Companies have been using Supply Chain network optimization solutions to solve complex operational challenges and improve their Supply Chains for years. While a select few have successfully leveraged the potential benefits of these analytics tools, many have only scratched the surface. Despite widespread recognition of the importance of Supply Chain network optimization, many companies don’t have a clear strategy. In this blogpost we will look into why Supply Chain optimization also should be a strategic priority for your company.
The definition of Supply Chain optimization
Supply Chain optimization is defined as “the deliberate application of advanced analytical processes and solutions to optimize supply chain performance and manage costs,” not as a general concept or management goal. Advanced analytics helps business managers look beyond what happened in the past, and develop predictive and prescriptive models of what could happen, given a certain set of parameters.
Optimization solutions can be applied to daily challenges, like adjusting inventory levels based on lead time and service level targets. They can be used for more cyclical challenges, like modeling optimum inventory locations or managing new product introductions. And finally, they can be applied to larger strategic decisions such as distribution network changes, where to locate new facilities and acquisitions. Some companies also now use it to decarbonize their Supply Chain.
Getting off to a good start
Supply Chain network optimization projects or modelling often start with and depend upon the gathering of relevant and timely data to model the potential impact of changes and allow managers to make better decisions. They sometimes start with developing a model that addresses the targeted business challenge, and then move to data collection, speeding up the data gathering and filtering phase of such projects. With either approach, data quality is essential.
Today’s advanced analytics and optimization tools have become easier to deploy because of expanded data availability, more user-friendly interfaces, faster hardware and cloud-based solutions, which replace high up-front investments with more periodic expenses. Solution capabilities have likewise expanded.
Supply Chain network optimization an important technology trend
Leadership in any area of business is a function of management focus and investment. The Supply Chain is no different. While the bar is continually being raised, current Supply Chain performance at any company (both in terms of customer service and cost) is in large part of a strategic choice. For example, for business reasons management may accept higher supply chain costs in exchange for superior customer service; or they may accept lower service levels in exchange for lower costs. The underlying assumption is “you get what you pay for.” In contrast, Supply Chain leaders reject these standard tradeoffs by pushing for both superior service and lower costs. Such a strategy is reflected by management attention and capital investments, including the adoption of supply chain optimization solutions.
A significant majority of manufacturers agree, in a report made by IndustryWeek, that Supply Chain optimization is an important technology trend. It is critical to the future success of their companies. Despite that recognition, less than half (44%) believe their company has a clear and effective supply chain optimization strategy. For any investment that reduces costs and improves performance, early adoption can provide a market advantage.
Does your company have a clear strategy for Supply Chain network optimization?
This article was written with the inspiration from a research done by our partner FICO and Industryweek.
(2016 IndustryWeek Supply Chain Optimization Research Study, underwritten by FICO)