How can Supply Chain Optimization software reduce costs? If that’s your question, it’ll be answered in detail throughout this piece.
We will talk about what SCOs are and how exactly they help you save money. I’ve tried making this piece extremely simple and easy to understand, so no, you won’t need special skills or knowledge to go through this piece.
For starters, let’s just say that tools like Supply Chain Optimization software by 3DS have proven track records of “guaranteed” 5% improvement in operational efficiency as well as generating positive ROI within 6 months of implementation.
This proves SCOs work, now, allow me to answer the “how”.
Table of Contents
- What are Supply Chain Optimization (SCO) software?
- How can Supply Chain Optimization software help reduce costs?
- Reducing Inventory costs
- SCOs help cut down transportation costs
- Reduce Procurement costs
- Improve production planning
- Reducing waste and emissions
- Final words- How can Supply Chain Optimization software reduce costs?
What are Supply Chain Optimization (SCO) software?
This of course is the first question we should try and answer, isn’t it? As the name suggests, these are software that help make an organization’s supply chain better and more optimized.
How exactly is that achieved? Any supply chain generally consists of a few basic key points. These include:
- Sourcing the materials
- Managing inventory
- Storage logistics etc.
The SCO basically helps you optimize each step mentioned above and more. We’ll discuss the “how” in detail throughout this piece.
How can Supply Chain Optimization software help reduce costs?
Here are the primary ways Supply Chain Optimization software may help reduce costs:
- Reduce inventory costs
- Demand forecast
- Inventory Shrinkage
- Inventory allocation
- Inventory obsolescence
- Cut down Transportation costs
- Identify and utilise backhaul points
- Helps choose the best mode of transportation
- Shipment consolidation
- Better route planning
- Reduce procurement costs
- SCOs help find better suppliers
- Contract management
- More negotiation opportunities
- Better production planning
- Reduce bottlenecks
- Better communication between departments
- Manage production ecosystem
Reducing Inventory costs
Any good SCO helps you manage inventory so you always have enough stock to meet your current needs while also helping you prevent overstocking. “Demand forecasting” is one of the ways this can be achieved. The SCO calculates how much product you may need in the next X days/weeks/months/years. This helps you prevent overpaying and overstocking.
Once you solve overstocking, you’re saving money in storage, insurance and potential loss of extra inventory, aren’t you?
Inventory Shrinkage is another major problem with inventory management. If you’re unaware, it’s when you lose inventory for unnatural causes/errors. E.g. theft, damages etc. SCOs help you identify the exact point where the shrinkage is happening helping you investigate and solve the matter with ease.
It also helps with allocating the inventory to the best warehouses and storage locations. Inventory Obsolence is another threat that a good SCO addresses. The SCO identifies products which move very slowly or are about to be obsolete for whatever reasons, you can then try to push these faster or take other measures to get rid of them.
SCOs help cut down transportation costs
Inventory is just one aspect of any business, transport is the other major side of it, isn’t it? I once read a case-study that showcased using mathematical models to optimize transportation and save significant costs.
A good SCO helps with transportation using a number of techniques. One such technique is identifying backhaul points. Once a shipment has been delivered, it can identify any other shipments that need to be picked up and brought back so that your vehicle doesn’t have empty miles (and you don’t have to make another trip for the backhaul later).
They also help determine the best mode of transportation for shipments. You can choose from the most cost-effective method that directly helps you save cash.
Shipment consolidation is another calculation SCOs do for you that helps save costs. Multiple shipments are identified and bundled together if they can be delivered by a single vehicle/mode of transport.
And finally, better route planning. SCOs are capable of calculating better & shorter routes, fuel, traffic etc. These save time as well as fuel which translates to saved money.
Reduce Procurement costs
This probably is one of the most important aspects of any business, sourcing the raw materials. Supply Chain Optimization software can help you identify better suppliers and procure your materials from them.
By better, I mean suppliers who are more cost-effective, offer better quality and better deliverability. This gives you better quality products at lower rates. This also gives you negotiation points when you’re choosing your supplier which may get you cheaper prices with them.
Some SCOs also have contract management options. They help you craft a contract that benefits you and monitor its fulfilment from the supplier’s end.
Improve production planning
SCOs also help reduce costs indirectly. These features do not seem to have a direct impact on cost, but they actually do.
For starters, SCOs help identify and remove bottlenecks in production. You can identify what part, machine, or employee of your ecosystem is being under/over-utilized. Then you get to optimize them for best results.
SCOs also facilitate better communications between different departments in your organization. Better communication means faster resolution of problems means more outputs means more money, right?
SCOs also help you monitor the change in your supply/demand. This helps you plan better for the future and you’re less likely to end up wasting money, HR, or time.
They also are capable of managing your production ecosystem. Machine capacity, labour, available raw materials and other factors are considered and calculated to help you achieve better productivity.
Reducing waste and emissions
This actually is a by-product of using a good Supply Chain Optimization software but it has its own set of benefits.
E.g. when you use SCO to optimize your transportation, you’re reducing mileage, empty miles and overall fuel consumption. This helps massively reduce emissions, doesn’t it?
Similarly, SCOs can also help you identify suppliers that use more environment-friendly practices.
Lastly, you can use SCOs to monitor your own emissions from equipment and facilities and plan on cutting them down.
It saves money directly and makes you more trustworthy for your consumers while minimizing legal troubles, both of which add up to saved costs and more profits.
Final words- How can Supply Chain Optimization software reduce costs?
So, those were just some (yes, this list isn’t all-inclusive) ways how Supply Chain Optimization software reduces costs for you.
I’m sure you’ve got a fair idea by now, haven’t you? Of course the benefits slightly differ depending on the exact SCO you’re using but the basic core is generally the same.
A question does exist though, which is the best SCO software out there? While it generally depends on your organization, needs and goals, 3DS has a pretty good option available.
Go on then, get yourself a SCO and see how it helps you reduce costs for yourself, eh?