January 2017 | Commentary | The Lean Supply Chain

Using Network Optimization Technology To Enable Your Lean Supply Chain

Tags: Lean, Logistics, Technology , Fulfillment, Supply Chain

Paul A. Myerson is Professor of Practice in Supply Chain Management at Lehigh University and author of books on Lean for McGraw-Hill, and supply chain for Pearson, 610-758-1576

From a lean and agile supply chain perspective, an optimally designed supply chain can significantly improve margins, support expansion into new markets, enhance the customer experience, and reduce operating costs.

Optimizing your supply chain network helps achieve more value and less waste through keeping lower inventories, maintaining the right stock levels, and choosing the right transportation modes and warehousing strategies.

Without an optimized supply chain network, it becomes difficult to execute on a lean strategy. For example, if your business ships small orders and has grown in the U.S. Southwest, but your finished goods distribution centers are located in the Midwest and Northeast, it might make sense to open a distribution center in the Southwest. This type of analysis helps you determine the precise size, location, and market to serve.

Optimizing Performance

As customer requirements become more complex in today's demand-driven, omni-channel environment, supply chain optimization studies build the foundation for the logistics and fulfillment operations of many successful companies.

As a result, companies need to frequently reevaluate their supply chain networks, as happens with the lean concept of continuous improvement. These evaluations optimize supply chain performance, which can strategically create value and enable profitable growth in new and existing markets.

Supply chain network optimization studies can be fairly technical, requiring specialized software and often consulting advice with a price tag as high as $100,000. That's why many small to mid-sized enterprises tend to either not do this type of study at all, put it off, or just use rough guess-timates. As a result, they may leave significant money on the table, as well as a variety of wastes in their internal and extended supply chains.

Network optimization software evaluates the total supply chain—from manufacturing and suppliers through warehouses and distribution centers all the way to distributors and end customers. The typical tools used to perform supply chain network design are based on quantitative modeling and optimization, which refers to selecting a best element from some set of available alternatives.

The use of models enables you to evaluate the overall system's complex relationships and trade-offs by connecting large numbers of variables in a framework that makes it easier to define relationships. Quantitative tools to perform this type of analysis also make translating an operational strategy into a financial business case more straightforward.

Putting the Tools to Work

Network optimization study deliverables usually include where to locate facilities, the size of these facilities, what transportation modes to use, and long-term sourcing decisions. As the name implies, network optimization tools seek to optimize performance across an entire supply chain network.

Companies can use this breed of tool either as an integrated part of a suite of advanced planning and scheduling tools or as a standalone application to analyze only supply chain design decisions.

My new book from Pearson further explores how the use of network optimization studies and other readily available technology can enable and energize your supply chain.

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