Posted by Marbenz Antonio on March 20, 2023
The pandemic has highlighted the physical supply chain challenges, leading organizations to acknowledge dynamic supply assurance as an essential capability for their business. In the coming years, companies reliant on supply chains, including consumer packaged goods (CPG) and retail businesses, will prioritize supply chain optimization to address significant industry issues. The need for convenience and personalized experiences, growing concern over the environmental impact of consumption, and uncertainty surrounding trade disruptions and cost fluctuations are among the obstacles that can be overcome through the implementation of more connected, flexible, and sustainable supply chains.
By adopting the latest digital technologies, supply chain leaders can create the necessary flexibility to accommodate emerging consumption models, presenting a significant opportunity for driving change.
Here are some examples of business outcomes and key performance indicators (KPIs) that companies have realized through the implementation of supply chain optimization:
Given the criticality and relevance of the subject matter, we plan to release a series of eight articles. These articles will highlight real-world examples sourced from various analysts and organizations such as Gartner, McKinsey, Harvard Business Review, IDC, and IBM Institute for Business Value, all of which are anchored in customer implementations of IBM and Red Hat. Each article will commence with an explanation of the business problem, along with an overview of the obstacles and business drivers that organizations encounter. They will then offer:
This marks the inaugural article of our series, with the upcoming posts delving deeper into the topics outlined below.
Numerous entities, including retailers and manufacturers, are currently investigating methods to promptly comprehend and respond to market shifts. They aim to balance safeguarding margins, optimizing store and warehouse capacity, and fulfilling delivery demands. These sourcing choices have the potential to substantially boost profits, particularly during peak periods. Furthermore, organizations are contemplating ways to establish more environmentally responsible footprints by redefining their approach to sustainability on an enterprise-wide scale.
Demand risk can be viewed from two perspectives: understock and overstock.
Understock pertains to inadequate inventory levels to meet the current demand. This encompasses a shortage of inventory for immediate or upcoming use to fulfill the demand. The outcome is unsatisfied customers who are either unable to place an order due to product unavailability or receive incomplete order fulfillment. This situation commonly referred to as “stock out,” typically results in a loss of 4% to 8% of total sales. It is also a missed opportunity to engage customers in alternative ways, such as through upselling or cross-selling. Key performance indicators (KPIs) related to understock or stock-out situations include inventory turnover rate, days on hand, and lead time (the duration required to procure additional inventory from a supplier).
Overstocking, on the other hand, implies having a surplus of inventory beyond current and future demand requirements. This leads to supplementary expenses for storage, bookkeeping, and potentially disposing of the excess inventory at a discounted rate or even destroying it. While the consequences of understocking are typically evaluated in terms of customer satisfaction and loss of future prospects, overstocking has a direct influence on the company’s bottom-line costs and profitability. Pertinent key performance indicators (KPIs) associated with overstocking include holding costs, dead stock (items in stock that fail to sell), and inventory turnover rates.
When it comes to lose and waste management in the context of inventory optimization, a crucial aspect is dealing promptly with unforeseen or unplanned circumstances that lead to inventory items becoming damaged or spoiled. If the situation is addressed and resolved within a specific timeframe, there may be an opportunity to salvage the product. However, in other instances, the damage is irreversible, and the item must be deemed unusable. Such incidents causing damage or spoilage are usually unforeseeable and beyond the control of the business. They are external factors that cannot always be anticipated or prevented.
To underscore the significance of inventory optimization for all types of businesses, we will concentrate on two primary scenarios involving unforeseen exceptions:
At some point, food items and ingredients as well as manufactured goods and parts will reach their expiration date or become unusable due to decay and deterioration. These measures can be quantified. In the food industry, there are different types of dates and labels found on the packaging, each with its own meaning. The USDA and FDA have defined a range of standard labels and their corresponding explanations, which are detailed in Michigan State University’s guide on Expiring Products – Food & Ingredients.
With a few exceptions, most food products don’t have an expiration date. Instead, terms like “best if used by,” “use by,” “sell by,” “freeze by” and “guaranteed fresh” are used to indicate the optimal period during which the product should be consumed or frozen to maintain its best quality. These labels don’t necessarily reflect food safety standards, although many stores will avoid selling products past their sell-by date in the U.S.
Efficiently managing inventory is crucial for any business that deals with physical goods and is responsible for maintaining, repairing and operating supplies. The inventory management process comprises various procedures that impact the company’s bottom line, such as ordering, receiving, storing, tracking, and accounting for all the goods sold. This process is a vital component of supply chain management. In this use case, we will examine how a company can respond to an imperfect order and improve customer responsiveness by:
Last-mile delivery also referred to as last-mile logistics, is the transportation of goods from a central distribution hub to the final delivery destination, typically the customer’s door. The primary objective of last-mile delivery logistics is to efficiently and accurately deliver packages to customers. The last mile can be particularly challenging, especially for bulky or large items, as it involves getting the goods from a transportation hub to their ultimate destination, which may include installation and configuration. Delivery is a crucial aspect of ensuring a positive customer experience. Intelligent ordering involves utilizing inventory management systems and artificial intelligence (AI) to optimize last-mile delivery processes.
This approach can lead to the following benefits for businesses:
Consumers benefit with:
Balancing the need to operate a financially-sustainable business with the imperative to protect the planet provides an opportunity for companies to differentiate themselves. With the Earth rapidly warming, businesses in various industries have adapted their business models to ensure a sustainable future that balances profit with environmental responsibility. To achieve this, companies are re-evaluating their supply chains, switching to more sustainable source materials, and scrutinizing travel requests. In the quest to reduce emissions, consumption, and waste, businesses are exploring all options.
Some examples of how businesses are integrating sustainability into their operations include:
The concept of supply chains has progressed from being a relatively specialized matter concerning manufacturing companies and retailers to one that even consumers are highly cognizant of. This series will delve into the subject matter and provide details on various aspects of enhancing supply chains.
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