Evaluating your supply chain efficiency can bring relief in trying times

Falling orders, accumulating inventory and rising costs may have you examining your supply chain management systems. Many of the old challenges of supply chain management still exist, but a supply chain improvement project can help reduce cycle time, increase flexibility and eliminate the need to store inventory. It can also reduce costs by eliminating old-fashioned business processes, reduce mistakes and decrease handling activities.

It's not all about inventory reduction

Supply chain optimization to get higher profit margins on finished products is primarily seen as an exercise in inventory reduction. But there are many more activities a company can engage in to achieve the same goal -- one of which is collaborative product development.

The theory behind collaborative product development is that customers will pay good money for products that exactly match their needs and desires. A company designs the product with critical input from its trading partners and customers for greater acceptability, serviceability and better sourcing.

Increasingly popular software packages for collaborative product development are i2 TradeMatrix Plan by i2 Technologies, e-Chain by Manugistics Group and Windchill by Parametric Technology. These packages enable companies to optimize internal and external supply chain management processes to deliver the products customers want more efficiently.

Keep it moving

Another activity to get higher profit margins on finished products is a process called cross docking -- routing incoming products directly to outlets rather than letting them sit on the shelves of a distribution centre.

Companies send a purchase order to a vendor via electronic data interchange (EDI). EDI is the exchange of business documents computer to computer. The vendor fills the order and sends an electronic advance shipment notice (ASN) to the company that specifies when the order will be shipped and what the shipment contains. The vendor sends the goods with barcode labels that include information such as order number, ASN, size, style and destination.

When the goods arrive at the company or distribution centre, employees scan the barcode labels to create receipts that pick up information from the electronic ASN, after which the goods are routed directly to outlets.

Cross docking reduces human error, cycle times and lost orders. It also increases trading partner satisfaction, which can only be good for your business. Companies such as SPS Commerce and QRS have products to enable vendors to conduct business electronically via the Internet and avoid massive investments in technology.

Direct shipping eliminates warehouse expenses and stockpiled inventory

Direct shipping is another means to achieve higher margins.

Direct-shipping means shipping the product from the factory to the customer wherever possible to avoid the warehousing process. In order to do this, a company needs to be able to see data from virtually every link in the supply chain to determine the location of the product and the most viable route for it to travel to its customers.

The key to direct shipping is linking the customer directly to the factory with information and not having the order spend time in other entities such as the distribution centre. It significantly reduces the time in which the product reaches the customer, so there is no need to stockpile inventory.

Smaller steps for smaller companies

If you haven't started a supply chain optimization process, projects such as collaborative product development may seem like an enormous step. However, there are other efficiencies and technological advances you can take advantage of.

According to experts, the most logical starting point lies within your enterprise. The automation of supplies procurement -- purchasing stationery though an online portal rather than manually for example -- can provide companies with a quick cost reduction.

A next step could be the implementation of merchandising software to keep track of inventory information. Merchandising software can give you access to actual stock information in each outlet or in its distribution centre(s). With this information, you could develop a product model, which could be the standard number and type distribution of a particular product projected by each outlet for example.

But experts warn companies ready to start with a supply chain improvement project should start on a small scale. They advise to spend about 0.3 percent of annual revenue on the project, of which one-third should be spent on software and two-thirds on labour.

They also advise companies to do an experiment with a division that can afford to be a guinea pig. This experiment could involve moving EDI to the Internet to save costs, or it could be using software to compress large-format engineering documents for electronic transmission to trading partners.