Supply chain performance driver #1: Production
Production optimized for responsiveness: The key to responsiveness in production is to ensure production lines have the capacity to pivot to meet fluctuations in consumer demand quickly. A few ways to do this:
- Ensure your factories have excess capacity
- Use flexible manufacturing techniques to produce a wide range of items
- Have multiple, smaller production facilities close to distribution centers and customer hubs to decrease delivery time
Production optimized for efficiency: Conversely, if you need to foster efficiency, you’ll want to take the opposite approach. To prioritize efficiency:
- Schedule your production facilities to have little excess capacity
- Focus on producing a limited range of items
- Centralize production in large central plants for better economies of scale (even though delivery times may be longer for some customers)
Supply chain performance driver #2: Inventory management
Inventory management optimized for responsiveness: Optimizing responsiveness can dictate stocking higher product levels and at more warehouse locations. Efficient inventory allows for unexpected fluctuations in demand that can be met promptly. However, this approach incurs higher storage costs, which must be weighed against the benefit of widespread availability.
Inventory management optimized for efficiency: To foster efficiency in inventory management requires reducing inventory levels of all items, especially those that do not sell frequently. Careful analysis is required to par back successfully as lowering inventory levels can result in stock-outs, unmet demand, and missed revenue opportunities. You can also limit stock to select central distribution centers to limit economies of scale and attain cost savings.
Supply chain performance driver #3: Location
Location optimized for responsiveness: Location, location, location. To prioritize responsiveness means maximizing convenience. You’ll want to establish operations within close range of customer groups.
For example, fast-food chains use location to be very responsive to their customers by opening many stores in high-volume markets. Having many locations allows chains to respond quickly to consumer demand — but this approach also increases operating costs because now they’ve got to staff and run many stores.
Location optimized for efficiency: Efficiency is achieved by operating from a select few locations and centralizing activities.
For example, e-commerce retailers serve global markets from a few central locations that perform a wide range of activities. While this centralized approach allows e-commerce retailers to run efficiently, it also makes them susceptible to disruption.
Supply chain performance driver #4: Transportation
Transportation optimized for responsiveness: Faster modes of transportation, such as air freight, offer faster and more flexible delivery. The downside? They’re expensive, which can place limitations on the quantity of goods you can ship.
FedEx and UPS are two companies that provide high levels of responsiveness in the last-mile of delivery, using expedited transportation methods to deliver products often within 48 hours.
Transportation optimized for efficiency: Transportation efficiency can be achieved by moving products in larger batches by bulk carriers, such as ships or railroads, less often. While bulk carriers are great a option when your goal is volume and cost reduction, you sacrifice speed and flexibility by using this approach.
Using a centralized distribution center instead of multiple separate locations is another way to improve efficiency and save on costs, but, again, will sacrifice delivery speed and responsiveness.
Supply chain performance driver #5: Information
Information optimized for responsiveness: Knowledge is power. The technology for collecting and sharing information has become more widespread, easier to use, and more affordable. Supply chain solutions can now use internal performance data and external market data to re-plan supply chain plans based on real-world events and scenarios.
For example, if a Tik Tok video causes a sudden surge in demand, supply chain planning software can illuminate the supply chain effects. It can tell you how much supply you’ll need to produce and how much inventory to send to which distributors.
Information optimized for efficiency: With all internal supply chain data centralized in one location, supply chain planning software that uses advanced AI-based analysis, can also illuminate inefficacies and optimize for efficiency.
For example, AI-based software can recommend assembly line schedules to optimize the production of a certain product.
Striking a balance between responsiveness and supply chain efficiency
The good news is you can have responsiveness and efficiency too. AI-based supply chain planning has evolved to give you the best of both worlds. CCH® Tagetik Supply Chain Planning is our finance-forward, predictive planning solution. It connects demand, inventory, supply, production and sales and operations planning with financials, giving you a 360° view of your supply chain.
With CCH Tagetik, your supply chain plans dynamically update as situations unfold and plans are executed, showing you the ripple effect of any customer, product, or supplier change across all supply chain, operational, and financial plans.
With real-time data, scenario analysis, and the AI to create accurate predictive forecasts, you’re armed with the knowledge to be responsive while optimizing operations for efficiency.