Optimizing Your Supply Chain: What Manufacturers Should Do

Supply chain disruption can be devastating. A study by McKinsey found that in most sectors, a single lengthened shock to production could wipe out up to half a year’s profits or more.

While supply chain issues have improved, there is still a constant potential for disruption, including:

• Weather
• Transportation delays
• Demand volatility
• Supplier availability
• Cyber attacks
• Inflation and other pricing obstacles

Disruption could be anywhere, and preparation is key. A 2024 McKinsey study found that two-thirds of leaders believe their organizations are ineffective and only half are prepared for upcoming changes.

To cope with current market trends and future possible challenges, manufacturers need to concentrate on their long-term supply chain strategy, with a focus on improvement and digitalization.

Creating Supply Chain Visibility

Visibility is critical for manufacturers looking to optimize their supply chain. Visibility allows you to see how your supply chain is performing and measure results across a variety of factors including, inbound receiving, inventory turnover, product lifecycle, and more.

The most resilient supply chains can adapt through constant disruption while also scaling to meet new demands. They allow manufacturers to shift sourcing and distribution activities around as needed.

The Impact of Data

For too long, legacy systems and a lack of integration and data governance have resulted in limited data visibility. Manufacturers and supply chain leaders must accelerate technology adoption and prioritize data and analytics to gain visibility and foresight.

The implementation of data with predictive and prescriptive analytics, enhanced data quality, and data capture can result in a smarter, more resilient supply chain.

Smart supply chains create flexibility to meet the changing demands manufacturers face. The use of data can help manufacturers with:

• Demand planning
• Forecasting
• Expense tracking
• Risk management
• Inventory optimization

For instance, using data to map your suppliers can prevent minor disruptions while also mitigating the effects of major ones.

By systematically managing your data, you can gain consistent information throughout your supply chain planning and management process. In fact, the use of dashboards to create full visibility is on the rise for manufacturers, resulting in over 70% looking to revisit current processes and governance in the next three years.

Optimizing Your Supply Chain

Supply chains are incredibly complex. Add in globalization, technology enhancements, and inventory needs and it’s no wonder optimized supply chains can be a source of frustration. According to one Gartner study, only 30% of supply chain organizations feel their supply chain strategy is aligned with overall operational execution.

A well-run supply chain lowers manufacturing costs, improves the reliability of deliveries, and helps you respond to unplanned demand. But this only works when your supply chain is properly optimized.

Supply chain optimization revolves around any activities that improve efficiency and effectiveness in the supply chain, including:

• A foam cleaning supply manufacturer looking to increase visibility into inventory
• Shipping Optimization
• Using AI to automate processes
• Aligning and monitoring KPIs – RL Hudson
• Process optimization – Goodfellow

Using technology that gives more visibility into the whole production process can improve supply chain. Slightly more than 60% of organizations have tech solutions in place to help monitor supply chain performance.

Technology types include:

Diversifying Your Supply

Building a strong supply chain requires establishing relationships with multiple suppliers and manufacturers. More than 70% of supply chain leaders have already made changes to the size and number of locations in their supply chain network within the past two years. And 51% have increased the number of locations.

These findings illustrate the need to adapt networks to meet new market challenges. To secure your own supply chain, spread your procurement out so you’re not tied to just a few companies, especially for your most vital products and processes. You could have multiple suppliers of the same raw material so that, in a time of disruption, you can lean more on one than another.

Further, establishing cooperative relationships with multiple suppliers allows you to adjust your forecasts, orders, and increase sales more easily.

Digitizing Processes

Digitizing operations unlocks real-time data that manufacturers can use to make decisions about production regardless of circumstance. Smart supply chain design like smart logistics solutions, the Internet of Things, robotics, and artificial intelligence can shape operational effectiveness and enhance efficiencies.

Yet, the average supply chain only has a digitization level of 43%. This means there is substantial potential for manufacturers to digitize their supply chain operations.

Take, for instance, the role of AI in planning and delivery across the supply chain. Generative AI systems are perfect for automating manual manufacturing processes like ordering or target setting. Further, AI backed by solid data can provide insight into inventory trends, factory-floor production scenarios, or warehouse efficiency concerns.

When done well, the results are staggering. McKinsey recently reported that in manufacturing and supply chain, generative AI could reduce expenses by up to half a trillion dollars.

Building a More Resilient Supply Chain Begins with Planning

To achieve the visibility, agility, and traceability necessary, organizations must begin to implement supply chain optimization and planning. Every step in the supply chain process – from ordering raw materials to delivery – must be reliable.

Strategic, long-range supply chain planning involves the establishment of a framework for your supply chain. This includes a deep dive into your business and its suppliers with the goal of improving operations, standardizing processes, and planning for disruption.

Areas to review include:

• Demand planning
• Supply management
• Production management
• Inventory management
• Pricing strategy
• Event management
• Distribution planning
• Integrated business planning

By building these strategies into every aspect of your operation, you’ll be better prepared to meet disruption and fluctuating market trends head on.