What is Supply Chain Optimization?
Supply chain optimization is a key component of the manufacturing supply chain process, helping companies control their input costs to be able to provide effective goods or services to their customers. It goes beyond just maximizing the overall supply chain performance in terms of material delivery excellence. It also stretches much beyond the scope of simply relying on the performance of an individual business unit or department in isolation without taking into account its impact, positive or negative, on the organization as a whole.
Supply chain optimization involves finding the critical optimal solutions that can generate the most productive and lucrative organizational performance while including all possible operational constraints and bottlenecks in the process. It also evaluates the various possibilities such as the best plants to manufacture the required product lines. Also, it includes the key considerations such as how much of the product or service to sell and finally choosing the most cost-effective markets to operate in.
What does supply chain optimization involve?
It involves the application of processes and tools to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs including manufacturing costs, transportation costs, and distribution costs. This process usually involves the application of mathematical modeling techniques using computer software.
The supply chain of today’s manufacturing enterprise has evolved to become a complex ecosystem of people, processes, and technologies. Modern manufacturing supply chains have greatly expanded due to the proliferation of the Internet-of-Things (IoT) and advanced technologies during the past two decades. These innovations have truly triggered an innovative collaboration between partners, distributors, and suppliers that extend well beyond the physical/virtual walls of the enterprise. Also, with recent technology advancements including the increased usage of web 2.0 tools, cloud and IoT lead advanced technologies, manufacturers are now forced to evolve and adapt modern technologies and tools to optimize operations and processes for the effective and efficient supply chain management. This has resulted in manufacturers becoming more aware and prepared for the challenges, opportunities, and trade-offs that affect their increasingly compound, competitive, and transparent supply chains.
At any point in time, an optimized supply chain stays lean, manages costs, and most importantly, responds instantaneously to even minor fluctuations in demand.
Business problems solved using supply chain optimization
According to Gartner, by the end of 2020, 95% of supply chain planning vendors will depend on supervised and unsupervised machine learning in their solutions. Gartner also predicts that by 2023 intelligent algorithms and AI techniques will be an embedded or augmented component across 25% of all supply chain technology solutions.
Advanced technologies like machine learning, AI, and data science, when applied to the supply chain planning process, automatically create a seamless and optimized supply chain for manufacturers. This helps solve several problems for them:
1. Inventory control
Managing inventory is one of the most crucial aspects of supply chain optimization as it affects several other parts of your supply chain, including procurement, order fulfillment, and production capacity planning. This includes the entire gamut of raw materials, spare parts planning, and final product delivery, all of which come under inventory control.
Supply chain optimization directly impacts with accurate inventory, and manufacturers can ensure they remain within the optimum levels of inventory stock. With streamlined inventory management, manufacturers can avoid making errors while fulfilling orders on time without disappointing the customer about non-availability.
2. Demand forecasting
With an optimized supply chain system in place, manufacturers can significantly benefit from accurate planning and forecasting demand. An accurate view of the demand enables supply chain managers to get the right picture of the market demand and supply fluctuations and maintain the right amount of inventory available at all times. With effective demand planning, manufacturers can also cut costs significantly and can create an effective production and delivery plan while also drastically reducing lead times.
3. Factory floor control
With a good supply chain network optimization mechanism, manufacturers can see great benefits in the overall factory floor control. Having a single system in place which gives accurate inputs about what’s going where across the entire factory floor, can help manufacturers reduce dependencies on external purchase orders or forecasts to make supply chain decisions. Also, the customer, more linked to the process enjoys an improved ordering experience. And, with a smart supply chain management solution, manufacturers also get an accurate estimate of the workers’ time allocation throughout the project lifecycle, which means they can bill more frequently and with better precision.
4. Decision making
Day-to-day decision making on the plant floor can be extremely time consuming and conflicting too for manufacturers. In fact, the ability to make better decisions is often overlooked when optimizing a supply chain. Yet, it is also a critical aspect to consider. With supply chain network optimization, you increase the efficiency of your supply chain, and therefore you are better informed and ready to make more positive and impactful decisions.
This is very helpful, especially when you use data pulled from real-time analytics. When real-time data is directly applied in critical factory operations, manufacturers can ensure accurate, informed, and timely decisions. With accurate data visibility, manufacturers are guarded against ambiguous and outdated information as well.
5. Bottleneck elimination
Nearly 40% of industrial output is wasted even before it reaches your customers. Untimely, operational bottlenecks cause a $12 trillion dent on the global production market and contribute to a major share of this waste. This waste can keep manufacturers far away from achieving operational targets and deeply impact their logistics management system and supply chain management strategy. When manufacturers optimize supply chains, this helps them predict and eliminate operational bottlenecks which result in clogging productivity, profitability, and growth. With this real-time visibility to production and performance indicators, plant managers can flag bottlenecks early so they can be resolved with minimal impact. This helps eliminate the ever-shifting bottlenecks.
The role of technology in supply chain optimization
Today big data, cloud, and IoT technology-enabled processes are helping manufacturers with a bird’s eye view of the entire supply value chain. This is, in fact, far more comprehensive in its reach and even more detailed in its scope, due to the enhanced visibility across the entire supply chain.
When manufacturers have all the building blocks of their supply chain processes, they benefit from a holistic overview that they need to track, pick, and trace for every minute function of this system. They also get the ability to do a comparison and quickly reconfigure the essential material needed to procure from various suppliers. This is based on their calculations of costs, comparisons between various transport options to reduce overall lead time and also evaluate the final leg of the completed product’s journey before it reaches the final customer.
What is a Supply chain optimization software?
A supply chain optimization software is one which can process key transactions within the manufacturing supply chain, while effectively managing the network of supplier relationships and controlling the related business processes.
It helps in processing all customer requirements, purchase orders, supplier contracts, maintaining inventory levels, and balancing demand- sales- distribution- warehousing functions. With a well-integrated supply chain optimization software, day-to-day operational activities are much smoother as this also helps predict demand variations and support in establishing healthy trade relationships with the supply chain partners. Most often, it is also well integrated with the organization’s accounting procedures to include purchase orders, accounts receivables, pending payments, etc, which helps take care of the financial implications on the supply chain network as well.
How can Supply chain optimization software help?
A supply chain optimization software can help manufacturers connect the entire manufacturing or distribution value chain, right from procurement to the R&D and materials sourcing through the final production and delivery. With a product like this, instead of focusing on separate, individual suppliers, they can gain a complete view to enable the entire system and find innovative ways to improve delivery speed, while reducing supply chain costs and risks. It can also help track, predict, and eliminate operational bottlenecks in the supply value chain that can impede essential processes and slow down productivity and efficiencies.
Selecting a supply chain optimization software- Factors to be considered
To achieve the desired degree of supply chain optimization, it is necessary to create business models that accurately reflect the supply chain in its entirety and use algorithms to determine the best solutions. This requires advanced analytics such as predictive and prescriptive analytics to identify trends and the right interventions needed to optimize the supply chain. This means adopting software solutions such as optimization platforms, optimization solvers, and embedded optimization applications that can replicate business processes and solve complex problems.
1. Supplier inventory management
As order fulfillment is an integral part of data-driven manufacturing operations, the logistics optimization software that can help manufacturers with lower shipping costs with complete visibility can provide the most effective supply chain solution.
2. Demand planning
When manufacturers can forecast unpredictable demand scenarios to better understand the needs of the customers, the supply chain optimization software that can enable accurate demand, supply, and price forecasting planning is the obvious choice.
3. Transportation planning
A Supply chain optimization software that can help manufacturers determine the most efficient and optimal route for transportation and distribution, should be always preferred.
4. Seamless technology integration
A Supply optimization software that is capable of providing advanced capabilities to help leverage technology effortlessly can result in better transparency, consolidation, and lower costs.
Key Features of a supply chain optimization software
1. Inventory management
Needed for tracking and managing the availability of raw materials, stocked materials, and spare parts for equipment. This feature can help manufacturers with key asset management, effective barcode integration, and future demand for inventory and price forecasting.
2. Order management
Needed to automate the procurement order processes. This might help in generating tracking purchase orders, coordinating and scheduling of supplier deliveries, and designing key pricing and product configurations.
3. Logistics and delivery coordination
Needed to coordinate essential transportation channels, enhancing delivery processes, and ensure on-time delivery to end customers. Effective warehouse management features can enable effective storage optimization, labeling, labor management, and more.
4. Forecasting demand and pricing
It’s needed to anticipate and predict customer demand, pricing dynamics, procurement planning, and managing production processes accordingly. Accurate supply chain forecasting can go a long way in eliminating operational bottlenecks, predicting accurate revenue figures and customer demand, determining the correct cost of production and operations cost, assessing suppliers’ performance, and creating estimates of projects that need to be completed.
5. Order return management
Needed to inspect and detect damaged finished products and ensure effective processing of refunds or insurance claims.
The future of supply chain optimization with Artificial Intelligence and Machine Learning
As the landscape of the manufacturing supply chain goes through an evolution, the focus of the supply chain management function itself has shifted to advanced operational planning processes, such as analytical demand planning and integrated S&OP. Industry 4.0 has resulted in creating a massive disruption that requires companies to rethink the way they design and optimize their supply chain. Several technologies are now being applied which can alter the traditional ways of working. Along with the basic need to adapt to changing customer needs, supply chains also have the opportunity to directly impact the operational effectiveness levels and transform the organization itself into a digital supply chain.
We now have welcomed Supply Chain 4.0 to our manufacturing floors. This is the application of the IoT, by applying advanced robotics and advanced analytics of big data in supply chain optimization. As manufacturers place sensors in everything, this helps create supply chain networks everywhere, automating anything, and analyzing everything to significantly improve performance and customer satisfaction.
Here are some interesting statistics:
1. According to PwC, AI has the power to transform the way business is done and contribute up to $15.7 trillion to the global economy by 2030.
2. McKinsey studies reveal that among the various industries to benefit most from AI in supply chain adoption, supply chain management is in the top three, and 76% of the survey respondents in supply chain companies have already reported moderate to significant value from deploying AI.
Today, artificial intelligence has the ability to enable exceptional agility and precision in supply chain optimization. It can also trigger a transformational increase in operational efficiencies and a decrease in costs where repetitive manual tasks can be automated.
ELI- The AI-driven Bottleneck Elimination Product
ThroughPut’s ELI is an AI-powered bottleneck elimination engine that analyzes existing industrial data in real-time. ELI is continuously detecting, identifying, prescribing & preventing your shifting operational bottlenecks to save millions in delays, inefficiencies & lost revenue.ELI helps companies optimize supply chains easily to achieve and scale data-driven operations using AI. It focuses on the five key pillars of lean operations:
1. Faster Cycle-time
ELI ensures your cycle-time becomes faster by eliminating operations bottlenecks with ease and minimal effort.
2. Better Defect-rate
ELI creates better defect-rate predictions using existing data leveraging multi-variable heat maps, geolocation tracking, and data-quality maps.
3. Leaner Inventory
ELI facilitates working with leaner inventory stocks and boosts inventory turnover and labor productivity rapidly at scale using real-time and on boards.
4. Smoother Uptime
ELI ensures uncertainties are reduced to the minimum which creates uninterrupted productivity and uptime.
5. Safer failures
ELI reduces costly, excess industrial waste by detecting and eliminating the ever-shifting bottlenecks, resulting in safer operations.
Whether you’re looking to reduce cycle time, avoiding machine failure, optimizing inventory, or even making your community and the world a less wasteful place, ELI – supply chain management software improves your operational excellence in every way. If you wish to learn more about our product and choose the version that works best for you, please click here for a demo.