How do you know when you should engage in a supply chain optimization exercise? Many companies are unsure of the value, and they’re reluctant to invest the time, resources and funds required, despite a typical payback period of less than one or two years. Here’s a checklist to determine if your company needs supply chain optimization support:
- Change in business volume or distribution channels
- Upcoming capital investment in capacity or facilities
- Accelerating competitive pressures
- High inventory expense
- Increasing customer service demands
- Volatility in supplier or customer base
- Volatility in transportation, labor or raw material costs
- Impending mergers or acquisitions
- Need for multi-year strategic plan
If you are experiencing one or more of these cost- or market-driven events, your company should consider optimizing its supply chain network. Supply chain optimization can be as complicated or simple as required. The initial focus may be as basic as customer alignment or a mode selection analysis to generate savings needed for a more complicated production capacity and sourcing analysis. The key is working with a partner that understands how to merge your business constraints with a mathematical model to produce implementable results.
With fluctuating customer demands, economic uncertainties and global competition, companies are best served when they perform supply chain network analysis on a continual basis. The effort required to maintain a supply chain model with current data and business parameters is much lower than engaging in a major project every three to five years. With the speed of change in today’s business environment, regularly updated models afford companies the critical ability to quickly answer what-if questions within the supply chain.
A network optimization project enables a comparison between competing costs and constraints to understand the best supply chain design to meet corporate goals. With the availability of more
accurate data and powerful optimization tools on the market, very complete models can be developed to simultaneously analyze key components of the network, including:
- Customers: order history by customer location, pricing strategies, future demand and emerging markets
- Suppliers: points of origin and ports of entry, purchase order history, raw material availability and inbound transportation
- Products: production capacity and inventory placement by production, storage and distribution location
- Facilities: lease versus own, capability, capacity, location and number
- Financials: in all of the above categories, relevant supply chain costs capital, fixed and variable
This list is not exhaustive. Depending on the business need, a creative analyst can incorporate many additional factors into a study. While the data collection process may be challenging, once in place, it can be easily maintained, enabling a frequent refresh of a strategic or tactical supply chain model. The key to the success of the model and process is dedication and support from the decision-makers within a company.
When is the right time for supply chain optimization? All the time! By creating an accurate view of the supply chain across all components, supply chain optimization helps develop a road map that leads companies to more competitive and cost-effective decision making. When combined with a Transportation Insight Enterprise Logistics solution, the continuous maintenance of a supply chain model can enable a company to take advantage of market dynamics and quickly create a more competitive position.