Businesses can increase profits with smart supply chains

Obtaining raw materials, manufacturing them and turning them into consumer products, then getting them distributed to consumers can be quite a challenge, especially if a business wants to do it in the most efficient way possible. Many companies have in place systems that don't optimize these processes to their full extent, and this could be causing them to miss out on better spend management techniques and smoother operations.

A recent study by the University of Arkansas and Virginia Tech University found that inefficient processes can be eliminated with the use of the "Physical Internet." This concept suggests that when products are stored and shipped in a shared network, manufacturers, retailers and the transportation industry would see improvement in their operations.

"Our results indicate that the Physical Internet represents a virtuous cycle in which manufacturers, retailers and transportation providers all benefit in terms of increased profit margins and smaller environmental footprints," said Russ Meller, industrial engineering professor and director of the Center for Excellence in Logistics and Distribution. "The transportation network that is anticipated to emerge will also create better network design and customer service and will help address the problem of driver shortages and turnover."

Cost reduction for participants
Even though some businesses prefer to handle their own operations, from procurement to manufacturing to distribution, the study shows it would be more profitable for companies to give up some of that control in order to enjoy greater cost savings. Research suggested that if just 25 percent of the U.S. supply chain participated in a system such as this, the participants would increase profits by $100 million. This could mean companies may be able to decrease the price of their goods to lure in even more consumers with increasingly competitive prices.

More efficient supply chains
Supply chain optimization is also a major factor this study took into account. It found that businesses participating in a more efficient system would increase inventory storage points closer to a company's customers, improve customer service and create transportation systems that make more frequent, shorter runs. This would develop a large supply chain that runs more smoothly than the individual systems most corporations currently have. Consumers would be better served, increasing customer satisfaction, and companies could benefit from the optimized storage points, shipping routes and less complicated logistical operations.

"The technology to make this happen is currently available," said Meller. "All parties, including the consumer, will benefit. Now we need industry partners to pilot a mini-Physical Internet and allow us to share those results with others in the industry."