Adding Value to Your Supply Chain with 5 Irreplaceable Components

#Whitepaper
#Logistics
March 6, 2020 15 min read

Supply chain management (SCM) is a wide range of processes required to plan, manage, and execute a product’s flow from raw materials to the creation of a final product and its distribution in the most cost-effective way.

SCM incorporates a set of actions needed to streamline the flow of goods and services, information, and costs by covering these stages: planning, sourcing, production, inventory management, and logistics. Companies use both business supply chain strategy and management software to create a competitive advantage.

key_components of scm

Supply chain management is a complex undertaking where each participant has to put forth much effort—starting with suppliers to manufacturers and beyond—for it to run seamlessly. Because of this, powerful SCM also requires change management, cooperation, and risk management to create alignment and interaction between all the partners.

Many challenges plague the supply chain industry. A few supply chain data sources reveal that many professionals are having problems with improving their operational visibility (21.1%) and meeting the changing customer demands (19.7%). This is in addition to being constrained by cost increases and the increasingly competitive business landscape.

scm challenges

Now might be the time for businesses to start rolling out data-driven processes to improve their overall supply chain.

1. Planning

Before the entire supply chain process can begin, it is crucial to polish the strategies and put them in place. It’s essential to investigate the demand for the product or service, checking the viability, expenses, profit, and human resources, etc.

planning in scm

Supply chain management starts with figuring out what products customers crave—the early steps of supply chain planning, also called demand planning. Traditionally, it’s one of the two overarching goals of SCM alongside supply chain execution.

During the demand planning phase, experts begin to gather historical data, such as recent sales, apply analytics and statistical modeling to make a forecast or demand plan. Based on this data, the sales department and operational departments—such as manufacturing and marketing—agree on the plan. This plan defines the types and amounts of products to be made.

Some companies make demand planning as part of a formalized process called sales and operations planning (S&OP), which implies data gathering, discussion, adjusting of demand plans with production plans, and management approval. Other companies consider S&OP as part of a broader process called integrated business planning (IBP), which includes other departments’ programs in a single, company-wide plan.

During the next critical stage—production planning—the business identifies the specifics of where and how the products from the demand plan will be made. A more fine-tuned alternative—which is typically automated using specific software—called advanced planning and scheduling, streamlines the resources for production and makes them more adaptive to fluctuations in demand.

Material requirements planning (MRP) ensures the sufficiency of the materials and components for use in the manufacturing process. Responsible managers take inventory of what’s available, seek gaps, and buy or make the rest of the items. The main document in both MRP and production planning is the bill of materials (BOM), a complete list of the elements needed to create a product.

MRP can be done as part of manufacturing resource planning (MRP II), which extends the MRP aspect to other departments, such as H.R. and finance. MRP and MRP II are the forerunners of enterprise resource planning (ERP), software designed to combine the most important business processes of the company.

Without a proper plan or strategy, it will be almost impossible for the business to reap the benefits. Therefore, sufficient time must be devoted to this aspect.

2. Sourcing

Sourcing, or procurement, is another stage in the supply chain management process. Goods and services sold to the customers are made with the help of a variety of raw materials. It is, therefore, crucial to find reliable suppliers that offer high-quality materials at reasonable costs. Plus, a company needs to get along with all the communication, such as sending out requests for bids, and documentation, including purchase orders, invoices, etc.

It’s a perfect scenario when most players in the supply chain—suppliers, manufacturers, distributors and retailers—have dedicated procurement staff. If the products aren’t delivered timely, and within the stipulated budget, the business suffers losses and gains a negative reputation.

Strategic Sourcing

Strategic sourcing is an elevated and more advanced type of supply that strives to improve a company’s sourcing process by benefiting from the consolidated purchasing-power and merge it into overall business goals.

The most apparent benefit of strategic sourcing is a decrease in total cost, but the advantages of reshaping the sourcing process can be far-reaching. As companies take advantage of loads of available data and digitalization of business processes, procurement is an area ripe for transformation.

Benefits of strategic sourcing:

  • Transformation of supply within the company 74%
  • Elevated productivity through automation 65% 
  • Increased savings 61%

As the Gartner’s magic quadrant for strategic sourcing application suites states, the first reason to implement strategic sourcing is a transformation of supply within the company, at 74%. Organizations also identified elevated productivity through automation (65%) and increased savings (61%) as key drivers for addressing strategic sourcing.

When a company procures high-quality raw materials, it can create first-class products that will maintain its reputation in the market. That is why dedicated suppliers are the most sought-after participants in the supply chain management system.

Applications of strategic sourcing
A strategic sourcing plan can aid businesses in achieving many goals that lead to success, including:

06_strategic sourcing

3. Production

For the production process to begin, it is essential to maintain proper planning and the supply of goods, as well as the inventory. In production planning, the first thing to decide is which type of production process best matches business goals and customer demand.

There are three types of production commonly spread: mass production, mass customization, and customization. Additionally, operations managers also split production processes into two stages: converting inputs into outputs and the timing of the process.

07_types_of_production

As we mentioned above, production involves converting inputs (natural resources, raw materials, human resources, budget) into outputs (goods or services). In a manufacturing company, the inputs, production, and outputs are usually obvious.

Nike, for instance, converts plastic, rubber, paint, and other inputs into footwear. But the production process in a service company incorporates a less obvious conversion. For instance, a law school converts the knowledge and skills of its staff, along with equipment and supplies, into legal services for people.

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The production is followed by testing, packaging, and the last preparation for shipment. When this part of the supply chain is done, it’s time for inventory management to begin.

4. Inventory Management

Inventory management is a sophisticated process, especially for giant corporations, but the basics are often the same regardless of the company’s size or type. In inventory management, products are transported into the receiving area of a warehouse and are forwarded into stock areas or shelves.

As a component of the supply chain, inventory management involves the flow of products from manufacturers to warehouses and from these facilities to retailers.

A quintessential role of inventory management is to keep an eye on each new or returned product, whether it enters or leaves a warehouse.

Inventory Management Software System

To ease the work inside a warehouse and to automate the entire process of inventory management, companies started using software systems. Initially, inventory management (IM) software was simple spreadsheets that traced the quantities of goods in a warehouse.

Nowadays, IM software can go more in-depth and integrate with accounting and ERP systems. These systems keep track of goods in inventory, sometimes across several warehouse locations. The software also estimates the costs—often in multiple currencies—so that accounting systems always have an accurate estimation of the value of the goods.

As studies show, companies can gain a 25% increase in productivity, 20% better space usage, and a 30% improvement in stock use efficiency if they opt for an integrated order processing for their inventory system.

inventoty management practices

Inventory management software for large companies can also be greatly customized for the particular needs of those enterprises. Massive systems that were previously run on-premises are now also located in public, private, or hybrid cloud environments. Small and midsize organizations typically don’t need elaborate and expensive systems, and they often rely on standalone inventory management products, generally through SaaS applications.
Benefits of using IM software:

  • Easier stock level tracking and taking inventory through scanning and saving data
  • Real-time access to inventory data and stock levels
  • Fewer human errors through digitization of paperwork
  • More control over data, such as invoices, sales, profit margins, etc.
  • Minimized loss of sales and keeping up with demand
  • A practical and time-saving flow of the goods
  • A steadier inflow of products in line with product outflow
  • Real-time access to product demand

Inventory Management Techniques

IM has several ways to keep the right amount of products on hand to satisfy customer interest and operate effectively. This task is particularly complicated when companies need to deal with thousands of stock-keeping units (SKUs) across multiple warehouses. The techniques include:

  • The Stock review methodology is generally more suitable for small businesses. The stock review involves regular analysis of stock available versus predicted future needs. It mainly uses manual effort, and while it can provide a measure of control over the inventory management process, it can be labor-consuming and prone to mistakes.
  • The Just-in-time (JIT) strategy attempts to increase efficiency and decrease sales loss by receiving goods only as they are required in the production process, thereby reducing inventory costs. This method expects producers to predict demand accurately. The advantage of JIT is that there is no need to keep tons of products on hand to meet customer demand. However, risks may arise. Misreading market demand or having distribution issues with suppliers can lead to out-of-stock problems.
  • ABC analysis is a method of IM that divides sales items into three categories: A, B, and C, according to their cost and value. A-category represents the top sellers and C corresponds with the slow movers. This method aims to draw executives’ attention to the critical few (A-items) and not on the trivial many (C-items). This analysis allows companies to keep costs under control within the supply chain. Plus, to get the most from management efforts, it is efficient to focus on products that cost most.

example of abc technique

The purpose of inventory management is to minimize the total cost of inventory and to maximize the capability of providing customers with the ordered products on time. In accomplishing this goal, efficient logistics management has to take place.

5. Logistics

The two primary tasks of logistics are transportation and warehousing. Transportation management tasks involve planning, optimizing, and executing the use of transports to move goods between warehouses, retailers, and points of consumption. There is a wide range of vehicles involved in the delivery process: ocean, air, rail, and road transport.

A sophisticated delivery process comprises planning and optimizing routes, shipping loads, order management, freight audit, and payment. It can also involve yard management, a process that supervises the movement of transport through the yards outside plants, warehouses, and distribution facilities. Carrier management is also a vital aspect since the cost, availability, and capacity of transportation carriers can fluctuate greatly.

To fulfill the transportation tasks, companies typically address logistics software development. Businesses may use more specific solutions like transportation management system (TMS) software or yard management systems.

Warehousing, or warehouse management, has to deal with inventory management and order fulfillment. It also involves handling warehouse infrastructure and processes. For example, in the fulfillment center, orders for goods are received, processed, and shipped to the customer.

Most companies use a warehouse management system (WMS) to manage the flow and storage of goods and track inventory. Innovecs, in turn, can offer TMS and WMS modules, as well as more specialized components for logistics and supply chain management. Consult Chapter 6 of the article to learn more about Innovecs expertise.

Customs management, or global trade management, is also considered to be part of logistics since the documentation to show compliance with government regulations must be processed where products cross national borders or enter shipping ports.

Artificial intelligence (AI) and driverless vehicle technology are going to change the way logistics operates in the near future. Some providers already use AI to better track orders and forecast transport-related issues in the supply chain.

Meantime, autonomous vehicles, such as driverless forklifts, delivery trucks, and drones, are gaining popularity in warehouses, warehouse yards, and on highways.

Suppliers, manufacturers, distributors, and retailers must upgrade their logistics processes to keep up with innovations and meet the demand for quicker, more timely delivery of a wider assortment of goods. They must also better integrate their processes and systems to increase supply chain visibility.

Return of goods

Among the various elements that create a reliable supply chain is an ability to return damaged or malfunctioning products, in conjunction with a highly responsive customer support service.

No one is perfect. Even a machine may fail once in a million times, if not more. As a part of a robust business process, expect the return of goods due to specific conditions. Even high-quality quality control processes may have inevitable slips. In the case of such lapses, undoubtedly followed by customer complaints, a company must recall the product(s) and issue an apology. This not only builds a good relationship with customers but also maintains goodwill in the long run.

6. Build a reliable supply chain with robust SCM software

Technology is crucial in managing today’s supply chains, and every significant supply chain management component has a software category dedicated to it.

Besides managing specific processes, supply chain management software plays a vital role in tying together the people, operations, and systems included in the supply chain.

The commonly used SCM modules include the following:

  • Transportation management system (TMS) for organizing the transport and storage of goods, particularly across worldwide supply chains
  • Warehouse management system (WMS) for all of the operations inside warehouses and distribution centers
  • Order management system to handle the processing of the orders through WMS, ERP, and TMS systems at all stages of the supply chain

5 agents of change within supply chain management

Driving Business Using Automated WMS

Innovecs’ expertise offers a broad spectrum of software solutions to streamline the processes inside your supply chain, taking it to the next level. In particular, our engineers have mastered the development of a robust WMS from scratch. By collaborating with the Innovecs team, you’ll get feature-rich WMS system with the following functions:

  • Warehouse design that allows organizations to customize workflow and pick logic to ensure that the warehouse is designed for optimized inventory allocation. The WMS establishes bin slotting, which maximizes storage space and accounts for variances in seasonal inventory.
  • Inventory tracking that allows the use of advanced tracking systems, such as radio-frequency identification (RFID), automatic identification, data capture (AIDC), and barcode scanners to ensure that goods can be easily accessible if they need to be moved.
  • Receiving and putaway performed using pick-to-light or pick-to-voice technologies, which helps warehouse employees to better and quicker locate goods in storage.
  • Pick and pack fulfillment, including batch picking, wave picking, and zone picking. WMS can help to detail which box will be the most suitable option for the order at hand. Operators can also use lot zoning and task interleaving functions to do the pick-and-pack tasks most efficiently.
  • Shipping fulfillment that enables the WMS to send bills-of-lading (B/L) as soon as the shipment is sent, generate packing lists and invoices for the delivery, and send advance shipment notifications to consumers.
  • Labor management that helps warehouse supervisors regulate workers’ performance by using key performance indicators (KPIs) that show which workers overwork or underwork.
  • Task management that aids in managing employees’ daily workflow by setting daily duties, tracking working time, and streamlining the overall processes inside the warehouse.
  • Yard and dock management allows truck drivers to come into a warehouse and quickly find the right loading docks. More sophisticated use of yard and dock management enables cross-docking.
  • Reporting that helps executives analyze the performance of warehouse operations and find gaps to improve.
The primary advantage of a WMS is a significant cost reduction. Beginning with storage costs savings, ending up with saving tons of driving time, fuel expenses, and mistaken deliveries.
Andrew Komarov,
Software Architect at US Cold project, Innovecs

The Advantages of Using WMS

Reduced operating costs

A well-designed WMS reduces operating costs in many ways. For example, some advanced systems simulate the warehouse floor and create digital floor plans within the system. These digital simulations let operators place pallets, shelves, and other equipment they need to accommodate in a warehouse.

Better inventory visibility

Better inventory transparency is one of the most critical tasks for warehousing. With WMS software, you can get real-time access to inventory data through barcoding, serial numbers, and RFID tagging. Plus, WMS solutions enable inventory tracking within a single warehouse or multiple locations.

Inventory visibility gives managers data for creating demand predictions. Better traceability of your inventory is also extremely useful in the event of a return. With serial numbers on the final product, you can track the item back to its original ID, which then checks whether the product is from the faulty batch.
Andrew Komarov,
Software Architect at US Cold project, Innovecs

If you want to be sure that you always have an eye on all operations, you might want to consider implementing solutions and SCM systems on the market to gain more transparency in your supply chain. The statistics below reveal how weak the attitude of companies regarding the visibility in their SCM is.

supply chain visibility

Enhanced security

Most warehouse management applications require workers to use individual user accounts for their activities. This creates an audit log report that connects specific workers to specific operations, which improves accountability and reduces the risk of theft, unauthorized access to confidential data, and other issues.

Inbound and outbound optimization

A warehouse management system provides inbound planning tools for scheduling and putaway fulfillment. With these tools, you and your supplier can decide what date and time are best to receive a shipment based on the resources and equipment available.

WMS also helps users to plan their routes when it comes to pick-and-pack operations. WMS can give multiple algorithms to choose the best route for picking goods. Depending on the type of your product, users can select a zone, batch, or wave picking to reduce warehouse traffic and other obstacles. These algorithms also take employee location into account, which allows the team to focus on the tasks closest to them first. This allows your team to save time and energy while increasing their productivity.
Illia Chmut,
Technical Program Manager at US Clod project, Innovecs

Increased labor efficacy

In addition to improved inventory placement and route management, WMS can determine the best team member for a particular task. WMS can analyze factors such as skill level or proximity to help users assign tasks to each employee.

WMS solutions can be used to get an in-depth understanding of your workforce. With labor costs making up 65 percent of the average warehouse capital, it's important to know how human resources are being exploited.
Illia Chmut,
Technical Program Manager at US Clod project, Innovecs

Improved team spirit

A robust WMS platform isn’t a cure-all for every issue within your workforce, but it can do a lot to alleviate the difficulties both leadership and manual workers face in everyday jobs. A well-organized work environment can give your employees that extra time to think twice before attempting an inaccurate lift or using defective equipment. This all adds up to a healthier workplace, more enthusiastic and satisfied workers, and further growth of your business.

Improved relations with customers and suppliers

The advantages of using a warehouse management system go far beyond the company itself. With high inventory traceability and the ability to schedule the receipt of packages, both supply and demand chains are improved with the use of a WMS.

Suppliers see a reduced wait at docks and loading bays, while customers enjoy overall improved order fulfillment, reduced delivery times, and fewer order inaccuracies. The image of your business among consumers and suppliers will improve under such a system.

The benefits mentioned above are only a part of full WMS capability. A well-designed warehouse management software is the best way to quickly improve the success and profitability of your business.

Managing Warehouse Documents Electronically

Another solution provided by Innovecs is digital document storage, along with e-signing of all the papers processed within your supply chain. Electronically manage forms, certificates, and other valuable warehouse documents.

Warehouse data management—everything from logistics and freight forwarding to inventory management, to wholesale distribution—all benefit from digital document management. Most processes involve paperwork, and universal document storage can transform the paper trail into an integrated system that electronically manages entire warehouse documentation.

What you get with digital document storage:

A faster warehouse — warehouse document management accelerates the retrieval and access to paper documents so that team members can answer questions faster and warehouse inventory can move more quickly. In accounting, instant access to files supports faster billing.

Import-export compliance — maintaining valid certificates, and complying with regulatory restrictions, requires detailed monitoring of deadlines, expiration dates, and other warehouse document milestones. Records management tools and reminders aid in automating the process for renewals and re-certifications, so people stay informed before it is too late.

Invoice automation speed accounts payable — go paperless with electronic invoice processing. Invoices can be quickly converted into the digital system, routed for approval, and prepared for processing. Fast turn around improves cash flow.

The advantages of digital document management:

  • Turn and handle all warehouse documents to a full-text and searchable digital format.
  • Manage documents according to any number and combination of metadata, from SKU, to certificate, to customer ID.
  • Dramatically increase the retrieval efficiency of paper warehouse records to speed up warehouse operations and back-office efficiency.

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Summary: finding the best solution to boost your SCM

We’ve made an overview of the most vital elements of supply chain management. And to succeed, every component must work in tight conjunction with each other and with minimum bottlenecks.

To speed up your processes and eliminate risks of human error, you must reinforce the entire supply chain. Consider exploring different SaaS products, including inventory management platforms, warehouse management systems, SCM tools, as well as BPM solutions.

Whether a business should have one is up to leadership to decide. We hope that this guide helped you to be more up-to-date regarding the significant shifts in the industry and made it easier to understand the changes in supply chain processes, obstacles, and best practices.

But, of course, before you start investing in these products, you should first take a glance at Innovecs’ expertise. This should help you understand the purpose of SaaS in different industries, as well as how you can leverage it for your company.

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