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A convergence of anomalous global events has made the age-old goal of reducing overall business costs simultaneously exceedingly challenging and more critical than ever.
For companies managing complex supply chains, an inherent solution exists, yet it’s one that very few executives realize: data-use optimization.
Notice that this solution is all about the use of data that has been collected in a central location. That’s because most businesses actually already possess all the data they need to begin optimization. Cost-saving actions like slashing excess inventory to trimming transportation expenditures are just two of the immediate benefits of properly utilizing the supply chain data businesses already have.
With inflation pushing up prices across all categories, COVID-19 continuing to cause supply chain snarls and the war in Ukraine causing carriers of goods to reposition their transportation assets — it is imperative companies take advantage of the insights that their datasets provide.
Dealing with disparate datasets through centralization and normalization
Among the most common reasons businesses don’t maximize their own supply chain data is a lack of understanding as to what the data shows or where to find the data they need. This is often the result of various disparate internal company datasets which need to be normalized, as well as the fact that they are often not accessible from a single platform or system.
Disparate datasets that companies regularly work with include those from manufacturers, vendors, distributors, wholesalers, cargo ships, freight vendors and internet-of-things sensors. Enterprise resource planning, order management and warehouse management systems each also produce unique datasets.
The most effective C-suite executives today are not only investing in technology to organize these datasets and extract pertinent insights, they are also investing in hiring the right people to manage that information. Data scientists are the key to unlocking the hidden potential in the data a business possesses. They have the skills to extract the data from wherever it currently sits so that it can be put to use.
Centralizing the data in one location enhances an organization’s power to wield the information that will result in advantages including a source of truth, ease of analysis and identification of areas that need improvement.
Once a company reaches that point, executives then may link the messages from the data to a business objective — a problem that must be solved — and the return on investment behind those things.
Supply chain performance as a differentiator
Supply chain performance is more relevant than ever because it determines the capability companies possess to shorten the distance between a supply chain’s beginning and end points.
While many Amazon supply chains span distances of about 60 miles, most other businesses work with supply chains that range from 1,600 miles to 1,800 miles. That’s why Amazon can consistently deliver products to customers within one or two days. Longer supply chains mean longer lead times, greater variability, the need for more stock and less certainty of where to place inventory.
Condensed supply chains — more warehouses along shipping routes, for instance — enable cost savings by improving areas including demand management or forecasting, planning and execution.
Enormous potential for improvement is there for the taking. A November McKinsey & Co. report found just 2% of companies leverage supply base visibility beyond second-tier suppliers. Those companies provide the materials to businesses’ first-tier suppliers, which comprise partners the business directly contracts, such as manufacturing facilities.
Apple is a prime example of a company that wisely uses data while pairing that approach with its comprehensive business strategy. It has developed solid multi-echelon data visibility and combined it with a fab-to-end-consumer vertical-integration approach. The result: A system that protected Apple from disruptions months after they affected other businesses.
Combining talent and tech for success
Most companies don’t have Apple’s structural advantages, but that shouldn’t hinder businesses from improving data game plans. Hiring data scientists and data engineers who are superb translators of what company information contains is step one. Companies that invest in that type of talent will soon see reduction in inventory and improvement in inventory returns.
Data scientists can glean descriptive facts from supply chain information. More importantly, however, those scientists are trained to help businesses use data prescriptively.
Step two is investing in technology that unifies discordant datasets in ways that visually make sense, such as a digital dashboard. That type of technology allows warehouse inventory and the movement of goods — two entirely different types of data — to be viewed in one place. This becomes particularly crucial, for example, if a company has made many acquisitions and now must manage a multitude of warehouse management systems.
Cloud-based platforms that use artificial intelligence and machine learning assist with better managing such intricate logistical realities. And, they become difference-making tools when macroeconomic factors like inflation, conflicts and the PMI index — which measures whether the manufacturing sector is expanding or contracting — pressure companies ultimately to pass on rising costs to consumers.
Kraft Heinz Co., for example, reported it raised prices by 3.8% during the fourth quarter of 2021 due to global supply obstacles. Departing Kraft Heinze CFO, Paulo Basilio, echoed that many corporate executives facing mushrooming shipping, materials and labor costs when he said during a February call with analysts that the company would make any future adjustments it deemed appropriate.
Executives who integrate investment in top-level data talent with the most robust supply chain management technology will be those who find methods to reduce procurement, transportation and fuel among other costs. Eliminating unnecessary expenditures is pivotal today, when global forces buffeting the supply chain have made its management more unpredictable. The winners will be the companies that succeed in this area — and their customers, who will be less likely to absorb increased costs.
Greg Price is cofounder and CEO of Shipwell
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