Supply chain and logistic networks consist of locations – suppliers, plants, warehouses, and customers – and the product transportation between them. Supply Chain Optimization seeks to maximize the company’s profits or minimize costs by tuning the logistics network while providing the desired level of customer service subject to relevant constraints, policies, and intangible considerations.
Typical questions answered by supply chain optimization and network planning include:
- How many plants and warehouses should we have?
- 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?
- Can we reduce our carbon footprint?
Benefits of supply chain optimization:
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.
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 life cycles 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.
The importance of on-going Supply Chain Optimization and Network Monitoring
Supply Chain managers typically do a good job of initially balancing their material flows. Over time, however, customer demand changes in location, mix and volume; 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. Wise supply chain leaders will do this on an annual basis leading up to a supply chain strategic review, others monitor key metrics on a monthly or quarterly basis and adjust only when forced to.
Do You Need Help With Supply Chain Optimization?
Why not get in touch and see how Flow Consulting can help you with Supply Chain Optimization improvements.