How Supply Chain Optimization Strategies are transforming the Industry of the Future

Digital Transformation
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The 2020 supply chain challenges straddle the entire spectrum, from uncertain macroeconomic environments to the challenge of building talent to manage supply chain uncertainties. Pandemic, geopolitics, international complexities, fickle consumer demands, data deluge, regulation, taxation, and more routes to market are some obstacles; supply chain managers need to maneuverer.

Economic pressure, trade dispute, and global health crises are unpredictable difficulties that can severely impair the supply chain. This pressure can add risks that magnify as time goes on, leading to downturns or even a collapse in the supply chain ecosystem. Therefore, it is necessary to have a protocol in place for such situations. If suppliers, clients, and logistics are spread around the world, there needs to be careful management and coordination because of regulatory differences, taxation changes, different time zones, and at times, cultural peculiarities.

On the other hand, World commerce is on the fingertips of customers, literally. Digital and mobile commerce have transformed how humankind buys. Not to mention, the plethora of options and flexibility to make purchases, anytime anywhere. In other words, we can affirm that “The customer is truly empowered” or “Customers are dictating the market.”[1]

Finally, the lack of Actionable Data and Insights is a common theme facing business leadership, and supply chain management in particular, is they often don’t have sufficient information at hand to make informed decisions. Added to that, supply chain complexity makes it difficult to evaluate multiple alternatives, trade-offs and scenarios to arrive at the best or right decision. While traditional transactional-based ERP excels in handling huge volumes of data, the way information is captured, handled and stored means it’s hard to use it for identifying forward-looking trends. The same applies to most business analytics that are great for reporting what happened in the past, but provide limited insight into future supply chain challenges[2].

What’s needed when dealing with supply chain challenges is an ability to interrogate data to determine an optimal solution. The answer to this dilemma lies in the use of optimization techniques that form the basis for modern prescriptive analytics. Based on advanced modelling techniques, prescriptive analytics allows you to create a model of your supply chain that accurately reflects how it works, considering all inputs, outputs, and constraints, together with an ability to measure trade-offs. Additionally, this form of supply chain modelling allows you to use the large volumes of structured and unstructured data available to the organization to evaluate different scenarios and determine the best way to overcome supply chain challenges and achieve supply chain goals.

The supply chain optimization is crucial for companies to reduce costs and improve performance. Several aspects should be considered to maximize volume of products moved and minimize the transportation, storage and fleet maintenance costs[3], [4]:

  1. Location: Placement of production plants, distribution, and stocking facilities in prime locations is crucial for companies to optimize their supply chain. However, locating production and stocking facilities close to consumers based on the market demands is one of the key supply chain optimization problems facing businesses, today. Companies having lightweight and market-driven products should place themselves near to end-users; whereas, the rest of them should build their plants and manufacturing units close to the raw material source. Businesses should also ensure that they comply with regulatory norms if they have global supply chains. Get in touch with our procurement experts to know how we can help you analyze market demands and identify a strategic location for your business.
  2. Production: Analyzing market demands is crucial for companies to make key decisions regarding the production process. Companies failing to analyze market demands face difficulties in determining the quantity of products to be produced. This is one of the most common supply chain optimization problems that companies face today. Companies should focus on capacity, quality, and volume of goods while taking strategic decisions regarding the production of products. They should develop an effective supply chain optimization model and ensure that customer demands are met.
  3. Inventory accuracy: Inventory management costs companies anywhere between 20-40% of their value. This creates the need for companies to improve their inventory management and achieve 100% inventory accuracy to ship products to customers on-time. Companies should have a robust warehouse management system or resources planning system to maintain an optimal level of stock. They should have control policies that can ensure the correct level of supplies at order and reorder points.
  4. Market segmentation: A “one size fits all” approach does not seem to be a sensible go-to-market (GTM) strategy since retail customers will have different requirements than industrial or large-scale customers. And even within industrial customers, bulk buyers will have different priorities. Besides this, different customers will prioritize different needs. For example, some customers might look for a cost-effective service while another is willing to pay a premium just for reliability. Supply chain practitioners are submitting to the reality of multiple supply chains to address different segments and be agile to newer evolving segments.
  5. Data Demons: data everywhere but a legitimate struggle to make sense of all of it. Data is critical to supply chain planning. Successful projections and operational plans are a function of data that is relevant and accurate. The inability to access quality and relevant data can put paid to supply chain optimization. It also brings into account costs related to data collection, cleaning, data enrichment, storage, access, and security, thus adding another dimension to the data challenge.
  6. Think Globally but Act Locally: this is not only a geographic reference; but it is also an important point to consider when thinking strategically about supply chain or value chain planning. Companies increasingly must think in terms of global opportunities to consider the global needs of the corporation. Manufacturers should consider multiple channels and determine the optimal levels of inventory within the echelons of the supply chain process. This is also critical to consider carbon footprint levels and ensure the greening of the supply chain. However, during the execution of the supply chain it is important to optimize locally to maximize your investments in critical resources: infrastructure, assets and technology.
  7. Optimal Synchronization Manufacturer, Supplier and Retailer: this will help organizations reduce inventory, improve fulfillment rates and product availability at point of purchase and ensure a lean supply chain improving margins and profitability. Today, technology provides myriad opportunities to collaborate, there is a proliferation of data available to be mined and advances in computing power and connectivity allows us to test for optimality in ever increasing areas.
  8. Mobile-Based Technology: this technology can help improve field sales, merchandizing and marketing, and enable direct services to the consumer (through customized location-based coupons or services that improve employee productivity in the field). Providing information such as provenance, origin, item contents and specialized information on demand about sustainability, local content or manufacturing methodology enhances the brand and allows companies to connect directly with the consumer.

As it can be appreciated in the previous paragraphs, optimizing a supply chain can positively affect a number of struggling processes in any supply chain. Leveraging technology, data visibility and proper demand planning can help turn a failing supply chain around and keep it competitive. Companies should include some of the aspects described before in their digital transformation agenda in the coming years in order to build a profitable, sustainable and customer-centric supply chain marketplace.

In future posts, we will be continue writing about technology and business trends for enterprises. The objective of this blog is to provide a personal vision of how digital transformation trends will be impacting in our daily activities, businesses and lifestyle.

By Gerardo Beruvides twitterlinkedin2

Industry 4.0 and Smart-mobility expert, his research interest includes Industry 4.0, Smart-Maintenance, Process Optimization, Machine Learning, AI engineering and Cloud-based solutions.

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[1] https://throughput.world/blog/topic/supply-chain-challenges/

[2] https://www.riverlogic.com/blog/the-biggest-supply-chain-challenges-of-2020

[3] https://www.businesswire.com/news/home/20190716005740/en/Decoding-Top-Supply-Chain-Optimization-Problems-and-Identifying-Ways-to-Address-Them-Download-SpendEdge%E2%80%99s-Latest-Presentation-to-Gain-Detailed-Insights

[4] https://www.industryweek.com/supply-chain/planning-forecasting/article/21958271/five-ways-to-optimize-supply-chain-management

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