In a recent article, Koray Köse states that the EU just killed global supply chain optimization.

When, actually, they just ushered in the real optimization era.

If you are a true multi-national, as Koray has said, you have to pick 2 options out of the 3 options available since you can not simultaneously satisfy US CHIPS Act, EU IAA origin/low-carbon requirements, and Chinese local content rules. So you have to decide which 2 options are the most valuable to you (based on costs and revenue opportunity in the market). That’s an expected profit optimization based on predicted sale prices and the localized supply chain optimizations for cost computation.

So you have to run 3 different sets of scenarios against different assumptions and Pareto efficiencies — and as humans we just can’t do that, and today’s AI can’t do that either (despite the over-hyped claim to the contrary). You need optimization to pick/justify your options, and then ongoing optimization to keep costs, and revenue, in line with prediction as global events force you to reroute regionalized and localized supply chains, substitute materials due to shortages, etc.

What was killed was the simple concept of global optimization that was relatively easy to do without optimization (and what passed as optimization for the past 25 years). Up until now, the reality was that, if you had even a few constraints, and the ability to do simple math, you could quickly eliminate the most expensive suppliers and the suppliers that couldn’t meet your constraints, and then, using your constraints, cherry pick the lowest or second-lowest cost supplier/distributor, and come up with a solution that was within 1% to 2% of theoretical optimal, but that was actually more optimal in practice as it was more stable and easier to maintain.

Optimization is only needed when you need to make choices that can’t be made without considering multiple sub-cases, regionalizations, and localizations — and this is exactly what this messed up world has given us!

It becomes even more important if you are a true multi-national with business in, and government commitments in, the US, EU, and China. You have to adhere to all of the rules globally, but you can’t with any one product formulation, so you have to create at least 2 different products where you figure out what 2 of the three combinations are easiest AND cheapest to make, where to make them, and how to supply them to the countries you serve (with there will be one country each mix cannot be imported into). This requires a host of scenarios to be run before a selection to be made, and a host of models to be continually run during production and distribution to ensure everything aligns with changing market conditions.

So while the classic optimization vendors who can’t do anything more than minimally constrained global optimization are now dead, it’s finally opened up the era of real optimization. The question is, what vendors are going to step up to fill the void?