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7 Ways To Improve Your Supply Chain Efficiency
by Jaidyn Farar
The supply chain is one of the most complex parts of a business, but it’s also one of the most important. With an optimized supply chain, you’ll be able to quickly deliver high-quality products to customers. Supply chain efficiency determines how well your business uses available resources to achieve this goal.
What is supply chain efficiency?
Supply chain efficiency measures an organization’s ability to use its resources—including technology, materials, and labor—to quickly deliver products to customers while keeping costs as low as possible. The most efficient supply chains have high performance, high profits, and low logistics costs. Boosting efficiency is an important goal of supply chain management.
Supply chain efficiency vs. supply chain effectiveness
The key difference between supply chain efficiency and effectiveness is that efficiency is an internal standard of performance, while effectiveness is an external standard. The two standards aren’t necessarily correlated—a supply chain can be efficient but not effective, and vice versa.
Supply chain efficiency aims to deliver products for the lowest cost by maximizing the use of resources. Supply chain effectiveness shows how well you’re meeting customer expectations. Are customers satisfied with your products and the overall buying experience? If so, you have an effective supply chain.
Supply chain efficiency vs. supply chain responsiveness
Supply chain responsiveness is the ability to react quickly to changes that affect your supply chain, and it can sometimes be at odds with supply chain efficiency. This is because a primary goal of increasing efficiency is cutting costs, but building resiliency often includes spending more. For example, organizations might promote responsiveness by investing in supplier diversification or safety stock.
Responsive supply chains are flexible, able to quickly respond to supply chain disruptions such as natural disasters, labor strikes, or port congestion. With a responsive supply chain, companies can continually meet customer demand and avoid losing money during times of upheaval.
As mentioned above, higher supply chain efficiency can lead to lower responsiveness, and the opposite is also true. However, the two goals can and should coexist—it’s all a matter of finding the balance that will protect your business.
How to improve supply chain efficiency: 7 strategies
How do you achieve supply chain efficiency? We’ll review several strategies businesses can use to find the perfect balance of performance, resilience, and cost reduction.
1. Expand your supply chain visibility
Supply chain visibility is the ability to track your products throughout the entire supply chain, starting from production and ending with delivery to the end customer (and potentially returns).
With enhanced visibility, you can maintain a clear and accurate view of inventory levels, movements, and locations throughout your supply chain network. This allows you to uncover inefficiencies in inventory management and order fulfillment and implement strategies to minimize them.
Technology is key for achieving supply chain visibility, and the most successful organizations make use of robust tracking and reporting systems, barcode scanners, Internet of Things (IoT) sensors, inventory management software, and data analytics platforms.
Because things change quickly in the world of logistics, make sure to collect data in real time so you can be alerted of changes and potential issues. Real-time data lets you anticipate potential disruptions and implement solutions before they escalate, ultimately saving time and reducing costs.
2. Develop good supplier relationships
Many businesses don’t realize just how important supplier relationships are. These relationships aren’t simply about the transactions that occur on paper—providing X good or service for Y amount—but instead rely heavily on strong communication and collaboration. If you don’t take the time to nurture these relationships, you’ll probably find that your supply chain operates with unnecessary friction. And that’s not going to promote efficiency.
On the other hand, building strong relationships with suppliers will help you create a smooth and efficient supply chain.
For example, let’s say a business maintains regular contact and shares forecasts with its most important suppliers. This helps the suppliers plan production schedules more accurately, which reduces lead times, delays, and product quality issues and ensures timely deliveries.
Collaboration isn’t just helpful in the short term. Establishing healthy partnerships also benefits organizations in the long term, often resulting in bulk discounts or priority service during high-demand periods. A solid supplier relationship allows for more flexibility and responsiveness to changes in demand, meaning you’re less likely to be affected by disruptions.
3. Automate your processes with the right technology
Automation drives supply chain efficiency by reducing the need for humans to perform repetitive or physical tasks. This saves time, lowers costs, and reduces errors.
The word automation often brings to mind thoughts of robotics. While robotics can be valuable automation tools, keep in mind that software automates time-consuming processes. It streamlines data entry and decision-making, quickly interpreting information and performing tasks.
Choosing the right software for your organization will vastly improve efficiency, especially when it’s combined with physical automation tools such as robotics.
Let’s look at a few automation tools and technologies that improve supply chain efficiency:
- Demand forecasting. Demand forecasting software uses historical data and market trends to predict future inventory needs.
- Storage. A warehouse management system (WMS) optimizes storage space by using algorithms to determine the best locations for goods. Automated storage and retrieval systems (AS/RS) complement this functionality by using vertical space more efficiently.
- Inventory management. Automating routine tasks like inventory management ensures more accurate stock levels and timely reordering.
- Picking. Technology such as robotic pickers, autonomous vehicles, and automated conveyor belts streamlines the handling and movement of goods, increasing throughput and reducing labor costs.
- Packing. Load planning software eliminates the need for employees to make judgment calls when packing products, resulting in right-sized and secure packages.
- Shipping. Shipping software automatically selects the most cost-effective shipping methods and generates compliant labels.
By implementing these automation solutions, you can streamline processes, improve accuracy, and gain valuable insights to drive continuous improvement in your supply chain.
4. Train employees
While automation technology provides accuracy and precision, human employees can be prone to errors. Still, these workers are valuable participants in your supply chain. In order to maximize their supply chain efficiency, organizations need to provide proper training and support.
When employees are well-versed in the systems and processes they use, mistakes decrease and productivity rises. You should train employees on all standard operating procedures. If you adopt a new software or design a new process, train each staff member on it. In addition to formal training, look for opportunities to provide on-the-job training and mentoring to employees. And of course, regular sessions on industry best practices and safety protocols keep everyone aligned with organizational goals.
Cross-training is another great strategy. This has the added advantage of increasing resilience and flexibility, as employees learn how to handle various duties and tasks outside their normal job description.
Finally, consider the feedback your staff has to offer. While data provides useful insights into operations, the people who are actually on the floor every day will most likely have ideas the data doesn’t show. They know what works well and what doesn’t. Ask them how the facility is functioning and what they would change—you might be surprised by what you hear.
“All too often I see the approach to shipping automation projects or many other things in the warehouse [is] done from offices, from conference rooms, from up on high. It's one of the cardinal sins of warehouse management. The moral of the story here is get out, spend time on the floor. … Make yourself a simple goal. Spend 60 minutes a day on the warehouse floor, interact with three to five people a day, and ask them what they're doing and how things are going.” — Kevin Gaul, Automate to Dominate: Essential Steps To Level Up Your Warehouse Operations
5. Focus on sustainability
For organizations hyper-focused on supply chain efficiency, sustainability concerns can feel less pressing. However, sustainability initiatives often lead to greater efficiency, and vice versa. For example, optimizing transportation routes both saves time and limits carbon emissions. Adding automation technology to warehouses makes better use of vertical space, allowing you to reduce your building’s footprint and use of lighting, heating, and cooling. Using fewer packaging materials saves money and minimizes waste.
In your quest for greater supply chain efficiency, kill two birds with one stone by looking for ways to make your supply chain more environmentally friendly.
Watch the Unboxing Sustainability virtual conference on demand for tips on incorporating sustainability into your operations.
6. Create a great returns management system
Customers will be more satisfied and loyal if they can quickly initiate a return. But does returns management have any benefits beyond customer satisfaction?
The short answer is yes! A well-organized system for handling returns reduces operational costs in a few ways. First, well-defined workflows save time, which saves you money on labor. Second, prompt restocking or refurbishment allows you to recover some or all of the value of returned goods.
While processes differ between businesses, an efficient returns management process involves these elements:
- Clear policy. Start by implementing a clear and straightforward returns policy that is easy for customers to understand and follow. Customers often prefer no-box or no-label returns, and many carriers offer these services.
- Data analysis. Analyzing return data can provide valuable insights into product quality, customer preferences, and carrier performance, helping you make informed decisions to reduce future returns.
- Technology. Throughout the returns management process, most businesses use software to track returns, manage inventory, and automate the processing of refunds or exchanges.
7. Review and optimize regularly
To stay at peak supply chain efficiency, regularly monitor supply chain data and optimize processes. Continuously evaluating and refining your operations helps identify bottlenecks and areas for improvement.
For example, you might conduct routine audits of your logistics network that reveal inefficiencies in routes or delivery methods; making adjustments can lead to cost savings and faster shipping times. Looking within the fulfillment center, your data might reveal an opportunity to improve picking speed and accuracy.
And don’t just evaluate your internal performance—periodically review supplier performance to ensure you’re partnering with the most reliable and cost-effective vendors.
“If you're a retailer or even a manufacturer, you set certain rules of engagement. These are the rules to do business with us, and these are the guidelines. And when your suppliers don't follow those guidelines, it creates friction within your [distribution centers]. … You need to take a look at your supplier base and understand how they're performing.” — Jill Barron, Building Better Supplier Relationships
How to measure supply chain efficiency
Businesses use several metrics to measure supply chain efficiency.
- Perfect order index. Perfect order index, which is aggregated from several other metrics, tracks the percentage of orders that are fulfilled without any errors: “perfect” orders. This includes on-time delivery, delivery to the correct location, accurate products and quantities, proper packaging, undamaged products, and correct documentation.
- Cash-to-cash time. This metric measures the time between when you send cash to suppliers and receive it from customers. A shorter cash-to-cash cycle is generally correlated with greater profitability.
- Supply chain cycle time. Supply chain cycle time is the time it would take to fulfill an order if inventory levels were zero when the order was placed. A shorter supply chain cycle time shows that your supply chain is flexible and responsive.
- On-time delivery rate. On-time delivery rate measures the percentage of shipments that are delivered by the promised delivery date.
- Inventory turnover rate. This metric calculates how many times inventory is sold or used in a specific period, typically a year. It shows how effectively inventory is managed and how quickly it is replenished or sold.
- Order fulfillment cycle time. This KPI measures the time between order placement and delivery, including the time it takes to pick, pack, and ship orders. A shorter cycle time indicates faster order processing and better customer service.
- Return rate. Return rate is the percentage of products returned by customers. If you have a high return rate, you might have issues with product quality or fulfillment processes.
- Warehouse capacity used. This metric assesses how effectively warehouse space is utilized. It compares your available storage capacity to the amount of space inventory actually takes up.
Improve supply chain efficiency with a high-performance shipping solution
If your organization is striving for greater supply chain efficiency, technology is an invaluable asset. As shipping volume increases—and the complexity of your operations along with it—your digital tools need to be able to keep up.
EasyPost Enterprise Shipping is a flexible, high-performance shipping solution for enterprise businesses. With both on-premise and cloud options, EasyPost Enterprise offers sub-second shipment processing speed, access to over 100 carriers, customizable business rules, and pre-built integrations into industry-standard ERP, OMS, and WMSs.