuracy means that your business is buying inventory that you either don’t need or already have. You should think about implementing a cycle count program. As well as making sure you’re counting sheet-to-floor and floor-to-sheet so you can pressure test your inventory precision.
Planning Customer Demand
Yea, it’s likely your customers will send you their own forecasts. And yes, they could even send you a blanket or long-term orders. But, do they actually know what they need? And when they need it? In fact, you might know this better than them.
You can utilize your customer’s demand info — orders, forecasts — as a starting step. Still, you’re able to do much more in a stable planning environment. There’s a lot you can use:
- Competitive landscape
- Market analysis
As well as other factors so you know what your customer wants better than them. Moreover, robust demand planning lets you lower your expedited fees. As well as other logistics expenses that bring up the cost of your end-to-end supply chain.
Giving customers what they want, when they want it while losing the least amount of money possible, is a truly optimized end-to-end supply chain. To start optimizing yours, manage your Level 2 suppliers, COGS, and supplier inventory. Then, lower logistics costs, accurately measure your inventory, and plan your customers’ demand.
Don’t know where to start? We can help. Etrellium has been dealing with supply chain optimization for a long time, and we can surely help with optimizing yours.