Unlock the full potential of your supply chain with effective planning parameters

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The key to unlocking working capital, improving service to customers, and increasing warehouse capacity

Liam Lindley, a Consultant at Hatmill explains the strategic imperative of supply chain planning parameters and the dangers of ignoring them!

Supply chain planning software is the technological backbone of modern logistics, orchestrating the flow of goods from suppliers to customers. The precision of this orchestration is governed by system parameters—settings within the software that dictate operational decisions. These parameters are pivotal in aligning the supply chain’s performance with the strategic goals of the business. Typically, we see that these parameters are often overlooked and mismanaged. In some instances, the default settings from the initial implementation are still being used many years later.

When was the last time you reviewed your system parameters?

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Ignore them at your peril!

The importance of supply chains has been somewhat neglected until recent years, but with increased focus in the media as a result of COVID, the closure of the Suez Canal, and wars in Ukraine and Gaza, people have become more aware of its criticality to the economy. These disruptions have caused shortages in the availability of goods, underpinning the price volatility much of the world has been exposed to.

Internal business changes such as differentiated service propositions, opening up in new geographies, changing supplier sources, creating new product categories, or improving warehouse throughput also expose supply chains to volatility.

Managing this volatility is critical to ensure working capital, service to customers, and capacity are not compromised.

To ensure the supply chain operates at peak efficiency and effectiveness, it’s essential that you carry out regular reviews and updates of the key inputs and parameters of your planning software. These include:

  • Lead times
  • Order quantities, (minimum, maximum, multiple, rounding, pallet)
  • Min/Max stock
  • Item categorisations/segmentations
  • Service level factors by category
  • Fixed and variable ordering costs
  • Annual warehouse and transportation costs

These parameters must be meticulously set and regularly reviewed to reflect the current operational environment accurately.

The impact of parameters on supply chain performance 

These parameters set the rhythm for the supply chain’s performance. Finding the balance between cost, service and capacity is key.  The parameters must be dynamic, adjusting to market trends, seasonal fluctuations, and changes in consumer demand to maintain a competitive edge.

Holding and managing inventory has become increasingly expensive, with a weighted average cost of capital being in the region of 11-15%. Releasing working capital from inventory could be utilised in other areas of the business, preferably in supply chain and logistics functions though.

We regularly see productivity gains between 8-20% from projects we undertake further improving cash flow longer term. But the process starts with inventory. You can have the most automated warehouse in the world, or the most effective transport management system, but if you don’t have the right stock and the right time, you can’t maximise their outputs.

Hatmill’s experience working with a B2B distributor

By having a specific focus on the supply chain system inputs and parameters at a B2B distributor, we were able to:

  • Improve service to customers by 2.3 percentage points
  • Reduce shipments per order by 27%
  • Halve customer backorder value and lines
  • Reduce inventory days by 53.1, equivalent to £7.6m cashflow benefit
  • Reduce occupied pallet spaces in the warehouse by 22%
  • Automate PO placement from 0% to 85% freeing up valuable time

The continuous review of system parameters is not merely a task—it is a strategic imperative. Having the discipline and analytical capability can ensure that supply chain planning software remains a dependable navigator in the ever-changing seas of global commerce. By committing to regular parameter reviews, businesses can adapt swiftly to market changes, minimize costs, and deliver exceptional customer service.

How long can you afford to neglect this aspect of your supply chain?

In summary, you need to ask yourself:

When was the last time you reviewed your system parameters?

How long can you afford to neglect this aspect of your supply chain?

To find out more about Hatmill can help you focus on supply chain planning parameters, please get in touch.

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