I couldn’t agree more with this recent headline from Supply Chain News that notes that Asset-Oriented Supply Chains Need Supply Chain Network Optimization More Than Ever because, like just about every other type of supply chains, they do. This is because, as IDC Manufacturing puts forward in a recent research report,
- profitability is closely linked to the cost, and efficient use, of raw materials which are steadily increasing in price while market pressure is driving sales prices down,
- high operating costs (partly due to the continual increase in the cost of energy and water) are making plant efficiency a key concern, and
- changing demand patterns are adding additional strain to the supply chain from regional shifts and gaps between production and actual demand.
A good supply chain network optimization tool will allow a company with rising costs and shrinking revenues to understand the costs and benefits of each supply chain network option open to them and answer the following questions:
- 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) under-performing 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 pre-build 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 exchange rates, tariffs, or duties?
And in this economic climate, such a tool may well make the difference between riding out the economic downturn and becoming a victim of it.