Supply Chain Efficiency Trends and Strategies for Future Resilience

How many people do you estimate will be required to work in supply chain management? Hint: it runs into the millions, with an estimated 450M workers worldwide. The number is a reminder of the end-to-end coordination and cooperation required for a single purpose: getting a product and/or service to the customer who ordered it. Everything has its place in the supply chain, and without streamlining operations for greater efficiency, time and cost savings, supply chain disruptions wind up eroding both your bottom line and customer’s trust. 

In the interest of helping your eCommerce operations achieve lift off and maximize sales growth, we’re putting down a post on the supply chain efficiency trends shaping the global economy as we hit the 6-month mark of 2023. Enjoy! 

What is Supply Chain Efficiency?

Supply chain efficiency revolves around a company’s ability to get its products to the right customer at the right place on-time, in the most cost-effective way. By effective, we mean utilizing the right resources and working out the logistics such that you’re able to remain SLA-compliant and fulfill orders as promised on the fine print. Making definite improvements to supply chain efficiency is a vital component of any eCommerce businesses’ overall supply chain management practice. 

Supply Chain Efficiency vs. Supply Chain Effectiveness: What’s the Difference?

What differentiates a supply chain’s efficiency from its effectiveness is that the former underlines how well company resources are utilized to deliver goods. The latter is about those products meeting a customer’s expectations.   

Here’s a table bringing out the differences more clearly

How is Supply Chain Efficiency Measured?

You can measure supply chain efficiency with metrics that link back to production time, steps, costs and quality. The key metrics are

• Perfect order index(POI): The POI refers to the percentage of damage-free order fulfillment accuracy in terms of time, packaging and documentation.
• Timely deliveries: How many orders and how often are they reaching the customer within the promised timeframe. 
• Inventory turnover ratio: The ITR is the company’s ability to sell its inventory in a specific duration.
• Order accuracy: The percentage of orders captured correctly by production and delivery teams.  

The 2023 Top Supply Chain Efficiency and Technology Trends

A May 2023 Press Release from Gartner’s desk revealed that 73% of the supply chain budget will go towards enhancing performance and growth,and 8 emerging supply chain trends have been identified accordingly which are;

Actionable AI and IoT

AI adoption is happening at breakneck speed with diverse use-cases. For example, Actionable AI is absorbing human approaches to problem solving and generating real world solutions to augment decision making. The automation is trained to learn historic actions, previous experiential decisions and apply those actions circumstantially, with the validation resting on human intervention.

Blockchain

Blockchain is gaining favor because of the way it works versus traditional databases. It creates new blocks into which data flows in, creating a chained link that doesn’t sacrifice data sets. In supply chain, the benefits of blockchain include:

• Improved detection and tracking of materials from multiple sources to the customer.
• Digitization of administrative processes.
• Increased transactional security and visibility over supplier contracts.
• Fraud detection and prevention for high-worth items. 

Digital Supply Chain Twins

Digital supply chain twins continue to be a pivotal supply chain trend because it essentially subjects the supply chain to stress tests to see how disruption-ready it is. 

Digital supply chain twins replicate physical chains to enable supply chain leaders to test scenarios, models and workflows in a bid for improved decision making. It is beneficial in predicting financial and SKU flows and establishing demand variance. Digital twins use live information feeds across incoming shipment and transportation schedules and inventory levels to assess the present state of affairs. It provides the forecast taking potential failure points and risk likelihoods into account. 

Smart Operations

Manufacturing is cranking up its utilization of smart technologies across  iOT, cloud computing, metaverse and AI all of which are collectively transforming the way 1) products are produced, 2) labor is deployed and 3) customer expectations are met. Smart operations are now extending the field of operations to warehousing, transportation and cross border trade, creating a connected value chain that remains resilient. 

Composable Application Architecture

More customers are captured through the omnichannel approach, which requires eCommerce sellers to use a flexible solution that communicates through API-connected modules.

Composable commerce separates the frontend from the backend, creating a flexible commerce stack that meets one, or several business needs. It is the ultimate marriage of customization and individualization that can handle myriad touchpoints fueled by the consumer journey. 

Supply Chain As a Service (SCaaS)

SCaaS, or supply chain as a service refers to breaking down the supply chain into manageable chunks that are accessed or outsourced to third parties. It presents advantages to both SMBs and enterprises while saving monumental costs because the former gets instant access to subject matter experts and scalable infrastructure while the latter gets pricing points and resources that are otherwise hard to find. 

Creating  an end-to-end SCaaS however, can be overwhelming because it requires a supply chain manager to make trade offs and relinquish control over vital pieces of the supply chain while gaining exposure to other pieces. It starts with defining your in-house core competencies and then identifying and prioritizing those areas where your company derives maximum benefit from outsourcing. 

The question of conversion rests with what and how much of SCaaS is needed, though online shopping will fuel its growth. SCaaS is expected to make use of cloud computing, blockchain tech and the Internet of Things (iOT) in order to accommodate upsizing or downsizing as and when required. 

Circular Supply Chains

StraitResearch reveals that the global reverse logistics market will reach a valuation of $831.3B for the forecasted period of 2030. The returns pileup is causing supply chain managers to turn to sustainable practices which include switching from linear to circular supply chains. Circular supply chains repurpose and restore unused fragments back into the value chain, thereby promoting zero-waste. There is of course the question of ethics imposed by governments on waste reclamation, but implementing circularity can cut considerable costs and add to stock levels without rising inventory costs.

Increased Stockpiling

Despite the signs pointing to a decline in consumer purchases  amid rising inflation and global recession, retailers are choosing to stockpile to have surplus inventory. 

Here’s the thing; stockpiling does help to beat inflation slightly, provided the rise in storage costs isn’t canceling out the benefits of buying low in bulk and selling at a higher price the next day. 

Companies will be required to closely monitor inventory reserves to estimate the percentage of inventory that won’t sell, and calculate the loss from inventory shrinkage.

  To minimize this loss, a better move would be to redesign just-in-time inventory strategically around substitutions and backorder planning. And here, demand planning and inventory forecasting are immensely useful to look at historical patterns and make predictions against current market conditions.  This is crucial to determining future revenue opportunities in volatile times. 

Robotics

As an industry that creates jobs for half the globe, labor shortages and demand surges are compelling organizations to rely more on robotics to compensate for the absence of manpower. An efficient and safer warehouse will see fewer staff in them and those who are in will benefit from getting more time to conduct health checks, prevent inaccuracies and confirm shipments while leaving the heavy lifting to automation. Drones are being added to the delivery fleet to drop packages in shorter, compressed timelines thereby saving a ton on transportation costs!

Logistics Vulnerability

In continuation to point 8, transport modes are being optimized for cost-savings using real-time information. Multimodal networks are being diversified after studying them using digital twins, ensuring there is a physical and virtual connection among the modes of air, land and sea. The benefits include improved visibility, integration and flexibility. 

The  Key Components Of A Supply Chain Strategy

A supply chain strategy has 3 parts to it which are

1. Strategy Design: this is the stage where current systems and processes are analyzed to determine if they are relevant, or require to be upgraded .Take a warehouse audit, for example. A free one-time warehouse audit can closely examine processes, identify inefficiencies and even put a needle on the risk compass to determine its impact on your overall operations if it is left unattended. To be efficient, review existing and even potential suppliers, locations, future expansion plans and technology investments that will be required across the supply chain.

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1. Strategy Planning:  In the planning stage, you should be creating a template to structure and center your strategy around the KPIs and KRAs to be reached. There also needs to be a means for tracking, measuring and improving constantly. The same has to be handed out to all stakeholders involved in order to revisit timelines for all goals, and make tradeoffs against what’s realistic and achievable. For example, the decision to use nearshoring, where aspects of the business is outsourced to a country located geographically closer without inviting high import costs and delays. While this does save costs, it requires you to relinquish control, which all stakeholders may not necessarily be on board with. If there’s a disagreement, then the alternatives of onshoring and offshoring would require consideration.‍
2. Strategy Execution:  Once the plan is approved by all stakeholders, it’s time to execute it with everyone’s full cooperation. Communication is very critical at this point in order to reach your supply chain goals efficiently, and effectively. 

What Are the Types Of Supply Chain Strategies?

The supply chain strategies that are extensively documented for their ability to improve efficiency are 

Demand-driven supply chain strategy

This strategy’s focus is to be more customer-centric by weaving demand signals throughout the supply chain. It uses technology to collect and analyze buying behavior, historic transactions and product popularity to adjust production and inventory levels. In other words, it prioritizes products by what’s in demand based on its past performance and current trends. 

Agile supply chain strategy

An agile or lean strategy is more flexible and responsive to fluctuations in demand and/or market conditions. Whether it is changing manufacturing business models, order processing or distribution centers, decisions and mitigation measures are decided quickly.

Collaborative supply chain strategy

A collaborative strategy makes decisions as a cohesive unit that comprises key actors- such as suppliers, customers and other partners. It creates a knowledge pool from which information is passed on, creating a more communicative supply chain. 

A How-to Guide On Developing a Supply Chain Strategy

A supply chain strategy is a roadmap created to ensure that products are delivered to the customers in the swiftest and most accurate manner. It entails designing and optimizing sourcing, procurement, transportation and distribution with the view to maximize profitability while lowering operational costs.                                                                                                                                                              

Strategic supply chain management are influenced by 4 factors which are

1. Industry
2. Value proposition
3. Internal workflows 
4. Business goals.

Given there’ll be several key stakeholders that you’ll need to involve and collaborate with, such as suppliers and shippers, there is no one-size-fits-all way to develop a supply chain strategy. There are, however, a few tips to make developing a supply chain strategy successful, which are

A. Keep buffers 

Buffers are a margin to absorb unprecedented risks that create delays. Where you place these buffers determine their effectiveness,so the most common places are

A.1 Inventory: Buffer stock is just enough stock to meet a demand surge without creating an excess. This can be tracked and controlled using an inventory management software.

A.2 Time Buffer: Ensure sufficient time for materials to reach you ahead of demand to ensure order fulfillment can stick to the delivery timelines stated both online and offline.

A.3 Capacity Buffer: A warehouse should always be 80% filled to its capacity in order to accommodate more items within that 10-15% extra space.

B. Broaden the manufacturing and sourcing network

You know the saying, ‘don’t put all your eggs in one basket’?  

This applies to supplier contracts! With supply chain disruptions intensifying over political shifts, pandemics and even recruitment rampdowns, an emerging procurement trend is that more procurement professionals are turning to a diversified network of suppliers that they can fall back on should their primary supplier back out or face issues that prevent them from getting finished goods to you.

Multisourcing should be done by categorizing your network on their current cost and financial impact on your business if they are unable to follow through.

‍C. Demand forecasting and planning

Data is a goldmine of information - especially if you want to drive personalized and memorable experiences for your customers. Data can help you plan for seasonality by assessing demand and procuring the necessary materials beforehand so that you’re not dropped at the last minute due to a production halt. A sufficient lead time can also potentially get you better deals with your supplier because stock adequacy isn’t left for the last minute, and they can help you meet your customer’s expectations.

Reports on SKU performance can track inventory health by categorizing and identifying products by their sales. This information lets you update inventory item quantities for anticipated demand highs. Put simply, if a product isn’t flying off the shelf, it makes no sense to add more of it to your inventory, right?

D. Standardize processes

Processes need to be defined and if you aren’t following a process at the moment, it’s time you did because preparation is half the battle! The more involved you are in creating a process,the more likely you are to understand what standardization entails and how to adapt it to your industry. 

The Lessons Learned

58% of economists have confirmed that the ongoing recession is likely to last for the entirety of 2023, impacting demand,furthering disruptions and financial instability for companies. What the downturn has taught supply chain leaders is that resilience comes first. 

Given the millions of orders and transactions taking place across eCommerce sites, native websites, mobile apps, offline outlets and more recently- social media, supply chain leaders require little to no convincing to accelerate digital adoption. Many are in fact already leaning on smart operations, Artificial Intelligence, the Internet of Things and Robotics which are the supply chain trends that will see a change from 2022.  

Once you identify the type of supply chain strategy best suited to your business, the next organic step is to maximize the latest digital transformation capabilities to streamline eCommerce operations and shape the future of a sustainable supply chain. 

FAQS

1. What affects supply chain efficiency?

In the global market, competition lies between supply chains, so the factors affecting its efficiency are

1. Customer demand
2. Supply chain structure
3. Forecasting models
4. Responsiveness
5. Review processes and length

2. What are the benefits of supply chain management?

The 8 important benefits of supply chain management that unlocks business potential are:

1. Better supplier collaboration: Suppliers that you have a good connection and relationship with can work towards your business objectives. Businesses that work in retail should expect manufacturers to markup the factory price by ~50%, so it is important to navigate negotiations to bring the ratio down to 25% as a percentage of the retail sales. 
   

2. Better quality control: Quality control, assurance and compliance becomes a shared activity if your supplier and you subscribe to the same efficiency standards.
   

3. Optimizing shipping: logistics presents a third of your operating costs and optimal distribution of channels can help you balance the books and maintain a strong cash flow.
   
4. Reduced inventory and overhead costs: Supply chain management focuses on keeping a lean inventory with just the optimal levels so that you’re neither having surplus inventory that sits around aging nor are you facing shortfalls.
   
5. Identifying and removing risks: With end-to-end visibility, information regarding threats and their impact and outcomes are already known, ensuring they are not repeated deliberately.
   
6. Stronger cash flow:You can ride out volatility by keeping an eye out for price point fluctuations, ensuring your cash flows in.
   
7. Better data analytics: With software solutions, a supply chain manager can manage stock levels, track sales performance by channels and make better decisions to manage returned items while upholding the same quality expectations.