Is modern SCM software making supply chains too lean?

Dec 15, 2020 | Industry

“Lean” operations have long been a priority for logistics and supply chain firms. The concept behind lean frameworks is simple: reducing waste to improve efficiency.

It makes sense; having extra materials or inventory on hand that isn’t used or having trucks on the road that aren’t full means time wasted and money lost. But, as the ongoing pandemic has demonstrated across nearly every industry vertical, even highly-efficient supply chains with better planning and procurement processes aren’t impervious to disruption – if companies find themselves unable to secure inventory or specific materials, lean supply chain execution can, in turn, become a significant liability.

This raises a key question: Have modern ERP and supply chain management software and evolving operational techniques made logistics and supply chains “too lean”? If so, what’s the solution?

What is Supply Chain Management Software?

Supply chain management software is designed to streamline common – and often complex – logistics processes. While software tools are now being leveraged to “lean out” key supply chain management processes, their primary function is to help companies manage the sheer volume of production, procurement, inventory, and shipping data now generated by everyday operations and transactions.

Consider the arrival of a pallet of goods into inventory. Ten years ago, physical manifests and paper reports were par for the course in the world of warehouse management. As long as companies recorded basic information about arrival times, general condition, and volume received from the supplier or vendor, they were equipped to complete key supply chain business process tasks.

Today, however, increasing concerns around product traceability and visibility across the entire supply chain require tools capable of automatically recording key information about product origins, arrival details, and physical dimensions. What’s more, this data must be used to inform everything from inventory optimization to order processing, transportation management, operations planning, demand forecasting, and even budget allocations.

How Does SCM Help “Lean Out” Logistics Operations?

With a focus on complete data capture and collaboration across organizational silos, supply chain management software tools are ideally positioned to help logistics service providers operate lighter, leaner, and faster. Three key areas of improvement include:

Reduced redundancy

A robust supply chain management solution will eliminate redundant processes by centralizing data collection and record-keeping. Instead of creating multiple data entries for the same stock or supply chain process, staff can quickly determine what information is present and what’s still required, in turn reducing the need for management to waste time weeding out duplicate entries.

Automated operations

From inventory management to warehouse management and beyond, many supply chain and logistics processes are time-consuming and labor-intensive. Supply chain software helps automate key functions to reduce wasted time and allow employees to focus on higher-priority tasks such as order preparation or supply chain planning.

Real-time reporting and supply chain analytics

Real-time data collection and reporting makes it possible for companies to know exactly what they have in stock and where it’s located, in turn reducing the need for buffer stock and helping reduce total inventory spend.

How Lean is “Too Lean”?

In a pre-COVID world, lean-first frameworks made sense: with easy access to inventory and delivery resources on-demand, why would companies keep extra stock on hand or build in operational buffers?

But, as with many popular process improvements, the quest for lean became the driving force behind many supply chain software deployments. Instead of considering the bigger picture of dynamic global supply chains and their interconnected impact on business operations, “lean” became synonymous with “lucrative” – the leaner the process, the greater the potential profit.

Pandemic pressures, however, revealed fault lines in the framework as consumer demand spiked and suppliers couldn’t keep up. From national lockdowns to evolving compliance controls, suppliers found themselves struggling to meet deadlines while firms that deployed just-in-time-inventory systems and reduce total storage capacities faced the prospect of crumbling under the weight of customer demand.

As noted by Supply Chain Dive , 42 percent of supply chain professionals now agree that the industry was “too lean” during the first wave of the pandemic, as evidenced by the massive disruption wrought by sudden economic shifts.

Leaning into a Happy Medium

Is there a happy medium for lean supply chain and logistics processes? Or are businesses better-served by tossing lean altogether?

Ultimately, it comes down to the difference between operations and practical applications. Used in an operational framework – to eliminate redundant processes, improve efficiency, and deliver real-time data – supply chain system-based lean processes offer significant benefits for businesses. By eliminating some of the highest-friction functions in supply chain environments, such as the need for staff to manually collect and report inventory management data or physically verify specific stock volumes, lean processes open the door to both cost savings and improve performance.

When it comes to practical applications, however, companies must be more mindful of long-term lean impacts. While cutting back on storage space or reducing on-hand inventory by 10, 20, or even 30 percent may align with lean goals around cost-savings and reduce waste in theory, these benefits evaporate if supply chains are significantly disrupted, forcing companies to over-correct for lacking stock and waste more time and resources overall. The right scm system will provide the supply chain visibility, inventory control, and demand planning tools to empower teams to make informed decisions and the agility to make quick changes when the need arises.

The Bottom Line About SCM Software

Lean frameworks underpinned by advanced SCM software solutions offer significant benefits for companies looking to streamline logistics and supply chain operations. But, leaning too far is as potentially problematic as not leaning far enough. Instead, companies are better served by finding a middle ground by applying lean principles where possible while still building a buffer for unexpected events. Put simply? As in lean, so in life – everything in moderation.

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