What is Supply Chain Optimization? part 2

Gather up all of your:

  • Sites – customers, suppliers, company facility addresses
  • Customer Orders and out-bound shipment transactions
  • Purchase Orders and in-bound shipment transactions
  • Freight rates and any inter-company shipments
  • Product definitions: part numbers, group codes, packaging codes, costs, weights, cube, etc
  • Document your transportation, inventory, customer service policies

Enter this information into anyone of several supply chain optimization software packages and start modeling your current state in and outbound logistics.

As-Is Baseline
As-is supply chain distribution network model

Optimized for Service
Optimized supply chain distribution network model

What if optimized for cost?
Optimized for cost supply chain distribution network model

Often out of a lack of visibility or the absence of business rules we ship from or store product in the wrong places.  Over time product mix and customer markets shift, suppliers come and go and chaos and randomness increases.  SCO is a analytical approach to aligning and balancing the tradeoffs in customer service, inventory levels, production and stocking locations, freight and facility costs.


Once we have a model that closely reflects the actual network costs and performance we can run the ‘solver’ or ‘optimizer’ and see where we should have shipped our product from given the current facilities and policies. With What-if scenarios we can start exploring possible future sates.

  • What if we opened up a new west coast facility?
  • We’re growing, where are we going to put our next plant?
  • With the recent acquisitions we’ve made how many warehouses do we need and where?
  • Given two equally capable suppliers which one will have the lowest transportation cost?
  • Should we ship product from warehouse A or warehouse B to optimize lead time and freight?
  • What’s our carbon footprint? What changes can we make in our network to reduce it?
  • Is it better to keep all of the new product in one DC or push them out to the branches?

Example graphics from ILOG Logicnet




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