Supply Chain Optimization Benefits

Supply chain and logistic networks consist of locations – suppliers, plants, warehouses, and customers – and the product transportation between them. Network optimization seeks to maximize the company’s profits or minimize costs while providing the desired level of customer service subject to relevant constraints, policies, and intangible considerations.
Typical questions answered by supply chain network planning include:

  • How many plants and warehouses should we have, how big, and when?
  • We currently have one distribution facility, should we open up a west coast operation?
  • Which customers should be served from which locations?
  • Which products should be made internally or sourced from outside, and where?
  • How much inventory to hold at which locations?
  • What modes of transportation to use between locations?
  • How much capacity will be needed at each plant or distribution location?
  • Customers are asking about our extended supply chain carbon footprint (Green Supply Chain).  How do we figure that out, and is there anything we can do in our network design and operations to reduce GHG?

Benefits from good supply chain planning:

  • Facility Locations – Historically, people considered network planning solutions to be facility location studies on the distribution side of the business. Where should the warehouse or plants be located to minimize total supply chain costs?
  • Total Profit Optimization – The impact of supply chain performance on the bottom line and shareholder value are increasingly well understood. As a result, companies are looking at supply chains not just from a “cost minimization” perspective, but in terms of maximizing profitability – and return on capital or assets employed.
  • Tactical Issues –  Use smaller models to answer more focused and near-term questions. An example: managing “end of life” scenarios for a specific product in a way that maximizes profitability (e.g., when does it make the greatest sense to stop production of the product in one of the two plants where it is manufactured?).
  • New Product Introduction – Companies with rapid product lifecycles often a lack an integration between the product/demand side of the business and the supply side regarding such issues as the optimal production and storage points, optimal inventory targets through the product life cycle, etc.

On-going Network Monitoring is important.  Supply Chain managers typically do a good job of initially balancing their material flows. Over time, however, customer demand changes, products and suppliers come and go, and before too long freight costs are way up, order fulfillment rates are way down and response times are negatively impacting customer service and profitability.  It is important to continually reevaluate the distribution footprint to keep it operating at maximum efficiency.  Some do this on an annual basis leading up to a supply chain strategic review, others monitor key metrics on a monthly or quarterly basis along side their master scheduling and Sales & Operations Planning process reviews.




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