Supply Chain Optimization: Meaning, Benefits, Importance & Best Practices

Today's supply chains are becoming increasingly technology-driven, so businesses must incorporate optimizations in the cloud to be effective at the ground level. Faster processing of supply chain data collected from multiple sources can be a powerful start to transforming the supply chain, resulting in cost and risk reduction.

What is Supply Chain Optimization?

Supply chain optimization (SCO) aims to ensure the optimal operation of a supply chain network. Optimization involves the application of mathematical modeling techniques using software as well as qualitative, management-based approaches.

Importance of Supply Chain Optimization

End-to-end supply chain optimization ensures that the supply chain operates at peak performance and efficiency. In other words, optimization maximizes profits while lowering overall costs and ensuring that the enterprise's goals are met.

Supply Chain Optimization Process

Businesses must adopt the following processes to optimize their supply chain:

1. Supply Chain Design

This process involves setting up suppliers, warehouse locations and production facilities, distribution centers, and the flow of materials between them and the end customer.

2. Supply Chain Planning

This process involves demand forecasting, inventory strategy and planning, production planning, and scheduling per the order and delivery timelines.

3. Supply Chain Operations

This focuses on execution activities – order management, inventory management, logistics management, data management and optimization, end-to-end supply chain visibility, and global trade management and execution.

Optimizing A Supply Chain Network

Supply chain network optimization enhances connectivity between suppliers, production facilities and distribution centers to enable faster time-to-market at the lowest possible costs. Based on a simulation of multiple supply chain optimization models, optimization results are evaluated for each model and compared for maximum profitability.

In this process, enterprises must also consider the constraints or specific requirements that are vital to their operations. These may include a limited production capacity or a sustainable practice.

Supply Chain Network Design

A global supply chain network design aims to ensure that data and supply chain functions such as inventory management , working capital, and logistics costs are optimized. It also increases end-to-end visibility, identifies opportunities for cost savings, and mitigates potential risks.

Best Practices for Supply Chain Optimization

• Establish a center for network design manned by a team specialized in supply chain network design.
• Design a supply chain network model.
• Ensure the remodeling exercise of the supply chain network design is carried out per the established rules.
• Ensure sustainable practices are considered while optimizing.
• Consider automation and the latest supply chain optimization technologies for optimizing the supply chain and its processes.
• Appoint a trusted consultant that has thorough knowledge and experience in the field of supply chain network optimization and design.

Benefits of Supply Chain Optimization

 • Cost Reduction

Supply chain optimization identifies potential cost savings opportunities in warehousing, inventory, logistics & delivery processes. It helps increase efficiency by automating repetitive processes, thus reducing overall costs.

 • Increased Revenues and Profits

Optimizing supply chain processes helps increase end-to-end visibility and derive actionable insights that enable faster responses and enhance customer experience. This helps in customer retention and provides competitive advantage, increasing the top line and bottom line.

 • Better Supplier Performance

Supplier performance is enhanced by transparent collaboration between the enterprise and its suppliers. This means the sales data, its analysis to determine future trends, and the stocking timelines must be communicated to the supplier. This helps in the following ways:

• Fill the innovation pipeline for enhancing the efficiency and profits of both the supplier and the business.
• Smarter decision-making by all concerned could mitigate risks and meet customer deliverables.
• Better planning & stocking norms result in reduced inventory, leading to lower working capital requirements for both the suppliers and the business.

Integrated Supply Chain Management

Optimizing supply chain data sets can affect the physical supply chain at the ground level. Thus, integrated supply chain management provides useful data and insights that can be used to simplify decision-making.

Software That Helps Optimize the Supply Chain

Best-of-breed supply chain software is powered by advanced technologies like AI, ML, big data analytics, collaborative planning, demand sensing, and forecasting tools to provide actionable insights and enhance profitability and customer satisfaction.

How To Select the Right Software

Consider these features while deciding on the right supply chain management software :

• AI-powered data insights
• 360-deg visibility for deeper and actionable insights
• Real-time collaboration for reduced costs
• Predictive analytics
• Using supply network intelligence data to spot patterns
• Integration with ERP systems
• Scalability with the cloud
• User-friendly and intuitive interface

The last two years have clearly shown that disruptions in one form or the other will continue to wreak havoc on supply chains. Businesses must be prepared to deal with supply challenges and cope with unanticipated disruptions.

Frequently Asked Questions