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5 Key applications of supply chain optimization

September 7, 2022


Supply chain optimization is no longer a buzzword; it has attracted too many eyeballs following the disruptive COVID pandemic. An organization’s supply chain functions like the human nervous system; any disruption in the network can have a lasting impact on the business anatomy. That can vary from the unavailability of adequate supplies for meeting the inventory crunch to clogged distribution channels resulting in delayed delivery of finished items.

The worldwide network of supply chains is susceptible to frequent changes connected with the global market, be it a pandemic or the present geo-political disruptions. Effectively managing a supply chain is hard, especially when it is still in the recovery phase. Being vulnerable to external factors, the supply chain needs the power of AI and Automation to continue functioning smoothly. Automation, AI, and other advanced technologies have the potential to dramatically enhance supply chain performance, especially for consumer-perishable goods across industries. The term supply chain optimization is born out of the strategic implementation of such technologies to improve its overall efficiency.

Due to the pandemic, nearly 38.8% of small businesses in the US alone faced supply chain delays. This calls for improved visibility in the supply chain, yet, 69% of companies surveyed in a recent study didn’t have total visibility. And that culminated in $1.14 trillion worth of out-of-stock items in 20201.

Powered by new-age technologies, supply chain management provides enterprises with a competitive edge in the market, as cited by 57% of companies2. 70% believed that it is the critical driver for quality customer service3. Opting for a tech-based software solution for managing the supplier-distributor network is the first step toward optimization.

That being said, supply chain optimization does the following tasks to help an enterprise achieve process efficiency and improve the performance of various operations.

Supply chain optimization for CPG sector: A key to end-to-end planning

The entire sector dealing with consumer perishable items fared well despite the unprecedented challenges of the COVID pandemic by neutralizing cost challenges. Demand for packaged goods suddenly increased as customers hoarded more such items during the lockdown. Yet, the worst time is far from being over. External factors like uncertain demand, shifting tastes, changing standards and regulations, and heavy reliance on the global supplier network are to be blamed.

Even though a massive section of the industry shows reluctance to adopt data analytics and AI for optimization, most companies dealing with perishable items have started shifting towards the same. They have adopted autonomous end-to-end planning to gain a strategic approach to managing supply chains in volatile conditions. The outcome was noteworthy as most witnessed an increase in revenue, a reduction in inventory, and a decrease in supply chain costs.

What is supply chain optimization?

Supply chain optimization covers all the processes involved with the optimal placement of inventories within the network, minimizing various operational costs and adjusting other influencing factors. With the help of modern technology, the network is optimized to ensure it is at its peak efficiency. This quantitative approach identifies the best combination of facilities, warehouses, resource allocation, and other elements.

Benefits of supply chain optimization: Create an optimal supply chain design to make it reliable, cost-efficient, and market-ready

Top 5 use cases of supply chain optimization

Demand sensing: Accurate planning to meet upcoming demand can make all the difference as it empowers managers to gain a complete overview of demand fluctuations and stay prepared. Further, excess purchases of less popular goods can be avoided with the correct information and analytics, eventually freeing up valuable warehouse space. And most importantly, supply chain optimization does help in cutting overhead costs arising from poor demand planning and excess spent on resources to catch up and reduce lead times.

Inventory control: Supply chain optimization is necessary for managing inventories, primarily for companies selling perishable items. Their products usually have shorter shelf lives. Hence, the chances of wastage and inventory loss are always high. To prevent an over-stock situation, AI tools are needed along with accurate data to calculate safety stock, assess inventory reduction opportunities, and guide optimal inventory levels. Demand variations, supplier lead times, and batch sizes are a few areas considered while planning inventories.

Order fulfillment: Order fulfillment on time is key to keeping customers satisfied and engaged. And this is directly connected with inventory management. Simply put, if adequate inventories are available during order placement, it is easier to ship the same to customers as per their time and quality requirements. Supply chain optimization tools increase on-time orders, order accuracy, and the number of happy customers. Again, meeting orders is just as important as producing them in the first place. End-to-end supply chain optimization caters to those requirements, i.e., optimizes order delivery on behalf of the organization.

Logistics management: The Suez Canal crisis created a domino effect in the global supply chain, which was already struggling with the aftershocks of the pandemic. The incident strained containership availability, delayed shipments, and increased freight charges. Such incidents can prove devastating for companies selling perishable goods. Even though such incidents are rare, they can significantly impact the global supply chain. But with AI-powered supply chain network optimization, such incidents can be averted or provide time to implement contingency plans. Through AI, IoT, and predictive analytics, shipment companies can forecast vessel schedules and berth activities. They can reduce expenditure by optimizing schedules and ensuring goods flow effortlessly throughout the network.

Customer service: Lastly, supply chain optimization indirectly impacts customer service. This use case is directly connected with the other use cases mentioned above. In simple words, the higher the number of orders reaching users on time and per quantity and quality expectations, the happier customers are with the organization’s service. An optimized supply chain notifies customers if a shipment is delayed and the estimated time by which the order will eventually reach them. Further, supply chain optimization software solutions help enterprises identify customers receiving late orders to process adequate compensations, remediate unfortunate situations, and keep their business intact.

In a nutshell, supply chain optimization brings agility and resiliency to the network, breaks data silos, and allows prompt actions to avert any significant calamity. Sectors dealing with perishable goods or items with shorter shelf lives need to resort to AI solutions to mitigate risk or loss of stock, revenue, and customers.

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