We just published our report on supply network optimization – "Best Practices: Supply Network Optimization in Asset-Oriented Value Chains (AOVC)" (MI220746). Our research was geared toward asset-oriented manufacturers (those with significant asset investments, primarily chemicals, metals, and pulp and paper), because we believe complexity in this segment's greater supply chain, including production, can be well served by supply network optimization (SNO). Optimization tools will play a sig
Typical questions companies are answering with SNO include:
· What is the optimal allocation of materials or customers to plants and/or distribution centers (DCs)?
· What is the best location for new plants and/or DCs to minimize freight, inventory holding, and/or rail fleet costs while maximizing customer service levels?
· How do we reallocate our capacity so we may close (temporarily or permanently) underperforming plants?
· What capacity should we build into our plants, production lines, or processes, down to the requirements of specific machines or tools?
· Based on our inventory levels and production capabilities, what is the optimal product mix, considering co- and byproducts?
· Based on seasonal demand or production limits, what should we prebuild in inventory?
· How do we optimize our production and distribution schedules for the desired levels of customer service and profitability?
· What is the profitability impact of crossing borders — from currency rates, tariffs, or duties?
Many of these questions are particularly relevant given the economic conditions of the last 18 months. As companies have been forced to re-look at their business models due to declining sales and/or profits, the supply network is an obvious candidate for transformation. Having sophisticated tools may well make the difference between riding out the economic downturn versus becoming a victim of it.
We also want companies considering supply network optimization to know about two factors that came up in our discussions - sustainability and risk.
In a sustainability survey we conducted in August 2008, 15.1% of asset-oriented manufacturers in the United States and just over 10% of all manufacturers in the United States and Asia/Pacific selected supply network optimization as a technology that can support their green-related initiatives. Interestingly enough, over 30% of manufacturers (in all segments) in EMEA expect to use SNO to support green-related initiatives. Fundamentally, we believe SNO should be one means of reviewing the supply chain to improve its environmental sustainability.
Risk is also a subtle (and sometimes not so subtle) component of designing and then optimizing the supply network. Along with inventory optimization tools, SNO can give asset-oriented manufacturers a better view into the inherent supply and supplier risks of a particular network and enable informed trade-offs. For example, one company used SNO to understand its options for weather-related events, including natural disasters such as floods or hurricanes, and in understanding the implications of a strike in one segment of its workforce. As we've seen in our research into risk, the most important element is that manufacturers understand their risk exposure even if, at the end of the day, they decide mitigation is neither warranted nor justified.
Let us know if your company has used supply network optimization to manage risk. And if you've used another type of application to manage supply chain risk, we'd like to hear about it.