Recently, there have been changes in the economy (it is not so important which ones, because the CIS space is plagued by crises with enviable periodicity). So, the next changes made us take an even closer look at the Supply Chain sphere. And who in the world did not yet know what Supply Chain is, learned to the joy of our attention-deprived brother — a logistician.
The following trends can be observed in today’s reality:
- digitalization (nothing, actually, new, but the speed of changes in this area is impressive, which is not surprising with such an “explosion” in the online trade market, a 20% increase according to the report of the World Economic Forum*);
- stability of chains. The term “resilience” is now heard by all logisticians in the world – is it new again? No, but the need to ensure the reliability of the supply chain is highlighted in the new reality. Because no matter what happens, raw materials, materials, finished products must make our Customer happy during and with all other Rs (Right product, in the Right place with the Right costs, … continue yourself).
The endurance of supply chains is not limited to the understanding of “resilience” and includes “environmentalism” in the sense of responsibility towards nature and society. This is more successfully expressed in the term “sustainability” — optimization of costs in the supply chain (again, as if nothing new, but! in the context of the above and the global trend of decreasing sales volumes**, the topic of cost optimization in the supply chain is gaining new relevance)
What is the challenge? In the fact that the sustainability of the supply chain requires the existence of a plan for an alternative supply strategy, alternative suppliers, raw material markets and materials, which inevitably entails additional costs for provision (people, time, investments). The environmental trend, of which I am an ardent supporter, is also not a cheap pleasure. To ensure ecological production with the use of recycled materials, costs are increasing again.
But the competitive environment and purchasing power are such that we cannot shift costs to the Client, and at the same time strive for the same profit figures. So, if we cannot increase the top line of the P&L (gross profit), then we have to work with the cost and the expense part, where the operating costs (read — the logistics budget) fall, the result of the business. Many colleagues have already experienced the growing demands from business to support cost optimization projects in the supply chain.
So, what are the sources of cost optimization:
- Work with the cost of finished products: localization of production, including at outsourced sites (3RM-Third Party Manufacturing), alternative suppliers of raw materials and materials, optimization of the specification of finished products (I had projects where changing the type of cardboard packaging or the thickness of the cap wall led to a significant savings). It often happens that product specifications were created some time ago, when the issue of cost optimization was not so acute and included “excess quality”. By this I understand the situation when, for example, the shipping box is made with full-color printing on white high-quality cardboard, etc.
- Work on optimizing the level of commodity stocks and ensuring liquid stock. By liquid, we mean a commodity stock that rotates quickly. Below is an express method of assessing the state of your stocks. ABC analysis of sales and balances. For example, if you have goods in category A according to balances, and goods in category C (red) according to sales, or according to balances in C and sales in A, then you have a severe imbalance, which leads to freezing of funds in the first case, and underselling in the second. Orange is not a favorable scenario, but manageable. The ideal picture is marked with stars.
- Work on optimizing costs for transport and warehouse logistics, which are the main items of the logistics budget. Here, your benefit is that you optimize the inventory management system. Find your balance between service level and turnover. You achieve acceptable forecasting accuracy and implement an inventory management algorithm based on your unique logistics cycles, the warehouse and transport logistics budget is optimized by itself. The problem is that the warehouse and transport “suffer” from the consequences of incorrect planning. A familiar picture: the warehouse is bursting at the seams, and the level of satisfaction of the purchasing demand is low? Or the product is needed for shipment in Odesa, but it is in Lviv… continue on your own… That is, effective inventory management is our everything.
