Is your company competing in a commoditised market? If so, you’ll know that price matters to your customers more than anything else. That means that supply chain efficiency is essential, in order to minimise the pressure on margins.

Supply Chain Efficiency

In this post, I outline some of the key areas to focus on if you need to prioritise supply chain efficiency as a strategic enabler for competitive advantage. It’s important to note that I’m not suggesting efficiency is equal to effectiveness in every supply chain—but when customers care little for added supply chain value and just want the best price available, running an efficient logistics operation is the biggest contribution your company can make.


The Value of Optimisation Technology

In a drive for supply chain efficiency, technology is your best friend; especially those technology platforms that help you analyse and model potential solutions and optimise performance. Network design, transportation routing and load space utilisation are all fair game for algorithmic assistance in gaining supply chain efficiency.

Of course optimisation is not a silver bullet. It has to be done right or your company can wind up investing for little return. Keep the following tips in mind to ensure you get the best from optimisation technology:

  • Set objectives to achieve specific efficiencies, for example “Achieve a fuel kpl cost of $x”
  • Be very careful about model accuracy (avoid introducing data that will cause errors)
  • Do not ignore variability during modelling activities
  • Enable fully automated data transfer into modelling applications
  • Make sure algorithms are fine-tuned to solve a specific problem


Don’t Go Cheap on Transportation

While efficiency leads to cost reductions, it doesn’t always follow that you should pay the lowest price for carriers. By paying a slightly higher price for a carrier with a good “perfect order” track record, you will probably save more than if you went for a lower-priced option. Sometimes you have to invest a little to introduce supply chain efficiency into your operation.

It’s entirely possible that the lowest-priced carrier will also be the one best-equipped to serve you, but you’ll only know that by practicing due diligence. Research prospective service providers and ask other customers to share their experiences. If the cheapest turns out to be the best, so be it. If not, don’t be shy about paying for quality.


Consider the Feasibility of Cross-docking

When practical, the use of cross-docking offers opportunities for supply chain efficiency improvements and cost reduction. Possible cross-docking benefits include:

  • A reduction in material handling (saves money and reduces risk of inventory loss/damage)
  • Reduced need for warehouse labour
  • Shorter lead times for customer deliveries
  • Elimination of processes such as picking, put-away and pick face replenishment
  • Improved vehicle utilisation
  • Reduction in the need for warehouse storage space (may help to downsize warehousing or operate with fewer warehouses)

Cross docking can present some risks as well as advantages and is especially reliant on the services of suppliers and carriers. If it proves to be a good fit for your supply chain needs and you can mitigate the risks though, it has much to offer in terms of supply chain efficiency.


Develop a Safety-first Culture

Incidents and accidents are the enemies of efficiency, leading to lost working time, property damage and interrupted processes. Instilling a safety-first culture will require change management, training and perhaps even some software investment (to make it easier to file incident reports and track health and safety KPIs). However the money will be well spent if you can minimise the efficiency losses your company incurs through safety issues.

As an executive, it’s essential to drive a safety culture, both from the point of view of supply chain efficiency and simple morality.

Your company runs an operation with many inherent dangers, but safety programs will rarely start from the bottom up. Your task is to ensure a multi-faceted approach to safety, developing pride in maintaining an accident-free environment, among management and workforce alike. The efficiencies that stand to be gained are a bonus, but a potentially significant one.


Cultivate Continuous Improvement

You don’t need to approach supply chain efficiency with a vision of sweeping changes and heavy investment. Indeed, the popularity of programs such as lean, Six Sigma, or other continuous improvement initiatives suggests otherwise. You can cultivate a culture of small, iterative improvements, beginning with a handful of trained employees.

The beauty of a continuous improvement approach is that there are almost always some early wins to provide encouragement. Over time, your “champions'” enthusiasm when educating the wider workforce will stimulate an environment where everyone looks for better ways to work.


Seek Excellence in On-shelf Availability

In a commoditised market, only the brands that are on the shelves will sell. Rarely will consumers wait for restocking, even for their favourite brand. Inventory availability should be one of your primary goals.

At the same time, you will probably have some retail customers with more predictable buying behaviour than others. These are the customers with whom to seek collaboration for end-to-end supply chain efficiency.

A partnership approach can benefit your customer and your own operation. By tailoring your supply chain to the most valuable customer segment, you should be able to improve availability while reducing levels of safety inventory—a true win-win relationship with the customers who matter most for your business.


Integrate Logistics and Purchasing

Any successful efforts in breaking down silos will have positive impacts on supply chain efficiency, but none more so than those which separate the purchasing and logistics functions. These two supply chain components collectively account for up to 70% of organizational cost and impact perhaps 80% of working capital.

A university study conducted in 2014 identified the importance of close integration between purchasing and logistics, suggesting that when the two functions collaborate towards shared objectives and KPIs, supply chain efficiency gains are attainable, along with inventory reductions, lower operational costs, and improvements in the cost of goods sold. So bringing these two departments closer together certainly sounds like something to have on your short-term strategic agenda.


Apply More Data to Decision Making

There comes a point when all the obvious efficiency wins are exhausted. If your company has reached that plateau and is finding it hard to squeeze more efficiency from your supply chain, it might be time to apply some advanced business analytics.

This will definitely be a case where you need to spend to save and it has to be said, implementing business analytics (BA) is no cake walk. By setting out now to apply data-driven decision making in your organization though, you do have the opportunity of a transitional advantage over competitors that don’t yet have BA on their radars.

Business analytics and big data utilisation offer both strategic and tactical benefits. When it comes to tracking down hidden areas of inefficiency, nothing beats the combination of a data warehouse and advanced analytics software to help you identify patterns and trends which would otherwise go unnoticed. With the insights made possible by an analytics solution, you can open new doors to efficiency and stay ahead in the competitive market of consumer commodities.


Seek Ideas from Your Peers

The ideas in this post may or may not be applicable to your company’s supply chain efficiency drive, but they are intended purely as food for thought. You can probably generate many more possibilities to explore by networking with executives in organisations similar to your own.

Of course executives like you are always busy and finding the right moment to discuss mutual problems and solutions may not be easy. The Supply Chain Leaders Boardroom was founded for that very reason and will be launching soon.

Intended as a supply chain executive peer and mentoring group, the Supply Chain Leaders Boardroom will be an ideal forum to get together with those who share your challenges and who may have insights that can be put to use in your own organization.  Remember to check in at the Boardroom website regularly to keep up to speed with developments and details of the first event.


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