As a company expands their operations and their processes become more complex, the probability of bottlenecks in their supply chain goes up. These jams slow down a company’s productivity, cost money and continue to waste energy until a solution is put in place.
With energy, money and productivity at risk, it’s easy to see why companies are continually evaluating their supply chains to be more efficient. There can be a bottleneck at any point of a supply chain, but some of the most common issues that because bottlenecks are overstocked inventory, increased customer demand and upon introducing new products.
Let’s take a look at these issues and how companies can work their way into more efficient patterns.
When a company has an inaccurate sales forecast or sales are slow when historical data shows they should be moving more product, warehouses begin to fill up. Overstocked inventory leads to a number of issues because, unless product demand changes drastically in a short period of time, then the most common way to handle excess inventory is by heavily discounting or liquidating product all together. Companies want to avoid dropping the price on products when their warehouses are full because it results in wasted money and valuable manufacturing resources. To put the amount of wasted money into perspective, U.S. retailers are currently sitting on about $1.43 in inventory for every $1 of sales they make, per Supply Chain Digest.
One of the easiest solutions to reduce excess inventory is to change inventory level requirements. If a company usually stocks enough product to cover sales for one month, then they can adjust the amount of product to cover sales over a smaller time period, which can lead to major savings. Companies can also use supply chain analysis tools to review their historical data in order to find the sweet spot for their inventory levels. Stocking too little can lead to just as many wasted resources as having too much product on hand. Once a company can find their optimum inventory levels for each portion of the year, then they can begin reaping the benefits of inventory efficiency: smoother production, less misused time and little if any wasted money.
Increased Customer Demand
It may sound like a good problem to have when a company makes a product that they can’t keep on the shelves. Demand for that product is through the roof and sales are high, but this situation can create a bottleneck. The first thing to look at with increased customer demand is whether or not the product output can be improved. Reviewing the manufacturing process from start to finish can show a company whether they can produce at higher levels or if they might need to call in more personnel. If a company is producing as much as they can and still not meeting demand, then a quick analysis needs to be done to determine if bringing in more resources, so they can keep up with demand is worth the increased cost of production.
Another way to increase production is to automate part of the manufacturing process. Again, this would need analysis to determine if the investment is worthwhile enough to keep up with demand but adding machinery or robotics to the manufacturing process can improve output and save money in the long run compared to a human operator. Businesses are implementing machinery and robotics at higher levels than ever. The number of industrial robots worldwide is expected to increase to 2.6 million units by 2019. That would be over one million more industrial robots in use compared to 2015.
Introducing New Products
As companies grow, so do their product lines. Manufacturing a new product leads to a variety of bottlenecks because the production process is new and unrefined. Employees may be unfamiliar with new production requirements or machinery may need to be manipulated in order to work efficiently within the new process. This can lead to low production levels as well as excess costs to train operators or adjust machinery as needed.
Companies should map out their new processes and continually analyze their efficiency when manufacturing new products. This will show companies where bottlenecks are currently forming and where a new bottleneck could pop up. Companies can also put the production performance of new products into the hands of their managers on the floor for increased productivity and profits. Companies that implemented supplier performance management initiatives achieved average cost savings of about 12 percent.
Bottlenecks are a part of life in the supply chain. Once a company can identify bottlenecks such as excess inventory, increased product demand and introducing new products, then taking the next step to relieve the buildups can leave a company with a tighter grip on inventory, increased production to keep up with demand and smoother processes for new products.