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Improving a Company’s Efficiency with Supply Chain Network Optimization

If you have ever seen an episode of Shark Tank, I guarantee you have heard the sharks bring up questions like, “what do you need us for”. And I feel like the top three answers are always the contacts, the leadership, and the assistance in their supply chain network optimization.

It’s not hard to find a manufacturer or a distributor for your company, but it’s very hard to find one that’s going to be a true partner and work to keep your costs low and make you more successful.

Getting the supply chain network hammered out is imperative as a new company, but the “optimization” aspect is less important in my eyes. You just want to make sure that these companies are making your product correctly, without defects, and keeping costs low. As you grow, that’s when you’ll start to actually focus on getting the process optimized.

Think about with a company like Amazon – time is money! They promise 2-day shipping on so many products and if they don’t hit that, you can actually get a refund from Amazon for it.

Let me say this again – If you’re a paying Amazon Prime member and you buy a Prime item with 2-day shipping, and the package doesn’t show up in 2 days, you can get some money back in return for that. I know it’s annoying to track that, so just download Paribus – they’ll tell you when it happens and provide a cut-and-paste text to get you your money.

Sorry for the side rant, but I wanted to help all my readers, and most importantly teach you something – time is money…literally.

If there is a hiccup in the supply chain for Amazon, they’re literally going to send you some money. They made a promise that they didn’t keep, whether it was their fault or not, and in turn they’re going to give you some money back to keep you a happy Prime member.

Having their supply chain network optimized is essential!

And think about Walmart – they just introduced 2-day shipping to try to compete with Amazon, and Target is rolling out the same. Truthfully, I think this was a “must” for these companies to stay competitive.

Of course, they’re going to keep getting foot traffic, but foot traffic in stores has debatably changed on a permanent basis since COVID, so are there revenue numbers set for an organic decline?

If you ask me, the answer is yes.

Getting their supply chain network optimized to provide 2-day shipping was ESSENTIAL to staying competitive in the industry and I give them major props for getting it rolled out so quickly (although I am sure it’s been in the works for years).

So, just saying “supply chain network optimization” sounds great, but what does that actually mean?

Well, I think it’s really summarized best with this infographic from Supply Chain Process Improvement:

I love this infographic because I think that it shows a lot of the questions that the entire supply chain network should really be thinking about.

As a customer, you’re going to be looking for the best products at the cheapest prices being delivered as quickly as possible. So, the entire supply chain network should be finding ways to improve quality and functionality, improving shipping efficiency and driving down the operating costs to produce those products.

I remember when I was in college and was told that Amazon would preemptively send products to closer distribution centers in preparation for you to order that item. Not only was I dumbfounded by that, but I thought it was completely false. Well, I was wrong.

They had built out their supply chain network so extensively that they could send products to distribution centers that could then be delivered to many different locations in their 2-day windows. Not that they were necessarily prepping for my order, but they knew the different locations that they could hit from their distribution center so by sending those products in advance; they were cutting out a large majority of that initial travel.

If you own your own small business and are having some supply chain network optimization issues, it might be worth taking a further dive into seeing where you might be able to drive some more value.

I read an article from business.org that listed 5 ways to increase supply chain performance which I thought were worthy of sharing below:

  1. Evaluate Your Supplier
  2. Analyze Your Supply Chain Strategy
  3. Use Demand Planning
  4. Eliminate Data Silos
  5. Monitor Your System

As an investor, I think it’s extremely important to find companies that have an optimized supply chain network to make sure that they’re meeting their customer’s expectations.

One way that you might see this from a company is if they are actually able to completely remove sections from the supply chain. One example that I immediately think of is with Apple.

Historically, Apple has always been one that would buy their chips for their products from other manufacturers. Doing so would allow Apple the ability to focus on other parts of the business, but they were always held to the ability of those chip manufacturers.

Now, that’s not to say that Apple wasn’t cutthroat and would switch their manufacturers if need be, but simply by having other companies involved, it just added an extra layer of uncertainty that would potentially cause issues in their supply chain.

Earlier in 2020, Apple confirmed that they were going to start making their own chips for their Mac computers.

Bloomberg noted:

“Apple is designing more of its own chips to gain greater control over the performance of its devices and differentiate them from rivals. Getting Macs, iPhones and iPads running the same underlying technology should make it easier for Apple to unify its apps ecosystem and update its computers more often.

The move would also reduce reliance on Intel, which has struggled to maintain the annual increases in performance it once offered.”

In essence, they wanted to be able to control their own fate and remove that one extra step in their supply chain network. As a stock picker, these are the types of things that I love to see, as long as there is faith that they can make high-quality chips, and as a business owner these are the types of moves that you should consider.

But this is just one aspect of owning your small business – a part that’s arguably even more important when getting started is finding a way to raise equity!