Supply Chain
Optimising The Supply Chain
By Michael Nzule
Optimism is a very fluid state . Sometimes it is ambiguous too . It might just be a temporal kick , that gives a false comfort zone . Facing and using facts brings out reality . It eliminates uncertainty . So many consultancies and projects have been structured with objectives of optimisation of costs and eliminating waste to deliver value in form of profits . It has been argued that liquidity is the lifeline of entities and not necessarily the reported profits . But let us look at some options that can be deployed to achieve supply chain optimisation ( not just based on sheer optimism ), but which have been tried and tested to deliver optimised supply chains globally .
To get this going , we will be looking at working capital . Sometimes this may be interchanged with the term operating working capital . Key elements of interest from supply chain point of view include inventory , cash ( we will not get to the technicalities of “ free cash flows ”), accounts receivables ( trade debtors ), and accounts payables ( trade creditors ). Accountants would like to look at the net current assets over net liabilities - but the focus of this review is not on counting the elements that make up working capital , but on supply chains to deliver healthy working capital . After all unhealthy working capital is early warning of trouble towards the going concern of entities . This refers to how liquid an entity can be and how it can meet its short-term obligations as they fall due .
Generally , supply chain optimisation covers processes and methods that deliver effective operations of the supply chain . When talking about inventory , this involves the whole set of activities and initiatives that minimise operating costs related to inventories like manufacturing costs , purchase costs , transport and distribution costs and inventory holding costs ( for example warehousing , insurance , handling costs , kitting and de kitting activities etc ). Balance sheet optimisation has a lot to do with initiatives to unlock healthy operating working capital . Entities which hold huge inventories ( e . g . of raw materials , work-in-progress , spares , and often finished goods ), find themselves in the dilemma of achieving optimal liquidity and cash balances .
Inventory optimisation is one of the key strategies to execute supply chain optimisation . Inventory optimisation is the process of strategically managing and controlling stock levels to maximise efficiency , minimise costs , and meet customer demand . Inventory optimisation includes initiatives like collateral management and consignment stock management . In collateral management , the inventories are taken off the balance sheet and financed by third parties ( financial institutions ), which hold the title to the goods , while third party collateral managers are deployed to manage the inventory including draw downs and assurance of inventory holding levels . The ultimate owner of the inventories only draws down what is required for manufacturing or for distribution upon payment for the consignment required to the financiers . This strategy ensures that inventories are managed professionally as financing obligations are met . The entity is free to focus on their areas of competitive advantage like sales and marketing or manufacturing and production excellence . Further optimisation includes outsourcing the whole procurement process and managing complexities of importation , customs management , and shipping logistics . The simple structure of collateral management involves tripartite collateral management contract between the parties involved , namely the importer , financier
and professional collateral manager ( usually a warehouse managers ).
Technology advancement supports visibility of the inventories to the parties involved - this brings assurance on inventory parameters , volumes , quality , location , traceability and manages risks over theft and losses . The use of blockchain and artificial technology ( AI ) not only supports inventory management and cost optimisation but forms a strong interface for driving exciting customer experiences . Customer experience scope is widened from on boarding process , order processing and product delivery visibility . Order management processes linked to optimal reorder levels and stock holding can also be built in for effective collateral management and set up of effective customer order fulfilment centres . At the end of this , it is all about delivering value to customers . Collateral management therefore supports continuous improvement and performance of the supply network to deliver on customer expectations and drive out costs and wastes in managing inventories .
By adopting consignment stock models , companies can pursue supply base optimisation strategy . This is a strategy used to reduce the number of suppliers , to few large or consolidated suppliers for bulk procurement . It removes complexities in managing suppliers and drives effectiveness in managing supplier issues in the supply chain . This can deliver benefits like optimised inventory financing , sourcing and distribution management . Supplier base optimisation includes logistics optimisation . Logistics optimisation is the design of cost effective and efficient ways , to organise and execute movement of goods and services , while delivering on defined process optimisation targets like quality , turnarounds , re works ,
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