Supply chain optimization
From the August 2020 print edition
Before the coronavirus pandemic, ‘supply chain optimization’ was already a buzzword. The term involves operating supply chains as efficiently as possible, with processes and tools aiding optimal operations. But how has the pandemic affected these efforts? And what competitive advantages come from pursuing them?
For Bill Michels, VP of operations Americas at the Chartered Institute of Procurement and Supply (CIPS), anything that increases supply chain agility and flexibility represents optimization. Organizations benefit from supply chains that pivot on demand, as well as meet the demands of innovation and change, Michels says.
“Some companies are stuck with one location that they’re sourcing from and they really don’t have a lot of agility,” he says. “Best practice companies have been looking at risk management and changing their supply chain and building smaller organizations, smaller manufacturing, close to the markets they serve.”
While some companies have considered reshoring operations for years, the pandemic has accelerated that choice for some, causing them to restructure and recapitalize supply chains.
“We don’t know how the links are, where the weaknesses are now and who’s going to be there and who’s not when we come back to full speed,” Michels says. “We’re going to have to find a way of actually financing that supply chain.”
Organizations must also look at their planning systems, supplier relationships, risk exposure and start to integrate, he adds.
Supply chains are responsible for getting the right goods to the right place at the right time, says Roberta McPhail, owner of McPhail Enterprises. But which approach is best? Should it be the traditional, forecast-centric process? There are also other approaches, like Lean methodology or Demand Driven Material Requirements Planning (DDMRP), which involves stocking what’s needed more quickly and adapting in real-time.
Many technology tools exist to help, McPhail notes. But choosing the right one is connected to the methodology you decide on. How much inventory to keep must also be considered.
“You’ve got to pick a number. This is where DDMRP comes into its prime,” McPhail says. “Picking a number is a lot easier with DDMRP. It’s a simple system. It has visual colour coding. There are many software packages that directly support it now.”
McPhail also notes that adaptability is important when choosing a model. The risk of COVID-19 offers a good example of this importance, she says.
“Companies that have been relatively successful have minimized the risk issues,” McPhail says. “They’ve got leaner tools and they’ve got real-time data.”
McPhail encourages procurement specialists to expand their knowledge of demand management and inventory optimization while considering the end-to-end supply chain process.
“I still see companies that have not really aligned around the concept of supply chain,” she says. “They have an individual, siloed department around procurement, for operations, and inventory, and demand management forecasting. It should be an integrated department.”
Strengthening the chain
For Denis Sanchez, vice president of organizational excellence at Cognibox, supply chain optimization involves removing the weaker links and monitoring the rest to maintain maximum strength. Since the pandemic has affected most commercial supply chains, optimization is more important than ever, Sanchez notes. Organizations must now decide how to mitigate impact, as well as respond and create opportunities within the limitations of the crisis.
Visibility is essential, while strong supplier collaboration and information sharing are also key, Sanchez says. Many companies have created emergency response teams focusing on processing information and making strategic and tactical decisions. Data sharing is critical to this process.
“Much of the optimization efforts will be centred around six major issues: adaptation; digitalization; preparedness; recovery; ripple effect management and sustainability,” he says.
Technology allows for information transfer across supply chains, Sanchez says. Organizations can use technology to understand the pandemic’s impacts across their supply chains, identify risks, revise and update forecasts and evaluate delivery channels. Cognibox, for example, has seen clients use technology to communicate with supplier segments, track supplier preparedness and, with contractors, screen for COVID-19 symptoms before employees arrive on site.
Sanchez agrees that agility and flexibility are key areas to focus optimization efforts in response to major disruptions like the pandemic. Data allows for modelling and simulation of such events.
“Once we understand that supply chains are not linear, but rather interconnected, it becomes increasingly clear the need to assess risk across all tiers,” he says. “Data exchange and processing technology allows businesses to gather this intelligence to drive more holistic business decisions in support of their optimization efforts.”
The pandemic has caused many to re-evaluate the effectiveness of their supply chains, their level of optimization and reliance on traditional manufacturing models, just-in-time, lean inventory models and global sourcing, Sanchez says. Data and technology will be increasingly important in understanding supply chain sustainability and resilience, facilitating recovery efforts, simulating responses and creating competitive advantage through production changeovers and new distribution channels, he notes.
“Supply chain optimization efforts are the backbone that enables this transformation to happen,” he says.