Analysing The Supply Chain: Why Is It Important?

  • Richard Thelwell
  • August 24, 2015

supply chain analytics why is it importantA supply chain is the biggest asset that many companies possess—literally so, with significant amounts of cash tied up in finished goods inventories, raw materials, and work-in-progress. But how best to make that asset work harder? And more productively? The answer: supply chain analytics.

And that, in short, is why supply chain analytics is so important. Because the insights that supply chain analytics provides go right to the heart of how a business performs.

Not just from a financial point of view, in terms of increasing inventory turns and freeing up cash. But right across the board: increased sales, better customer service, faster order fulfilment, and more consistent—and reliable—supply chains.

In other words, an investment in supply chain analytics is an investment which touches nearly every part of the business, and offers a long-term payback. So let’s take a look at exactly how supply chain analytics delivers that payback.

Supply chain analytics: increasing sales.

To start with, all that material in the supply chain—finished goods inventories, raw materials, and work-in-progress—is there for a single reason: producing products that customers want to buy.

But is it the right inventory, raw materials, and work-in-progress? Fairly obviously, supply chain analytics can highlight slow-moving or redundant stock, where forecasts have been wrong, and estimates inaccurate.

supply chain analytics inventory
Supply chain analytics can help you analyse idle inventory levels

But supply chain analytics can also highlight the obverse of this—instances where there was the potential to sell more products, to meet demand that was there, but left unmet. In other words, opportunities to increase sales, simply by boosting product availability, or changing stock profiles.

Moreover, supply chain analytics can also provide powerful insights into how supply chain network design can help to make all that inventory, raw materials, and work-in-progress satisfy more customers, without associated increases in stock levels.

Because, simply put, decisions about where—and in what form—inventory is held can have a significant impact on inventory turns.

Supply chain analytics: moving materials faster.

It’s not difficult to see that anything that can be done to make supply chains move more quickly will serve to reduce inventory levels, and free-up cash.

The trick is knowing how to make them move more quickly. And again, supply chain analytics can help.

What is the impact of order size rules and policies, or stock-keeping rules and policies? What is the impact of demand variability? To what extent has range proliferation, and sku proliferation, added to average inventory levels?

Such questions are easy to ask, but—without supply chain analytics—difficult to answer. Moreover, you’ll want to explore the kind of multi-tiered view that supply chain analytics provides. In other words, how do decisions about—say—production batch sizes then impact on finished goods, work-in-progress, and raw material levels?

Supply chain analytics: raising standards.

It’s not just the rules and policies that are built into your ERP system that have an impact on supply chain performance. The performance of key links in the supply chain has a major influence as well.

Poorly performing suppliers, for instance, can have a major impact on customer service levels, on-time delivery performance, and inventory holding. Likewise, logistics service providers and even internal production facilities in multi-site organisations.

supply chain analytics suppliers
Supply Chain Analytics can give much greater insight into the performance of your key suppliers.

Yet it’s surprisingly difficult to engage suppliers and other parties in a dialogue about improving their performance: ERP systems make it difficult to see aggregated supplier-level data on key metrics such on-time delivery, ‘on-time in full’ deliveries, and quality issues.

Enter—yet again—supply chain analytics, which can take an ERP system’s raw data and transform it into detailed performance metrics, supplier by supplier.

Supply chain analytics: data in abundance.

Put it all together, and it’s not difficult to see the why—and how—supply chain analytics can significantly improve a business’s supply chain operations.

And the argument becomes more compelling, all the time.

Because today’s supply chains are throwing off unprecedented amounts of digital information: transactions and events that once were recorded on paper, if at all, are now routinely digitally captured and stored.

For many companies, the bottom line is simply expressed.

Never before has so much data been available regarding the efficiency of their supply chains. The challenge: transforming that data into actionable insights.

To find out more about the benefits of Supply Chain Analytics as part of an overall Business Intelligence strategy, download our free guide below