Supply chain optimisation helps manufacturing businesses drastically reduce operational costs to improve revenue and customer satisfaction. Done right, it can give you a significant competitive advantage.
In our latest Supply Chain Roundtable, also available as a podcast, four experts share their advice and experience around optimising the manufacturing supply chain.
- Listen to the full roundtable where you get your podcasts: Apple, Google, Spotify or Amazon Music
Meet the experts:
- Alex Townson: Head of Outsourced Supply Chain at YF
- Sam Walker: Systems Architect at Flowstore
- Neil Keegan: Head of Manufacturing at Automata Technologies
- Hugh Robinson: Senior Transition Transformation Manager at flinder
What’s deoptimising your manufacturing supply chain? Risks and challenges
It’s easy to blame stock issues on supply chain disruptions. And you’d be right – they’re certainly a factor.
However, when we look a little closer at most supply chains it's apparent that inefficiencies crop up even when goods arrive unimpeded. So, what other risks and challenges exist for manufacturers (and the businesses that rely on them)?
According to Neil Keegan, Head of Manufacturing at Automata Technologies, custom requests are a common problem area.
“It’s the bespoke [orders] where it gets tricky,” Neil explains. “Being able to get traceability on the material, understand when the available dates are and whether it's in the warehouse, whether it's due or not … these are all the big things for us that create bottlenecks.”
For global businesses, long lead times on international shipments exacerbate these challenges.
“Items that need to be assembled in a specific order can cause all sorts of headaches,” says Sam Walker, Systems Architect at Flowstore. “We're a distributor for a Korean partner. We assemble bespoke solutions on site. Often, we end up asking the partner in Germany or Spain or somewhere, ‘Can you air freight this? Can we use a different material?’"
When bespoke orders get held up, the customer feels it too.
“We are having to go back to the customer and say, oh, your order's going to be two weeks late, three weeks late, a month late,” Sam says. “They're complaining and we're like, this is out of our hands. We've got to wait for this to come in, then we can assemble your product."
It’s impossible to speak of manufacturing efficiency without mentioning the technologies that improve it.
Hugh Robinson is a Senior Transition Transformation Manager at flinder. He’s seen first-hand how a lack of systems and centralised data can put a business at high risk.
He offers this example: “[One of our clients has] a sizable warehouse, lots of SKUs, and a very good warehouse manager. But all that information and knowledge is in that [manager's] head. There's a huge risk there – they may leave or have time away from the business.”
And of course, there’s the relentless challenge of accurately forecasting demand.
Most businesses involved with the manufacturing supply chain have felt the unwelcome tug of the bullwhip effect. This is when small shifts in consumer demand result in large swings at the production end of the supply chain.
As Sam Walker tells the panel, consumer demand can be as unpredictable as the weather. “Our forecasting has always been a nightmare because it's not seasonal. It’s a constant headache for our purchasing manager. Sometimes we'll find that our normal rate of demand for a month can spike to 10 times that with one big order.”
Accurate demand forecasting key to an optimised supply chain
“Forecasting is the single thing that people struggle with the most in our industry: not having that access to data or any sales history to fall back on.”
So says Alex Townson, Head of Outsourced Supply Chain at YF.
“A lot of brands find it difficult to really know where to start. You've got to be really leaning into your customers and getting as much information from them as possible, but also trying to find as many similar products as possible to gain some kind of insight from them.
“Look at your listing base, look at how many store numbers you have, and try to make the best go that you can.”
Seasonality of goods and holiday sales can be especially tricky for predicting future sales.
Hugh Robinson says: “Gifting season was the big one for us. We would plan backwards from that, working our lead time, making sure we've got enough stock.”
Supply chain optimisation is an ever-evolving task. As we’ll get into shortly, the trick is to collect the right data – from as early as you’re able.
Alex shared some final advice for those worried about the accuracy of their demand forecasting. “The thing with forecasting is it's always going to get better over time. You've just got to give it time and build up that sales history – just start off as best as you can."
Tackling bottlenecks: Hacks, strategies, and advice
To fix your manufacturing supply chain, you need the right systems, strategies, and resources in place. We asked our guests what advice they had for finding and resolving bottlenecks.
1. Data investigation for identifying inefficiencies
The consequences of bad data can be costly, as demonstrated in this anecdote from Neil. “We use £75,000 OEM parts that we buy in. [And] there can be £100,000 worth of accessories that go with that. Some of these items have long lead times. So, if we find out this is wrong and then we've got an eight-week delay before we can actually get the right item.”
Eight-week delays and hundred-thousand-pound items are not something that can be easily dismissed or swept under the carpet. Accurate data is essential for making the right decisions around purchasing and resource planning.
Neil adds: “The ability to take a data-led approach to understanding your own internal operations is absolutely vital. Seeing where the latency is in your systems, where things get held, where things don't get booked immediately, where things don't move, that's key to being able to improve efficiencies and smooth controls.
“As manufacturers are moving delivery dates, it's really important that we can see, as soon as we know, what's actually changed and what that impacts in terms of our production builds.”
Data is the bread and butter of successful, efficient manufacturing operations. Neil adds, “Being able to see how one element goes into another that then affects a final assembly and the schedule dates for the completion of those is absolutely important. actually work them.”
Sam and his team have also been investigating their data for inefficiencies – and their discoveries have been critical when it comes to managing suppliers.
“We've done a big project over the last year reviewing all our suppliers and how they're performing,” reveals Sam. “Some of them were at 40% error rate, or their deliveries were 40–60% delayed. “
2. Automation and tech in the manufacturing supply chain
Manufacturing automation can help streamline processes and make the manufacturing supply chain more efficient. But as our guests highlight: not all factories are open-minded about AI.
“The manufacturing sector tends to be a bit tech adverse,” says Sam. “We don't often have the data at our fingertips of what's really happening with our supply chain.”
“We're not really getting into the AI space,” Neil agrees. “Suddenly handing [tasks] over to a machine that's doing them 10 times faster is a big emotional step and making that transition takes time, which is why we have such a deep level of sales engagement to actually show [staff] that there are benefits.
“They've got to buy into the thing, and they've got to trust it. So high levels of automation on that side of the business is a bit too much, a bit too quick.”
But when manufacturers eventually do switch to modern systems, the benefits manifest quickly – as demonstrated in one of Hugh’s recent client interactions.
“This client came to us and said, ‘I'm not using the data I've got. I've got this one brilliant warehouse manager, but I need to get that information and data somehow onto a system.’
“So we implemented an inventory management system for them. Before they came to us, they had a £50,000 stock write-off just because they had stock they didn't know was there in the warehouse somewhere gone past its sell-by date.”
From his experience, Hugh believes the key to manufacturing automation in the supply chain is integration of core processes and systems. “Multichannel integration between your selling platform and your fulfillment systems – from the point of the sale all the way through to [order picking and delivery] – can mean that you inherently get better customer satisfaction because you can hit those postage days that the advertise on your website.”
3. Internal optimisations: Warehouse layout and staff
“We've also managed to make some improvements out in the warehouse as well in terms of how we're operating,” Sam Walker explains. “Some of it involves employees – people that were also causing us bottlenecks. We found some people were spending a lot of time talking and causing problems over actually delivering what we needed.
“We've been data led on a lot of things. We've actually started to capture errors we've been making across the business. Certain employees consistently had errors, were facing disciplinaries or a slap on the wrist. We've found removing certain people has increased our productivity.”
Sam points out that where stock lives in the warehouse and how its transported can also influence the efficiency of a business’s operations.
“We did a project a few years ago looking at the movement of stock within the warehouse. We brought some of our items to the end of an aisle because [our staff] were going all the way to the top of the aisle, [and then] walking all the way down to put it into the assembly area.
“One of the wastes in Lean is movement, whether that's movement between here and Belgium or I took 10 extra steps when I could have taken one. We’ve looked at both levels and applied the same logic based on the data of how often we're picking this product.”
Performing the same task in less time is great. But as Neil explains, accuracy matters just as much as speed.
“Right material, right place, right time – that's all about control,” he says. “It’s not just about going faster; it's about being able to achieve speed by knowing precisely where you are and what you're doing.”
And behind every process is an employee – or team – making sure it goes smoothly.
Neil suggests that employees present another opportunity for reducing bottlenecks. “The biggest cost-saving opportunities we really have are in controlling our own engineers. The engineers basically go out and buy what they need when they need it, which means that you can end up with 10 different items that are all unique.”
Consolidated purchasing can help bring costs down, he adds. The solution is hiding in the data.
“What we try to do is trawl the data to see where we've got similar products in similar areas and then ask the question: Is there one thing that we can buy that will do all these jobs?
That reduces the amount of inventory space, handling, and logistics on individual small orders.”
For companies or consultants overseeing multiple warehouses, Alex Townson offers a way to better understand the performance of each facility.
“One of my favorite geeky exercises to do is just to take a brand's warehouse rate card and their invoice and then apply that to another warehouse's rate card,” says Alex. “If they were to do all the shipments that they made in the last month, store all the pallets, do all the same picks, what would the cost be at this warehouse compared to this warehouse?
“Sometimes when you're trying to compare a rate card side to side, it can be difficult costing different things. But by doing that you can see whether the savings can be made.”
4. Third-party manufacturers
Another potential route for optimising the manufacturing supply chain is to outsource production.
“Working with a third-party manufacturer can bring a lot of efficiencies for the brands that we work with – most notably with raw materials,” Alex says. “If the manufacturer can operate on a turnkey basis, where the brand is just buying a finished good from the manufacturer, then the fact they don't need to then procure all the raw materials themselves makes things so much easier.”
This strategy offers several benefits, particularly for those dealing with large volumes of non-bespoke items.
Alex explains: “In terms of economies of scale, if you're working with a third-party manufacturer, they're likely using ingredients that they're using for their own manufacturing or manufacturing they're doing for another brand, and they're likely going to be buying those materials on a greater scale and able to get a much better price than the brand would be able to on their own.
“Also, in processes and experience as well. Manufacturers tend to have been doing it for years and some brands that might be new to it don't have that kind of experience and quality.”
5. Walking the supply chain
We’ve stressed a lot the importance of collecting and analysing accurate data. But sometimes data isn’t enough.
As Alex and Neil explain, physically exploring the manufacturing facilities building your products – if possible – helps businesses gain a direct understanding of the processes being deployed.
“We like to get out and visit our manufacturers regularly,” Alex tells the panel. “Literally walking the factory floor, seeing all the different processes happen.
“Speak to the staff who are actually performing the processes – because they're probably going to give you the most honest feedback. They're going to tell you what they find annoying about manufacturing your product or where things aren't efficient. Once you've got all that information, it allows you to make the necessary changes to prevent bottlenecks.”
Neil adds: “Walking your processes and seeing what's actually going on is so vital. You see the way that people work, the conditions that they work, the way they go about things … you get to understand so much through that.”
6. Setting the right priorities
Like most things, supply chain optimisation benefits from working out which tasks matter most – and which barely move the needle. We checked in with our experts to see what they had to say about setting priorities.
Neil says: “A constant theme that we're going back to is: are we actually doing the right thing? Is it adding value? Is it making it truly slick for the whole business? Or is it just being fast for you? There's a slight difference, and that education process with your own teams is absolutely vital.”
Hugh concurs. “It’s important to have your priorities. Make sure you can fulfil your most popular and your higher margin products. That's something that we sort of learn the hard way on and then try to implement afterwards.”
When it comes to setting the right priorities, Alex says: “Inventory is best where it's most likely to get to the customer at the right time in the quickest time possible. Nowadays, customers want everything as quickly as possible, and lead times are getting shorter. You have to be able to react to that.”
Measuring performance: Key metrics for manufacturers
Finally, our experts discussed which metrics are critical for tracking the performance of your manufacturing supply chain – and the success of any optimisations made.
1. Order cycle time
“Order cycle time is a great metric for businesses to track,” says Hugh. “That time from a sale being made to product being delivered to the customer or leaving the warehouse. We encourage clients to look at order cycle time now or after implementing [software] and see where that's improved.
“You can see where bottlenecks are or where the longest sections of that order cycle time are and then focus there and try and make those efficiencies to improve it.”
2. On time, in full (OTIF)
“OTIF is one of the ones that we go back to time and time again,” Neil says. “When we ask a supply for something, do they actually deliver it when we actually need it?
“Looking at OTIF and availability on certain components has given us the opportunity to go back to engineering and challenge their part selections in the first place. Can we do this a different way? This is difficult to work with. This is causing problems for the whole business.
“We try to agree price windows and discounting with suppliers, particularly where we've got contracts in place for multiple lines, are they able to deliver on that? We try to agree to discounting according to volume of spend on number of jobs that we actually do.
Alex agrees on the utility of tracking OTIF. He expands on this by adding that he believes it should be tracked both internally and for your external suppliers.
“OTIF is the main one for us. We talk about it in every single meeting. We are always trying to drive up the OTIF that we're delivering out to customers. If you can nail the inbound OTIF, then the outbound OTIF comes with it."
3. Contribution margin
“A key KPI for our clients is the contribution margin and the different levels of contribution margin that you can track,” Hugh says. “It's looking at your unit economics for your product essentially.
“If you have a sophisticated inventory management system which can allocate the costs into each bill of materials into the cost of that product, it can give you an accurate contribution margin, which would be your sales minus the direct cost of producing that product.
“And then going down a step, you are factoring in things like your shipping costs, logistics and warehousing costs, storage costs, pick and pack costs. And on your third level you add in your digital marketing costs for the product.
“By splitting it out this way you can really focus on areas that are impacting your margin the most or that are fluctuating month on month. It's about getting that granularity so you can focus in and really think about where your margins being affected most.”
4. Supplier performance
Finally, Alex reiterates that measuring the performance of your suppliers is mission-critical whether you’re a manufacturer or not.
“On the manufacturing side, making sure that we're on top of defect rates, customer complaints, wastage – these are all things that you want to be really on the ball with and get on top of early. And then related to 3PLs, stock shrinkage and inbound processing times.
“The important thing is with all these things is how you actually hold people accountable. It's really important that you get a good robust service level agreement in place as part of all your contracts with your manufacturers, suppliers, warehouses, and that there's actually some incentive for them to improve performance."
