Global supply chains have become more complicated than ever. Companies face many challenges in today’s market. These include shortages of critical components, port congestion, high shipping prices, delays, and uneven customer demand. Companies are also paying more attention to the importance of ESG, creating sustainable supply chain efficiency, as well as the role of automation and efficiency can play in reducing time- and resource-intensive processes.
Companies must focus on improving their ESG credentials and address these issues by focusing on supply chain efficiency in their supply chain management approach. What does this mean in practice? How does it differ from supply-chain effectiveness? And what can companies do for their supply chains to be more efficient?
What is supply chain efficiency?
A supply chain efficiency refers to the entire process of producing goods or services and then supplying them to customers. This includes sourcing raw materials from suppliers and moving them through relevant manufacturing operations. Finally, it also includes the distribution of finished goods to customers. An efficient supply chain ensures that orders are delivered on time and minimizes operational costs.
Although every company has different priorities, there are many metrics that can be used to measure the efficiency of supply chain management. These are some of the most commonly used metrics:
- Inventory turnover: the annual cycle of inventory in a company. Calculated as average inventory/cost of goods sold.
- Day Sales Outstanding (DSO): A measure of the time it takes to collect payments from customers. DSO is the sum of accounts receivable x total credit sales. A company’s DSO is a measure of how quickly it collects payment from customers.
- Days Stock Outstanding (DIO): The average time a company keeps its inventory before selling it. Calculated as the average inventory/cost-of-goods sold over x number of days. A company’s DIO is the measure of how quickly it converts inventory into sales.
- Cash conversion cycle (CCC): The time it takes to convert cash into inventory, and then into sales through the sales process.
- Customer order time: The number of days it takes to complete a shipment once an order has already been placed by a customer.
- Supply Chain Cycle Time: The time it takes to fulfill a customer’s order, assuming that inventory levels are at zero at the time the order is placed. The shorter the supply chain cycle, the more efficient it is and the more ready the company is to react to market changes.
- Perfect order measurement: the percentage of orders not affected by errors. The supply chain runs more efficiently if there are fewer errors.
- Fill Rate: The percentage of orders that can easily be fulfilled with stock that is immediately accessible, without backorders and missed sales.
Supply chain efficiency vs. supply chain effectiveness
Supply chain efficiency and supply chain effectiveness are terms that are commonly used to describe success. But what are the main differences? The main difference is that an efficient supply chain includes streamlined processes that use resources in the most efficient way. An effective supply chain meets the needs of all its stakeholders, including suppliers and customers.
Both concepts are therefore important in their own ways. A well-organized supply chain may deliver finished goods on time to customers, but not ensure that they are up to standard. Inefficiencies and delays could also be a part of a supply chain that is efficient but fails to meet customers’ quality expectations.
An efficient supply chain can be regarded as efficient, but it is not always effective. However, it is important that supply chains be both efficient and effective. If they want to maximize resources, reduce costs, minimize delays and meet customer expectations, then this is how they should do it.
How to improve supply chain efficiency
Companies can improve the efficiency of their supply chain by reducing errors, driving down costs, freeing up staff from manual tasks, and improving communication with suppliers. Companies should concentrate on four areas that optimize supply chain efficiency:
1. Automate where possible
Automation will make your processes more efficient if you include it in your process. Automating key processes can help companies free staff from repetitive tasks and let them focus on more valuable tasks. Automating key processes can help to minimize the chance of errors.
Where supply chains are concerned, Automation can be beneficial in many areas, including supply chains. These are:
Inefficient invoice processing can lead to significant delays which may impact the efficiency of your supply chain. Invoice automation software allows firms to electronically receive invoices from suppliers. This automates the accounts payable process and minimizes or eliminates the need for human intervention. This can lower processing costs and reduce the chance of errors, speed up the process, and give suppliers more options for early payment solutions.
Your company can automate its inventory management processes to ensure goods arrive at the correct place at the right moment. This makes it easier for you to determine when additional items are needed. Companies may be able to identify ways to reduce stock that is no longer needed. They can also automate their inventory management to minimize human error and warehouse and storage costs. Automation in inventory management can also help companies reduce the time it takes to get goods to their production demand.
Cash flow forecast
It is difficult for many companies to accurately manage future cash flows, especially when they have to collect data from multiple sources and in different formats. An automated cashflow forecasting solution can help you gain a better understanding of your future cash position. This allows you to reduce the amount of manual data collection and errors and make better business decisions. You can also create opportunities to invest excess cash into your supply chain with tools like dynamic pricing.
2. Increase visibility across your entire supply chain
You will have greater visibility into your supply chain to spot potential bottlenecks and inefficiencies. This allows you to see exactly where your inventory is at each stage of your sourcing and production processes. It also helps you track your logistics and transport activities. Your organization will be better able to react to changes in customer behavior and unexpected disruptions if you have greater visibility over your inventory.
A sophisticated inventory management system can help you improve your supply chain visibility by giving you greater visibility into your inventory and tracking the movements of goods from origination through destination. It will also help you avoid shortfalls. A sophisticated solution such as Taulia’s inventory management software might even be able to take ownership of your goods while they are in transit or at a third-party logistics warehouse near your premises. This will allow you to support just-in-time operations and improve your balance sheet position, as well as the position of your suppliers.
3. Improve supplier relationships
Supply chain efficiency can be defined as An effort that requires companies consider multiple parties – Any inefficiencies The supplier side of your supply chain can cause problems that can impact your overall supply chain efficiency.
It is not possible for every supplier to perform at the same level. You can improve your supply chain management by eliminating suppliers that are not performing well and building strong relationships with suppliers who are more suited to your business goals.
supplier management software is a great tool for building strong supplier relationships. It allows you to improve the information flow between your suppliers and you. Communication is a two-way process. The right software should enable you to update suppliers on their purchase orders and invoices, as well as ensure that your supplier information remains up-to-date.
You can make it easier for suppliers to access the information they need. This will reduce the number of queries that you get from them. It will also save time and increase the efficiency of your overall supply chain.
4. Continue to seek out improvements
Supply chain efficiency isn’t something you can achieve only once and forget about. Changes in the business environment and internal processes can lead to new inefficiencies. New technology, on the other hand, can offer additional opportunities to improve supply chain performance.
In other words: Once you have taken the necessary steps to create a more efficient supply network, the key to maintaining that efficiency is where your real value lies. You should regularly audit your supply chain efficiency and find any potential opportunities to improve it. You should also be prepared to make any necessary improvements or updates.
Boost the efficiency and performance of your supply chain
It is important that your supply chain operates as efficiently as possible in today’s difficult environment. You can use the right metrics to measure the efficiency of your supply chains and the appropriate technology to automate or streamline your supply chain management. You can increase efficiency in many areas of your supply chain. This will allow you to reduce errors and delays, decrease costs, increase inventory visibility, improve relationships and achieve supply chain performance improvements.