January 2018 | Commentary | Viewpoint: Logistics & Supply Chain Analysis

Four Ways to Optimize Your Supply Chain

Tags: Logistics, Supply Chain

Shreyas Bhat, Director, Supply Chain Modeling, ARMADA, 412-406-5406

Supply chain optimization techniques, if leveraged properly, can help companies achieve their strategic business objectives, drive significant reductions in operating costs, and make informed cross functional decisions in complex scenarios.

This comprehensive approach helps find the right balance between minimizing costs and meeting business constraints and strategic goals.

The following four primary techniques can help you achieve supply chain optimization.

1. Strategic Optimization. Brand strategy is the guiding precept for supply chain management. To support the brand strategy, supply chains are designed to align their assets to help meet business objectives. Network design pre-determines about 80 percent of transportation costs, according to studies.

This is where optimization solutions such as distribution center (DC) network design or strategic sourcing provide value. DC network optimization helps decide if you have right number of DCs, identifies the best location, and determines capacity.

For specific core items identified as critical to business objectives that call for securing long-term supply, a strategic sourcing solution offers answers to what suppliers to source, what the supplier's capacity is, and where to make capital investments.

The benefits of strategic optimization include an optimal footprint of assets and long-term capacity to support your brand strategy objectives.

2. Tactical Optimization. After you complete your DC network design, the next step is to optimize annual sourcing decisions and product flows. Buyers often conduct bids to secure the lowest product cost from suppliers.

By leveraging supply sourcing optimization, buyers can make decisions on awarding business to suppliers using the lowest total landed cost while meeting constraints such as the minimum percent allocation of product given to one supplier.

Optimizing sourcing decisions empowers buyers to make informed holistic choices. Optimizing product flow helps determine if a product should move direct from a supplier or through a consolidation center. By moving products through consolidation centers, brands take advantage of shared assets and risk pooling to reduce logistics cost.

3. Continuous Improvement. Supply chains are dynamic. Over time, demand changes, new items are introduced into the system, and geographic locations evolve. Perform strategic and tactical optimization analyses periodically as part of a continuous improvement process. This disciplined approach ensures product flows most efficiently throughout the supply chain and develops a culture of making evidence-based informed decisions.

4. Experimentation. Supply chain agility and flexibility are hot topics. Supply chain optimization techniques enable companies to utilize analytical optimization models to replicate current product movements and cost structures. Brands can then test various scenarios such as, "What if my demand grows by 20 percent in a specific market?" and then evaluate optimal responses.

This experimentation-based approach can identify focus areas to add flex capacity, stress test your supply chain for disruptions, and evaluate the costs of recovery plans.

Gaining an Advantage

Supply chain optimization techniques take commitment and a process-driven approach to ensure they are successfully applied. If done correctly, supply chain optimization techniques can unlock value by enabling your supply chain to be more flexible and adapt to changing market conditions to deliver a competitive advantage.






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