The global nature of business in the modern world makes maintaining the integrity of a supply chain a difficult task. This is where optimisation comes in.
Risk and disruption are part of everyday business like never before. The interconnected nature of supply chains exposes every player to consequences from a mistake made in an associated organisation.
Meanwhile, customer demands continue to grow. Expectations of instant delivery, product customisation, the use of socially responsible materials or labour, and the ability to adapt the latest technological efficiencies, are all norms businesses must adhere to in their quest to accrue a loyal customer base.
As a result, the cost of doing business and the level of competition are higher, while the margin for error is thinner.
What is Optimisation?
All of this creates a challenge for maximising efficiency and profits. The answer comes in the form of one of the hottest buzzwords in business right now: optimisation. And what better place to start than the supply chain.
Optimised supply chains are able to adapt to demand fluctuations and help manage costs by eliminating bottlenecks and other inefficiencies. When done successfully, the end result is improved customer satisfaction, along with higher capital, operational and tax savings.
Achieving that requires adopting a global mindset about opportunities, while maintaining a local approach to carbon footprints, value chain planning, infrastructure, assets and technology.
Supply chain managers review service models and product characteristics on a regular basis. Planning should involve identifying goals, examining existing policies and programs, assessing day-to-day operations and developing contingencies.
Optimisation also requires identifying risks, data based forecasting, improving inventory management, collaborating with supply chain partners, and implementing a business continuity plan.
Start with Strategy
Given the broad scope of what a supply chain manager can achieve, a logical first step is to determine what to optimise from both a long-term and short-term perspective.
Examine your business goals. Whether it’s making your business more sustainable, enhancing the customer experience or increasing profits, take into consideration the following:
- Expanding markets
- Customer service strategies
- Product returns
- Value-added opportunities
- Product volumes
Supply chain leaders should analyse the full potential of their supply network before attempting to reduce costs across the network.
Supply chain optimisation is an ongoing process. The best supply chain networks adapt to market fluctuations, product performance variations and the integration of new technology.
Operations (short-term) strategy involves the nuts and bolts of your operation. This involves mapping out the management of resources and measurement of performance to help your network achieve its long-term goals. Seemingly small tasks such as workload scheduling, freight consolidation planning, and productivity improvements can make a big impact on your operations.
The Four Main Areas of Supply Chain
Both long-term and operational strategies are based on four main decision areas affecting the supply chain.
- Location: Taking into account production and distribution costs, taxes, limitations and local content, location decisions are the first step in creating an optimised supply chain. The geographic location of production facilities, stock areas and sourcing points lay the foundation for product flow. This then impacts on access to consumer markets, revenue, service levels, and the overall cost of doing business.
- Production: Making product decisions such as location of production facilities, transportation and distribution, and customer markets, tie into production strategy. Planning for this involves creating a master schedule covering equipment maintenance, workload balance and quality control.
- Inventory: Inventory management is integral to an optimised supply chain. Holding costs can equal 20 per cent to 40 per cent of the inventory’s value. Maintaining optimum stock levels at inventory locations can have a direct impact on customer service.
- Transportation: Transportation efficiency is a vital aspect of a successful supply chain, as it represents more than 30 per cent of logistics expenses. Shipment sizes, routing and scheduling are areas that management has to give serious consideration to, as transportation strategy is closely linked to inventory strategy and geographic location.
When each of these areas is optimised, it should align with your organisation’s broader business goals, from decreasing inventory or delivery time, to increasing profits, product quality and customer satisfaction. As with any strategy you will need a start and an end point. However, your supply chain must continue to evolve even after the end goal of optimisation is reached.
The authors of this article, Joe Schembri and David Rice, both work with Michigan State University and their supply chain management programs. One of the best things about working with these programs is the ability to research a wide variety of industries and how supply chain management affects them.