Supply chain optimization – the three most important aspects

Supply chain optimization – the three most important aspects
Published
12th Jul 2022
Supply chain optimization is a complex subject, which also includes warranty service. Filip Stankowski, Automotive Solution Architect at Hicron, will talk more about after-sales support systems in the context of transportation and new challenges for the automotive industry.

In a dynamic environment with ever-increasing requirements, supply chains must be structured to maintain a balance between profitability and the costs of minimizing risk. Precision is, therefore, important in the context of planning and forecasting goals, as well as the ability to manage the supply chain in real time.

Innovative answer to new challenges

In the face of market fragmentation and a multitude of subcontractors, it is important to have data organized in easy-to-read reports and analyzed in real time to reduce costs and gain a competitive advantage. This requires advanced tools and modern technology to control and optimize the supply chain.

The implementation of an SAP solution to optimize the supply chain affects not only the production process, but also the business strategy of the entire company. It allows for the integration of ordering parties and carriers, and the implementation process is transparent and user-friendly. In Magic Quadrant for Supply Chain Planning System of Record, a report published by the research company Gartner, SAP was recognized as a leader in planning solutions. Implementing SAP will help your company increase the stability and efficiency of its supply chain. It enables:

  • quick responses to changing market conditions and optimization of the rotation of goods thanks to current data
  • reduction of the time and cost of operations by optimizing business processes and lowering resource stock levels
  • improvement of service quality and response to customer needs
  • turning raw data into clear business information with the help of a robust reporting system

SAP solutions cover all links in the supply chain: material suppliers, manufacturers, distributors, and end users, which provides great potential for cost optimization.

SUPPLY CHAIN STABILITY

For companies, globalization and outsourcing are associated with a number of benefits, such as improved profitability and access to larger markets. However, they increase the susceptibility of supply chains to various types of disruptions and threats. In recent years, during the pandemic or the war in Ukraine, we have learned how much political, social, and economic conditions can affect the stability of supply chains. During the crisis caused by Covid-19 and the related restrictions, car manufacturers, such as Honda, Jaguar, and Volkswagen, experienced serious difficulties, including the popularization of remote work and increased demand for microprocessors, which caused shortages on the market.

The shorter the supply chain, the less vulnerable it is

Changes on the international arena can affect the availability of manpower, resources, materials, components, services, and funds that are necessary for the proper functioning of supply chains. For example, stopping the production of components in a factory or blocking a port causes shortages of resources and delays in companies and ultimately leads to exponentially increasing losses. It is, therefore, important to ensure that a supply chain is not only efficient, but also resistant to disruptions. It is key to exercise as much control over the flow of information and products as possible. Such real-time supervision is possible thanks to SAP systems, ensuring optimization of supply chains and standardization and streamlining of processes:

  • strategic planning based on short- and long-term demand forecasts, using algorithms, machine learning, analytics, and statistical modeling;
  • production and lead time management;
  • determining inventory levels.

Using the SAP HANA database, it is possible to process large amounts of data with in-memory technology, which significantly shortens the entire operation and allows for quick decision making. Comprehensive analysis leads to the identification of trends and niches, so can companies focus on the most profitable areas. SAP software supports the management of the entire supply chain and guarantees the integration of all company processes in a single system.

SUPPLY CHAIN FLEXIBILITY

Political or social events may not only cause delays and generate additional costs, but also unexpectedly threaten the entire supply chain. They are difficult to predict and beyond our control, so it is important to be well prepared for such changes while minimizing the losses they can cause.

A supply chain is a system of dependent organizations that must cooperate closely. It is advisable to avoid situations in which we limit our sources of supply (single source). While this solution helps create a stronger bond with a business partner, it can have disastrous consequences in the event of a failure.

When optimizing the supply chain, it becomes necessary to properly set business priorities for demand, allocation, and constraints, e.g. in terms of production capacity or logistics. In the event of a shortage of goods, supply chain optimization may mean, among others, accelerating deliveries to key customers. Using real-time analysis of large volumes of data, we can more easily achieve a balance between inventory, quality of service, and profitability of operations.

 

RELATIONSHIPS IN THE SUPPLY CHAIN

COOPERATION WITH SUPPLIERS, CONTRACTORS, AND OTHER BUSINESS PARTNERS

It is important to remember that a supply chain is largely based on business relationships. Since the 1980s companies have increasingly used the services of third-party providers. Outsourcing allows organizations to focus on developing the services or target products that are the core of their business. Cooperation with partners also leads to lower cost through, among others, reductions in fixed costs or the ability to choose the most cost-effective offer from a range of options. Due to the anticipated savings, companies are now outsourcing 60-80% of their production.

Outsourcing some services is also profitable for manufacturing companies, which can gain financial benefits and knowledge from new contracts. Competition between businesses can also lead to lower prices for retail customers and better product quality.

COMPREHENSIVE ACTONS

The outsourcing trend is, therefore, profitable for both organizations and society. In the case of optimization by outsourcing part or all of production, it is important to remember about the appropriate design of logistics processes as well as their control and ongoing adjustment. Business relationships with subcontractors are no less important. Previous paragraphs outlined the risks to supply chain management, but cooperation based on trust can eliminate many risky situations. Transparency of arrangements and ongoing communication are important. A balance needs to be found between making sure that agreement terms are met and exerting pressure. Too much pressure may lead to concealing information about weaknesses and possible threats, and consequently to losses caused by noticing a risk too late.

The growing popularity of outsourcing and offshoring is also a consequence of the globalization of the economy and the openness of the market. Exchange of goods is becoming not only common and international, but also much more complicated, so it is important to emphasize these elements in supply chain optimization.

CUSTOMER SATISFACTION

Target customers also influence supply chain structure. Their expectations towards products are the reason for optimization and innovation. Globally, we can talk about three major changes over the past few years:

  • product customization – the ability to personalize is becoming more and more popular. The “make-to-order” strategy, which consists in tailoring services or products to individual customer preferences, requires flexibility in the supply chain and results in higher inventory levels or transportation costs. However, it is becoming a standard on the market;
  • new distribution channels and changes in purchasing habits – we observe a constant increase in the importance of online sales. Companies need to reorganize their structures and business models to compete on the ever-expanding e-commerce market. Managing multi-channel sales (both in brick-and-mortar and online stores) involves logistic challenges, e.g. related to information on current inventory levels;
  • delivery time – customer expectations in terms of delivery time are growing, including same-day delivery, delivery to a specific location.

Organizations must meet these new challenges while maintaining supply chain stability and profitability. However, they cannot act reactively and focus only on current expectations, but also come up with their own proposals for solutions that will allow them to stay ahead of the competition and bring benefits in the future.

Better supply chain management using SAP

Technology is becoming a key element in supply chain management. Implementation of SAP S/4HANA is the answer to the above challenges (multi-channel, process complexity, internationality) in building positive relationships. It helps make decisions based on ongoing analysis of demand and supply, including, for example, anticipating problems with product availability. It supports planning, ordering, forecasting, quality control, and resource management, but also cooperation between suppliers and partners from all over the world. Thanks to the modern software, companies have, among other things, the ability to track order status. Investing in SAP increases supply chain efficiency and adds value to operations throughout the entire process.

 

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