What is Supply Chain Optimization?

According to APICS, responding to customer mandates for faster, more accurate and unique fulfilment is a top business priority for supply chain managers. The challenge…

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Mark Morley

September 6, 201910 minutes read

Image of a busy port with a ship and stacked containers in the background.

According to APICS, responding to customer mandates for faster, more accurate and unique fulfilment is a top business priority for supply chain managers. The challenge is that supply chains have evolved from a linear process across organizations–between suppliers, manufacturers and customers – to become complex global ecosystems of manufacturers, suppliers, customers, sub-contractors and other trading partners. To meet the goal of excellent customer experience means gaining the maximum performance from your supply chain network. That’s where supply chain optimization comes in.

Today, a large global brand can have tens or, perhaps, hundreds of thousands of suppliers spread to the four corners of the earth. For example, Forbes reports that Walmart has over 100,000 suppliers while French oil giant, Total, says its supplier list tops 150,000. It’s too easy for a company not to have a clear understanding of just how many suppliers they have and that’s where the supply chain problems begin.

With so many different aspects to manage, how to optimize supply chain networks is a growing challenge. You need to know exactly how many suppliers you have, what they’re doing and when, how much inventory is in the supply chain, whether your customers are getting the right order at the right time and, most importantly, how much this is all costing you. To give just one example: it’s estimated that optimizing supply chain processes could save the food industry in wastage alone over $700 billion annually.

What is the definition of Supply Chain Optimization?

There’s a neat supply chain optimization definition that states it’s the process of ensuring your customers get what they want, when they want it, and you spend as little as possible to make that happen.

A slightly more technical definition comes from Transportation Insight that says: “Supply chain network optimization is the science – and art – of designing a holistic, strategic and quantitative view of an organization’s end-to-end supply chain”.

In effect, end-to-end supply chain optimization uses a range of supply chain optimization techniques–allied to supply chain network optimization tools–to provide visibility across all activities and arm you with actionable data to make informed, strategic decisions in every area of supply chain management including:

  • Customer service management
  • Product portfolio management
  • Inventory management
  • Spending and procurement management
  • Pricing and promotion management
  • Logistics and distribution management

By combining all these disciplines, supply chain optimization means that an organization can operate at full efficiency to reduce costs, increase revenues and improve customer experience.

What are the benefits of Supply Chain Optimization?

Supply chain management optimization has many different facets depending upon your specific business requirements. There are a number of capabilities that you should expect from the best supply chain optimization software, including:

Cost reduction

  • Through supply chain optimization, a great deal of cost can be driven from business operations. Redundant and ineffective processes can be retired or automated. A focus can be placed on meeting customer requirements with on-time deliveries that are accurate. Supply chain cost optimization allows for less inventory to be held, which reduces the cost tied up and less obsolete stock in inventory. In addition, supply chain infrastructure costs can be better managed through optimizing delivery process, logistics and warehousing capacity.

 Boost revenues and profitability

  • Supply chain optimization tools deliver insight into all activities and speed supply chain processes. The customer is more linked into the process than ever before and benefits from an improved customer experience. The correct orders are delivered on time, and the organization is much more responsive to customer needs. This results in a reduced cash-to-cash cycle–with invoices settled faster–and also makes it much easier for customers to re-order and expand their business with you.

Improve supplier performance

  • As supply chains become more digital, you have real-time information of what’s happening within your supply chain. You can see which suppliers are performing well and which are under-performing. This gives the foundation for a program of continual supplier performance improvement as well as providing a basis for making strategic sourcing decisions.

Improved supply chain collaboration

  • By centralizing your systems, vendors, and interfaces all onto a single, end-to-end supply chain optimization solution, you can enable collaboration and innovation with your ecosystem of suppliers, partners and customers. As everyone can access the latest information, this integrated team can make quicker, smarter decisions and work together to build supply chain continuity and mitigate risks.

Integrated supply chain management

  • Supply chain optimization software allows you to integrate all your supply chain capabilities and manage them from one place. You can gain insight into a whole host of important elements including supply-chain visibility, sales forecasting, cash flow management, customer loyalty, on-time delivery, credit control, minimum margin measurements. This end-to-end supply chain visibility and transparency allows for constant improvement in both operations and planning.

Improved Quality

  • Quality management in the supply chain revolves around the end-to-end production of the product from raw materials to final customer delivery. Supply chain optimization techniques allow quality to be built into each stage with the goal of improving efficiency and reducing waste. This can facilitate supply chain planning optimization by ensuring that each stage of the process meets the quality standards and KPIs that have been set for it.

What does the Supply Chain Optimization model look like?

As the ecosystem within a supply chain network grows so does the uncertainty and risk associated with all supply chain activities. Factors that can affect the performance of the supply chain can be internal, external, competitive and environmental. This wide range of contributory factors has led to the development of various end-to-end supply chain optimization models. The model you choose will be determined by the specific supply chain optimization challenges that your business faces.

Let’s take Amazon as an example. The world famous ecommerce platform works with millions of vendors and hundreds of thousands of suppliers worldwide. It has created its Fulfilment by Amazon (FBA) model to mirror the way its business operates. However, the supply chain optimization model from Amazon features components that would be common to any organization’s model:

  • Inventory
  • Product receipt and storage
  • Order processing
  • Despatch and distribution
  • Customer service and support

Taken together, these features allow you to address the vast majority of supply chain optimization problems and build a solid, strategic operations that let you work better with your trading partners.

What are the top Supply Chain Optimization techniques?

 Supply chain cost optimization

  • Cost optimization requires a combination of both short-term operational improvements and longer-term transformational changes. It looks at each cost area in the supply chain–such as orders and payments, storage and transportation, stock and wastage–to identify where cost reduction is possible. For example, some supply chain optimization solutions can help you deploy a ‘cost-to-serve’ analysis to help maximize your logistics and customer fulfilment spend.

Supply chain inventory optimization

  • Supply chain inventory optimization helps you determine the ideal amount of inventory needed to satisfy customer demand and where it should reside in the supply chain. It uses advanced algorithms to understand and quantify what causes demand and supply uncertainties across a multi-level supply chain, and how they can be addressed. Using supply chain inventory optimization techniques you can determine the minimum amount of inventory required across your entire supply chain network.

Supply chain network optimization

  • To stay ahead of the competition and maintain operations at maximum profitability and productivity, companies need to examine how their supply chain will handle change.  Supply chain network optimization empowers companies to compare the current state of their supply chains to multiple “what-if” scenarios. They can then develop concise, strategic plans and goals and identify which of their suppliers are best suited to help achieve these goals. The result of a supply chain network optimization should be to enable companies to execute their supply chain strategies while reducing cost and risk.

How do I select supply chain network optimization tools?

There are several supply chain optimization software required to deliver maximum performance across your end-to-end supply chain. These include:

Supply chain optimization platform

  • A supply chain optimization platform is a modeling platform that uses Artificial Intelligence and analytics to define the characteristics of your global supply chain ecosystem. In order to create effective models, the platform has to take into account every significant aspect of the supply chain, including sourcing, manufacturing plant and distribution as well as the financial aspects of supply chain operation.

B2B integration platform

  • A B2B integration platform provides digital integration, automation and optimization of the key supply chain processes that determine how you work with customers, suppliers and other trading partners. Beyond the cost, speed and productivity improvements of conducting digital transactions, the major benefits of this type of supply chain optimization solution revolve around enabling the collaborative relationships and entirely new work practises that drive modern supply chains. You gain full visibility across your supply chain from a platform that lets you work closely and securely with partners to improve the performance of your supply chain and wider business operations.

Supply chain analytics platform

  • Supply chain analytics offers end-to-end supply chain visibility and actionable insights based on B2B transactions. Insights help organizations manage key supply chain processes and use predictive analytics to optimize future outcomes based on historical data. This supply chain optimization software delivers insights into historical patterns, the current state of transaction flows and can predict the future performance of suppliers and customers. Armed with real time business transaction data, supply chain analytics offers end-to-end visibility and refines trading partner performance management to drive revenues and profit.

Embedded applications

  • Embedded applications integrate with your supply chain optimization platforms to provide extra functionality to the core capabilities. Often, these applications will address specific use cases, such as supplier management, order and invoice processing, product catalogue management, etc. The best supply chain optimization vendors will provide a range of complementary applications that can be embedded within your supply chain optimization solutions.

Why choose OpenText as your supply chain optimization vendor?

OpenText™ is one of the world’s leading supply chain optimization companies helping you to build flexible supply chain ecosystems that are agile and responsive to rapidly changing customer and market demands. The leading platform for supply chain integration, OpenText™ Trading Grid™, is a flexible configurable digital backbone enabling organizations to optimize supply chain processes across the entire trading community. Key supply chain optimization services include:

Together with OpenText B2B managed services, OpenText offers a complete people-process-technology supply chain integration solution based on decades of industry best practices and proven processes.

Visit our website to learn more about supply chain optimization.

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Mark Morley

As Senior Director, Product Marketing for Business Network, Mark leads the product marketing efforts for a suite of cloud integration, IoT and IAM solutions that help companies establish an end to end digital ecosystem to connect people, systems and things. Mark also has an interest in how disruptive technologies will impact future business environments. Mark has nearly 30 years industry experience across the discrete manufacturing sector.

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