Supply Chain

Supply Chain Optimization: 10 Rules to Boost Supply Chain Efficiency

Dave Kravitt, CPIM

Effective supply chain management (SCM) in today’s technologically-advanced manufacturing environment can be a daunting task. However, according to Dr. Donald Radliff, executive director of Georgia Tech’s Supply Chain and Logistics Institute, efficient supply chain and logistics operations backed by a solid supply chain strategy can reduce costs by as much as 10-40 percent. The trick is following ten rules for successful supply chain management:

1 – Set quantified and measurable objectives

Logistics optimization requires setting specific objectives that enables your SCM software to determine the best solutions. This, in turn, enables management to determine if your SCM system is providing an acceptable ROI.  For example, you currently source a critical specialty chemical raw material from three foreign countries and the US and as part of an overall vendor rationalization program you want to reduce the number to three.  Which three of the four provide the lowest landed cost, best quality, and best on-time deliveries and lowest risk of supply interruption (due to weather or geopolitics)?

2 – Create accurate logistics process models

Good models are critical for enabling supply chain management software (SCMS) to understand operational requirements and constraints. The right models enable those requirements and constraints to be translated into algorithms the SCMS can use.  For example, different suppliers of a raw material deliver different active ingredient percentages or grades which impacts the formulas in which the material is used.  Your software should be able to model the variations and adjust the formulation automatically as well as calculate finished goods costs for each variation. 

3 – Variability inevitably occurs – plan for it

In virtually every supply chain and logistics process variability occurs. Raw materials or production items may be changed. Assembly and packaging may vary. Unfortunately, many models used for supply chain and logistics optimization don’t allow for variables or assume average values are acceptable. Whatever it is, variability must be carefully considered in modelling and SCM staff need to have the expertise to consider variability when interpreting model results. 

4 – Accurate, timely, and comprehensive data is a must

Data drives everything. The foundation for an optimized supply chain must include timely data that is both reliable and complete. Today’s massive data sets and functionally-rich data analysis tools are key to optimization. Sometimes very simple parameters can be overlooked. For example, having shipment weight data is not sufficient if some of the vehicles used for distribution are limited by volume. 

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5 – Fully-automated data transfer is crucial

The ability to easily and seamlessly integrate data throughout the supply chain is vital for optimization. Automation in the form of GS1, EDI or blockchain transactions can significantly reduce the amount of time and errors associated with manual data entry. 

6 – Actions must be easily executed and managed to assure delivery

Supply chain and logistics optimization models must be able to provide solutions that are easily executed and managed from the executive suite to the factory floor. That requires simple, unambiguous directions that are easily understood, enabling employees to quickly and accurately carry them out. Intuitive web-based interfaces are becoming increasingly popular for both management and operational personnel – especially for management. These interfaces work on a range of devices including mobile, making them more accessible to everyone. But they often require aggregating even more information to determine performance success against key performance benchmarks over time and across facilities and assets.

7 – Algorithms will make or break SCM optimization

Every supply chain and logistics problem has a special set of characteristics associated with it. Using newer data analysis tools it’s possible to fully exploit those characteristics and develop accurate algorithms to effectively provide optimum supply chain solutions in a reasonable amount of time. 

8 – SCM model, data, and optimization engines must be managed by people with domain and technology expertise

SCM optimization is perhaps one of the few things that really is rocket science. To be successful, it’s necessary to have domain experts to ensure that all the data and models are accurate and reliable and that the system is fully functioning as designed. If that level of expertise is not available internally, a cost-effective solution is to turn to a third party support provider (such as PSGi) with ERP and SCM expertise and experience to provide comprehensive SCM support and ensure a high level of operational performance. 

9 – All processes must support supply chain optimization and be capable of continuous improvement

Supply chain optimization is not a one-time project. It requires significant, ongoing effort on the part of both management and operations staff. Invariably things will go wrong because processes or deliverables or other key factors have change. This requires both systemic and systematic monitoring of data, model, and algorithm performance to not just react to change, but proactively initiate change when opportunities present themselves. Failure to implement processes to support and continuously improve optimization will ultimately result in diminished supply chain performance and a less-than-satisfactory ROI (which leads us to our final rule). 

10 – Establish a provable ROI to help assess true supply chain performance and the cost impact

There’s no sugar-coating it – supply chain optimization requires significant investment and few companies today truly understand how well their supply chain is performing and what steps need to be taken to continually improve it. Determining the impact of optimization requires benchmarking key performance indicators, comparing optimization results to the benchmarks, and performing regular audits of supply chain performance.

If you’d like to learn more about manufacturing supply chain efficiency and creating an effective supply chain strategy, download our free white paper, 5 Characteristics of a Competitive Process Manufacturing Supply Chain.

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