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A supply chain network optimization sets the stage for your company’s strategies and operations. Not only does optimization help you reveal the optimal locations for manufacturing/distribution, but it also streamlines inventory, transportation, and growth.
The supply chain network is an integral part of your business. An optimized network requires careful planning and preparation. Today’s article will discuss reasons that fail supply chain network optimization and explain different methods/ways to optimize the entire process. Read on!
Reasons Supply Chain Optimization Fails
Too much emphasis on tactics over a comprehensive strategy and failing to develop a proper plan for analysis are the two primary reasons that lead to the failure of supply chain optimization.
Reason 1: Increased Focus on Tactics and Operations
Supply chain costs are usually associated with the network design. Once you set the facility locations and inventory positioning, you can define the service areas from these facilities and lock in the essential costs, including transportation, distribution, and inventory holding.
The tactical and operational processes, such as inventory minimization, transportation management, maximization of utilization, variable distribution costs, etc., can influence the remaining costs that amount to 20% of the total costs.
However, most companies spend substantial resources and money to streamline their operations and save out of the last 20%. Some companies find it comfortable to work on operational problems. Still, the company policy locks in these costs.
Reasons 2: A Lack of Adequate Project Management
Fewer companies make efforts to optimize their supply chain network optimization projects. Consequently, they fail to justify the investment in suitable methods and tools with their own organizations.
Besides, most companies fail to collect accurate data that align with mathematical models and optimize the supply chain network. Poor project management is one of supply chain businesses’ most significant causes of network failure.
For example, many companies say, “this is the first time we have carried out this project as a team.” So, they extend project timelines associated with the learning curve. Therefore, we recommend hiring professional supply chain network optimization services to achieve your goals.
How to Streamline Supply Chain Network Optimization?
Do you want to streamline your company’s supply chain network optimization? Are you looking to reduce costs and maximize profitability? If yes, you must develop a responsive business plan and process that prevents inappropriate data pitfalls and applies the correct tools, principles, and methods.
Using suitable methods that align with your goals can place your business in a position to completely leverage the optimization process and support your company’s plan and contingencies. Let us discuss how you can achieve supply chain network optimization.
Supply chain network optimization is a critical component of your business strategy. However, companies that fail to use accurate data can experience various problems and may not achieve their goals. The reason is that the optimization process starts with data critical to the project’s success. Here are a few ways to do the job adequately.
Focus on Data Collection & Validation
Most supply chain businesses underestimate the time required to collect accurate data and meaningful information. So, it would help if you made time for proper data collection and validation before optimizing the network.
The purpose is to make a sophisticated plan, define a network optimization timeline, cleanse and validate data, and build model databases. Data correction and validation play a critical role in generating valuable insights, making informed decisions, reducing costs, and increasing profitability.
Capture Waybill Information for Each Shipping
Your network optimization efforts may save you transportation costs. However, you may find it challenging to get a complete picture of the costs of the payment systems you set up for payments, not transportation analysis.
We recommend using technology tools to match up the correct general ledger account and associate the data with specific customer orders or product transfers. So, the system you implement in your company must capture waybill information for each order shipped.
The purpose is to get an accurate and error-free view of cost-to-serve for particular customers. It also identifies short-term cost savings and streamlines your business operations.
Understand Future Demand Projections
The demand value is one of the most significant variables in supply chain network optimization. However, if you oversimply this variable and use a single projection by channel, product, and region, you will experience problems.
Bear in mind that you must consider other variables to estimate because each variable influences the overall cost. We suggest testing the volume within the product and channel subsets. So, consider the following variables when analyzing data for supply chain network optimization:
- Service time
- Delivery frequency
- Volume demand
Although you can use network optimization software to get an optimal answer for a specific demand, analyzing one set of demand inputs can result in an inaccurate and biased set of outputs. Therefore, you must optimize the process using demand ranges to get a more accurate and precise picture of cost curves and the variables influencing costs.
Fill Missing Data Gaps
Supply chain network optimization requires thorough analysis, and you can do this by filling the missing data gaps. The primary objective is to ensure your assumptions remain benign and directionally correct.
However, if you have a team of inexperienced analysts, it can not fill the data gaps. So, your project’s executive sponsors must consider the assumptions incorporated into the supply chain network optimization model.
Incorporate Sustainability Data
Improving data integrity and getting it into a position for accuracy is one of the most significant payback items from your network analysis. It enables your data analysis team to conduct future studies efficiently, quickly, and hassle-free.
Researching and studying supply chain network optimization is integral to ongoing success. However, it requires you to invest time and resources into improving the data connections, building analytical databases, analyzing historical and real-time data, and leveraging the power of data reusability.
Use Relevant Tools and Techniques
Data correction plays a critical role in supply chain network optimization. However, additional pitfalls exist in modeling techniques, preventing companies from achieving their goals. Let us discuss the best ways to avoid mistakes and use relevant tools and methods to do the job efficiently and reliably.
Use Real-Time Data Inputs
A supply chain optimization requires crucial costs and location inputs in different service areas, including the new ones. You must understand the cost of real estate, taxes, labor, incentives, and the flow of goods.
Considering these factors help you expand into new regions, make informed decisions, and achieve long-term sustainability in network optimization. Understand the worth of open backhaul volume on lane rates.
Discuss the requirements with your analytical team to determine the source for relevant data and direct inputs. The purpose is to identify critical financial problems and understand the causes. Thus, you can understand these costs in the analysis and improve your supply chain network optimization.
Look at the Full Flow of Goods
A company that fails to focus on the flow of goods and total costs does not achieve optimization. The reason is that not looking at the full flow of goods means adding costs and service time. Therefore, it is crucial to consider the flow of goods and make positive changes to the distribution.
For example, you can do this by adding more regional centers for distribution. The purpose is to bring the inventory closer to your clients and decrease delivery distance and costs.
At the same time, it increases safety for the required stock, multiplies demand variability, improves distribution overhead, and enhances inbound costs to the distribution costs. Therefore, you must consider the total cost perspective to improve network optimization.
Focus on Customer Service
Many companies delve deep into trenches of data exercises. As a result, they forget the significance of distribution centers. Remember, customers want products faster, more reliably, and efficiently.
So, discuss these things with your supply chain optimization team and modeling experts. Use this point to reduce costs. Consumers expect product variety in shorter delivery times. Therefore, you must focus on this market because It is a massive driver of building or optimizing the supply chain network.
Determine Cost Sensitivity for the Optimal Network
Testing different demand sets and running sensitivity analysis against a specific demand set are the primary concerns with cost sensitivity. You can use cutting-edge supply chain optimization tools to get better ideas and utilize your resources appropriately.
In addition, your supply chain network modeling team should run different scenarios, such as representing a wide range of demand. The purpose is to provide feedback on the sensitivity of a network to different forecasts.
Choose a reliable tool based on your needs to leverage the power of the embedded sensitivity capability to perform analysis as a standard process step. We recommend using simulation tools for more complex situations to help you perform adequate and accurate sensitivity analysis.
Optimization reduces a wide range of options to a few, and simulation finds the best solution from these fewer options.
Consider Seasonal Effects
Many companies consider an average historical demand, supply numbers, capacity, etc. However, your network’s service and profitability may vary when pressured by peak demand.
For example, direct store delivery networks can increase costs in low and high seasons. It means too many assets in the slow season and stressing capability during a peak season.
So this results in service problems and increased short-term costs for adding temporary capacity. The situation worsens when the added temporary capacity is unplanned.
We suggest separately modeling each season to handle seasonality accurately and professionally. The purpose is to develop a network plan that aligns with seasonal demands throughout the year.
Correct or Modify Ongoing Application
Conducting network analysis is half of the battle. The real challenge is applying the results and achieving the supply chain objectives. You can use short-term tactical optimization and long-term strategic optimization for:
- Informed decision making
- Maximizing returns on assets
- Increasing returns on capital employed
Many companies follow a step-by-step approach to optimize their supply chain network. However, windows of opportunity usually close more quickly than most companies think.
Project competition requires months because it involves utilizing historical cost data, developing future channels, and streamlining customer demand expectations.
All these processes require solid teamwork for accurate implementation. Therefore, you must act quickly and keep an eye on the entire process to reduce errors and achieve proficiency.
Reshape the Business Plan
Most companies fail to set business plans from time to time. In fact, most businesses set business plans once every ten years. Some establish plans once every five years. However, they don’t revisit them, causing various problems in network optimization.
Therefore, we recommend using the baseline model to determine methods for rebalancing the network each year. The reason is that things change quickly in today’s fast-paced world.
The baseline model can help you analyze each significant capital and network investment. For example, many car companies and automotive businesses analyze their supply chain for different vehicle models a few years in advance.
So, automotive companies can understand cost expectations and plan network changes to optimize the supply chain and reduce the total costs. When the company’s priorities or goals change, it uses supply chain network optimization to streamline the process and drive the changes.
Continuous Improvement is Critical
Many businesses know that the supply chain changes from time to time, and failing to optimize the network and align it with the changes can result in adverse outcomes. Therefore, focus on the range of demands (what and where) that may occur.
It will help you avoid the impact of demand projections and develop a decision tree to shape the new network or channel. Therefore, continuous improvement is critical to optimizing your supply chain network. Consider demand, time, and capacity when analyzing the network and costs.
Supply chain network optimization is daunting and time-consuming because it requires thorough planning and preparation. The problem worsens for companies that haven’t undertaken such an exercise before.
However, with proper data correction, analytical tools, and holistic application of the findings, you can determine that supply chain network optimization is critical to your enterprise’s long-term success. Follow the strategies above to achieve your goals. Until Next Time!