We previously wrote about some of the reasons and incentives for why a company would want to execute a supply chain network optimization study. Now, we would like to discuss some of the key contributing factors to consider when completing the supply chain network optimization study that will ensure both realistic and usable results.
A supply chain network optimization study cannot be completed without using a supply chain modeling software tool. Modeling tools will be able to handle all the necessary data and backend calculations so that the user can focus on having the right inputs and interpreting the outputs. There are many different tools out there that will get the job done and each one has different pros and cons. Some of the main ones today include Supply Chain Guru, Blue Yonder and AIMMS, as well as our internal proprietary tool, ASSIGN.
We talked about the multitude of data analysis that will be delivered during a supply chain network optimization study, but data will also be the major input that drives the model and strategy development. That being said, it is important to spend a large amount of the time up front focusing on the data. Collecting the right data and making sure the data is of reliable quality will determine how complex and detailed the study can get. The most important data to look at includes transportation/shipment data, sales order history data and inventory data. Getting all the supply chain cost elements (in particular, warehousing costs) will also be important for establishing the baseline costs. Because the data being used will be very granular, validating the data against financial reports is another extremely important step to ensure the data driving the project is correct and the project’s results, are therefore, realistic.
Business Rules & Constraints
While data is the most important factor during a supply chain network optimization study, the business rules and constraints should not be overlooked. This will be what restricts the model and ensures that the results are optimized to support the goals of the business. Business rules and constraints refer to parameters like a min or max inventory on hand and order fulfillment time (e.g. customers receive goods within 4 days) and should be discussed in the beginning of the project and updated as necessary. With the right software tool, these can be put right into the model.
Forecasting and Planning Factors
When reviewing the results of the supply chain network optimization study, it is important that they not only will work for the business as things are today but also will support the business over the next 5 years and beyond. That is why it is important to consider the demand forecast (as detailed or generic as it may be) and any planning factors. Planning factors are things that won’t be seen in the data, but should be considered, and can be anything from the opening/closing facility to tariff increases to needing a distribution center to be within a certain distance of a specific location. Ensuring that the forecast is properly understood, and all the planning factors are laid out early in the project, will be vital to feasibility of the results at the end of the project.
Anthony Mandraccia, EstablishInc, NY