Three Keys to Effective Supply Chain Optimization

Solvers, data and models are the three most important elements in any supply chain optimization effort. The relationship between the three is that data is used to create a model, and the model is used to create a solver.

Because of this relationship, it is vital when creating a model that the data fed into the model be accurate. If the data is not valid, an incorrect model will be generated, resulting in an ineffective solution to the optimization problem.

However, depending on the level of supply chain planning, detailed data and models are not always necessary. Generally, the higher-up levels of supply chain planning, such as strategic planning, do not need extremely detailed models and source data. For these higher-up levels, data such as general demand trends may be sufficient. On the other hand, tactical planning usually does necessitate detailed models with specific amounts, dates and numbers.

What about Holistic Optimization?

In order for an optimization plan to be successful, the plan needs to take into account the various processes involved. Trying to develop one part of the plan separately from the rest of the plan can generate a less-than-optimized result. For example, if you develop an effective production plan, but fail to take into account the relevant distribution aspects, your plan may fall short of your desired optimization objectives.

As such, the trend has been for vendors to move towards more holistic approaches to optimization. These approaches take into account the various parts of optimization plans, and other aspects, such as supply chain integration, in order to form a synergistic whole. This larger overall trend has taken the form of three micro-trends within supply chain optimization.

The first of these micro-trends has been the movement towards synchronized concurrent planning. This differs from synchronized sequential planning, which is where one stage of planning was logically followed by a second stage (for example demand planning was followed by distribution planning, which was followed by manufacturing planning). By contrast, in synchronized concurrent planning, each stage of the planning is generated at the same time, and all constraints along the supply chain process are taken into account during the planning stage.

The next micro-trend has been towards synchronizing planning levels. As mentioned earlier, plans at a higher-up (example: strategic) level may not need to contain as much detail as plans at a lower (example: operational) level. However, the more synchronization there is between the various levels, the more optimized the overall plan will be. Three methods that are used to ensure this synchronization are: telescoping planning horizons (projecting timeframes for various planning levels), using a common data structure for all planning levels, and monitoring the synchronization process itself so that the planning levels stay in alignment.

The third micro-trend in optimization is towards planning and executing in real-time. Real-time planning and execution allows companies to eliminate long planning cycles. In turn, by reducing the planning cycles, these companies not only limit excess inventories but also get better customer service from their supply chains.

In conclusion:

• Supply chain optimization encompasses the entire process of combining resources in a supply chain with the intent of streamlining the process and leading to faster, more efficient and more profitable results.
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• Supply chain optimization uses models and planning to formulate solutions to internal problems and external problems. Internal supply chain problems can take the form of complex decisions that the supply chain planner has to make, while external problems stem from the supply chain itself.
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• Three keys to effective supply chain planning are data, models and solvers. Data is information about the supply chain, which is used to create a model. The model, which is a representation of the supply chain problem, is then used to create a solver. As such, the solution to a supply chain problem always begins with effective data.
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• The trend recently has been towards holistic approaches to optimization. A holistic approach takes into account the various aspects of the supply chain process in order to generate a synergistic whole. This greater trend has focused on three micro-trends: synchronized concurrent planning, synchronizing planning levels, and real-time planning and execution.

So as you’ve seen, supply chain optimization is a complex and evolving field with many applications. Taking advantage of these applications is a crucial part of ensuring that your business remains profitable and your customers remain happy. While it would be impossible to include all the nuances of this process in just one article, hopefully the information provided here will set you on the path to learning more about how this process can best fit your business.

First Page: Supply Chain Optimization