Network Optimization Tool
The supply chain network of an organization is it's value delivery structure. It encapsulates physical capacities to produce and store, production and distribution constraints, fluctuations and the flow of products and resources throughout the interconnected matrix of source and consumption points. Over time the network evolves based on production, sourcing and distribution strategy adopted, focusing on where to produce different products, how to source resources required for production and how to deliver those resources to the customers.
Network Optimization: What is it and what is optimized?
Optimization is simply the procedure that identifies a set of network related decisions which is as effective and as functional as possible. It attempts to answer what decisions lead to highest profits, through put, share holder value or lowest cost, wastage and risk. Supply chain network optimization is not just piece-meal cost reduction. It is about configuring the network so as to attain global minimum, while controlling risk and allowing latitude for fluctuations. Following are some of the many underlying questions that is holistically resolved in the process:
- where to place inventory and in what quantities
- how much safety stock to keep
- what is the right inventory mix at different warehouses
- identification of key inventory drivers
- how to increase service levels and decrease order fulfillment lead-times
- analysis of postponement strategies
- portions of supply chain that has to be manged based on push and portions that has to be manged based on pull
Network Optimization Tool: Necessities and benefits
Many of the supply chain decisions are largely based on rough ideas about outcomes. Creation of a model of the network and optimizing it controls the uncertainties associated with decision making. It also allows for early quantification of benefits without incurring implementation costs and risks. The intricacies of tax treatment in India further complicates the already complex decision problems. Then there are salient shifts like advent of CST abolition which augurs significant changes in supply chain design. Whereas till date it was preferred to maintain warehouses in different states and do internal stock transfer so as to avoid paying CST on inter-state movements, a centralized distribution system may be more effective in future. This is where optimization can add value by clearly pin pointing the changes upfront and giving a measurable guideline for capturing the benefits.
Considering the fact that even a small network can present thousands of possible alternatives in which to distribute resources across the system, given the scale and diverseness of most supply chains optimization is no mean task. A tool can sift through these possibilities so much better, reducing time wasted in evaluating sub-optimal scenarios. It requires skill, knowledge of complex analytical techniques and computational tools to devise and achieve a pragmatic optimization scheme or solution. Tools that can be rapidly deployed, configured to match the available network structure of an organization and can give feasible solutions with reasonable effort are therefore of utmost importance. For example, a computerized solution can assess the impact of addition of a new node in any network at more than 30 possible locations in a single pass.
Optimizing network decisions is not a daily exercises. Partly because, it takes effort to implement the optimization decisions once taken and to observe the accrual of benefits and partly because a lot of network components (warehouses for example) cant be altered often. This necessitates that planners be confident about the optimization exercise. A dependable tool is but a natural fulfillment of this need.
Finally, there is the added onus of sustainability that modern businesses have to strive to achieve. A proper tool can not only assist in shaving off costs and excesses but also analyze various parameters to address how to make the supply chain operations more sustainable.