Supply Chain Optimization is a widely-used term in the industry, and while many companies understand its potential to drive cost savings and service improvements, they don’t know where to start or how to justify the investment.
So, how do you develop the business case for supply chain optimization?
“One of the first things that’s helpful in making the case is that you can’t say whether [a supply chain decision] is a good idea until you measure the size of the prize,” said Derrick Muilenburg, Manager of Optimization Services at LeanLogistics, in a recent episode of Talking Logistics. Derrick explained further:
A company might say, ‘Oh, there’s no way we would move that distribution center to a different location because we’ve had it there for years, the service is great, and we like the service provider,’ but if you ran a model the results might say that you could save 30 percent if you moved it. The [decisions you make] will be different if you have hard data backing you up instead of just intuition and history. So, you have to measure the opportunity in order to know what it is.
A similar value proposition exists from a continuous improvement standpoint, or as Derrick put it, “If you don’t have a baseline, you really can’t tell if you’re improving.”
When you run a model, you give yourself the ability to isolate the variables within your supply chain. It’s easy for me to say, “Well, we saved a lot of money this year and I attribute it to packaging changes.” But was it really packaging changes? Was it lower fuel costs? Did the transportation group do a good job [consolidating loads]? Did the procurement group do a good job this year [finding more cost-effective and reliable carriers]? If you can’t isolate these individual variables in the supply chain, it becomes challenging to defend your position and to make the case for specific improvements that help the company save money.
A lot of companies equate Supply Chain Optimization with highly disruptive and risky projects, such as redesigning your entire distribution network, which can be costly and take months or years to execute. But as Derrick highlights using customer examples, Supply Chain Optimization also includes lower-risk, shorter-term engagements — such as product flow analysis — that deliver relatively quick benefits.
I encourage you to watch the rest of my conversation with Derrick for additional insights and advice, including his definition of Supply Chain Optimization (which he breaks down into four categories: benchmarking, network modelling, transportation simulation, and network design) and the type of data, tools, and resources required to perform each of those categories.
After watching the episode, post a question or comment for Derrick, or share your perspective on this topic, and keep the conversation going!
