Brief history
To master the modern supply chain environment, we must first understand where it comes from.
Outsourcing the transportation function was the first real step in the modern evolution of supply chains. It helped reduce capital costs but problems were rife in terms of communication, leading to a dearth of information critical to responsiveness.
Poor communication brought on the trend towards the integration of all logistics functions - from freight forwarding and warehousing to inventory management and transportation - and this has been the focus for sophisticated supply chain practitioners for the last decade or so.
Today, outsourcing some or all of the logistics functions and then optimising them, can have a tremendous impact on the income statement and balance sheet. It can also fundamentally decrease risk profiles. A logistics partner with the expertise to re-engineer the supply chain can substantially reduce the amount of capital required to sustain operations, improve profitability and service levels and mitigate risk.
85% of potential logistics savings come from integrating the supply chain, but optimisation also positively affects cash-to-cash cycles, customer service and loyalty and sales. While the savings can be dramatic, the ability to react quickly to demand is fast becoming the goal.
Outsourcing logistics functions also helps to reduce operational risk considerably. Fixed overheads become variable costs and fixed assets become cash.
As importantly, the ability to scale or reduce logistics operations in order to react to changes of demand becomes possible with the right outsource partner.
In 'Supply Chain Visions', agility is described as "the ability to successfully manufacture and market a broad range of low-cost, high-quality products and services with short lead times and varying volumes". Flexibility is defined as "the ability to respond quickly and efficiently to changing customer and consumer demands."
Wherever agility and flexibility are critical, you need quick information from the marketplace that is reliable and accurate. Visibility helps to identify problems such as availability, stock shortages and excess stock. Creating a 'glass pipeline' enables supply chain managers to assess customer demand in order to satisfy it. The holistic view that information management systems provide, along with demand planning and inventory optimisation, make it possible to drive effectiveness through agility and flexibility.
Only by getting the right goods to the right place at the right time can you give a product a chance to compete and succeed. Being able to respond timeously and effectively to fluctuating demand helps to prevent lost sales, and therefore contributes to market share gains.
On the other hand, a lack of speed or agility can lead to excess stock as trends and fashion change, ultimately resulting in obsolescence.
Being able to move goods quickly to high-demand areas and withdraw stock from low-demand areas is vital. Monitoring demand patterns and the efficiency of reverse logistics systems also contributes to agility and flexibility.
The level of inventory is a good indicator of the agility, flexibility and responsiveness of a supply chain, and can be used as a reliable measure of efficiencies and effectiveness.
For most supply chain managers, the biggest challenges remain planning and forecasting. In the context of a continually evolving supply chain, the inventory models and business prediction instruments still in use today are now less likely to work accurately. But while we are becoming less and less able to predict demand, we can react to it and those who react fastest will be able to corner markets.
Supply chain services providers design, adapt and evolve bundled sets of high-quality but cost-effective solutions. The aim is to help clients leverage competitive advantage and have a positive impact on the bottom line.
As the market continues to change at pace, an agile, flexible and responsive supply chain can open the way to clear competitive advantage. Partnering with a logistics expert who understands this - and has the capabilities to continue to improve the supply chain on an ongoing basis - is clearly the only way to ensure and sustain success.
