Supply chain network optimization: A periscopic view

Supply chain network optimization is a powerful modeling approach proven to deliver significant...

Lalith Srivasta

Supply chain network optimization is a powerful modeling approach proven to deliver significant reduction in costs and improved service levels. It involves design initiatives that require trading off between many aspects of manufacturing, transportation, warehousing, distribution, inventory, and customer service.

The supply chain optimization initiative will typically create various "what if" scenarios and make the right tradeoffs to reach the organization’s goals. At the very core, organizations need to collect inputs, analyze data, reach alignment, and coordinate a realistic but impactful rollout.

To start off any supply chain network optimization projects, here are 4 key questions to answer:

1.    What are the objectives of the design project?
2.    What is the business and operational data required to solve the problem?
3.    What are the potential scenarios to be analyzed/addressed?
4.    What are the competitive risks of proposed solutions?

What are the objectives of the design project?

A business objective of a design project mostly starts with a specific question related to a certain operational goal(often KPIs) while identifying business stakeholders (both internal and external). For example, for many businesses, the overarching goal is increasing service levels and margins; This goal maybe operationally formulated as an objective to reduce lead time and distribution costs. With the Digital Duplicate, businesses can gain end-to-end supply chain visibility to identify opportunity and tackle potential blind spots.

Another important factor to consider while executing a supply chain network optimization project is to define the scope of the analysis. The business scope identifies the right stakeholders (manufacturing, warehousing, suppliers etc) whereas the operation scope defines the levers(suppliers, plants, distributors etc.) that can be pulled to optimize the supply chain.

With the uniqueness of every business challenge, identifying the correct stakeholders and ranking objectives based on their importance is key for any supply chain network optimization project. Defining a clear scope with sales, marketing, finance, manufacturing, and distribution sets you up for a pointed analysis with an answer that is realistic to execute.

What is the business and operational data required to solve the problem?

With the organization’s objectives and priorities set in place, the next step is defining the data requirements and the level of detail to start the project. This step involves coordinating with internal and external stakeholders to collect data for analysis.

For example, a project focused on improving service levels and margins across a network of distribution centers will need data on demand forecasts, distribution center capacities, and warehousing costs. To align with the broad strategic goal, understanding the level of detail of the to-be collected data is very important. For example, a demand forecast has a lot of detail. For the requirements of the project, whatis the time period of data required? Is it by year, month, or week? What are the service levels by different SKUs? Which are the critical SKUs?

The next step is to build the Digital Duplicate by establishing the links business functions and the irrespective operational metrics (KPIs). Establishing the Digital Duplicate allows for a holistic view of the processes (and data) across the horizon –driving collaboration between business functions to deliver on the common goals.

What are the potential scenarios to be analyzed/addressed?

Customers, markets, governments, and the natural environment pose a lot of risks and challenges to organizations. To counter these challenges, building expected changes and modeling variation into the supply chain network optimization project is critical to understand potential risks in strategy execution. Some scenarios like shifting vendors(and, therefore, material and transportation costs) are obvious, while others like unexpected demand surges at hard-to-reach locations may not be.

For example: As we saw recently, the ship (Ever Given) blocked the Suez Canal for 6 days caused billions of dollars of losses for supply chains. The congestion at major ports and shortage of containers is causing a huge delays and exponentially rising shipping costs for many businesses.

Based on the historical information and the expertise of executives, managers, analysts, and external consultants, a list of like and unlikely scenarios should be listed. These scenarios should be prioritized based on their potential impact and their likelihood of occurrence.This step of the analysis can help build more robust and resilient supply chains.

What are the competitive risks of proposed solutions?

A large (and very important) part of any supply chain optimization project is understanding the competitive landscape. This analysis is often seen as all-encompassing - looking at a company’s products, services, strengths, weaknesses, growth models, and even sales and market share levels. A few key strategic objectives would be to identify the company’s rivals in the industry, understanding what makes them tick, and figuring out how to hold one’s own and, eventually, do better than the competition.

To build a solid footing in the market, an organization has to understand the trade-offs of the response strategies that could be used by the competition. Modeling these scenarios in the Supply Chain Optimization project can help organization proactively put in mitigation measures in response to threats from the competition.

Conclusion: Focus on the outcomes

Answering these four questions can help an organization to understand key objectives and the scope to get started on a supply chain network optimization project. Establishing the Digital Duplicate of your organization by connecting multiple stakeholders enables better alignment of the various business functions by giving them a holistic organization-wide view.  

Today, the supply chain is a key source of strategic advantage. Cross-functional planning and communication are essential to ensure the strategy is understood and followed by all departments, backed ownership of the supply chain at executive suite level.