Is your supply chain optimisation actually optimal?

July 2017 | PROFESSIONAL INSIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

July 2017 Issue

Supply chain optimisation is a fantastic way to maintain profitability and stay competitive. But now that everyone is doing it, it is time to ask – are you doing it well enough?

In our joint study with IndustryWeek, roughly three in four executives and managers said they are, or plan to, use supply chain optimisation (SCO) solutions within the next 12 months. Among these solution users, however, only a third believe their efforts are more advanced than their competitors. In fact, over half said they are either trailing or only keeping pace with their rivals.

Beyond the nuts and bolts of the optimisation technology, there are three critical factors for SCO success, outlined below.

Buy-in from the c-suite. This is the first stage in the process, even before data collection begins. Company leaders must develop a vision of the desired future state and communicate their expectations and business objectives to the implementation team. There are a whole host of challenges at this early stage of the process, including ensuring the business has adequate IT skills, clarity of focus and an understanding of SCO tools.

Interestingly, our survey revealed senior executives are more likely to rate their supply chain performance higher in both cost and responsiveness than managers at lower levels of the organisation. This may reflect a deeper understanding of supply chain challenges and shortcomings at the day-to-day execution level. In reality, to gain a competitive edge in SCO, the focus must be on superior customer service, as well as lower costs.

Data. This might sound obvious, but many organisations struggle to overcome factors including siloed departments, legacy systems and staff capabilities to gain data that is both consistent and accurate in a timely manner.

Leading, rather than following. When we looked at the one out of three organisations in our survey that thought their SCO efforts were ahead of their competitors, we found that they were much more likely to report both a cost and responsiveness advantage over their competitors. In short, it was not just that they perceived their efforts to be better – there were tangible differences. Unsurprisingly, SCO leaders have been using such solutions for longer and were significantly more likely to report that their company had a clear SCO strategy.

It is also important to look at how these companies are applying their advanced analytics and organisation capabilities. SCO leaders were more widely applying advanced analytics and optimisation in every area. Compared to other manufacturers, they are also focusing more on supplier management than purchasing.

SCO success story: Nestlé USA

For a business at the cutting edge of SCO, you can look at one of the world’s leading food producers. Nestlé USA applies machine learning, statistical models and prescriptive models to transform the way it does business.

Nestlé produces food and drink products in facilities around the US with limited or no storage. Items are shipped to six distribution centres around the country to be stored and then delivered to resellers. Supply chain managers must, therefore, ensure that each distribution centre is receiving the right type and amount of the products to meet service level agreements and maintain high customer satisfaction.

Supply chain managers have to manage transportation costs through a payload management process that maximises load utilisation, thereby minimising the cost of transportation. If a load reaches maximum weight but there is still space available in the trailer, then the payload has not been well managed and the company will need more loads to move the same quantity, resulting in higher costs. When a load is close to the maximum cube and the maximum weight, it is considered to have an optimal payload.

Nestlé needed to develop a reliable way to maximise its payloads and minimise transportation costs. This is an extremely complex problem for the company, as it has 64 brands with numerous products within each brand. Each product also has a unique weight and volume to be considered for shipment and can be sent to one of six distribution centres. Add in demand forecasts and current supply levels, and the problem can become quite difficult.

To resolve this, the supply chain optimisation team at Nestlé created a load builder optimisation model. From the millions of possibilities, the model calculates the very best shipment combinations to find maximally balanced payloads for each individual load shipping from every plant. Over the seven years the load building model has been in operation, Nestlé has seen huge savings in transportation costs.

Supply chain optimisation is a tool that the c-suite can deploy to improve efficiency and, ultimately, boost profits. But before gathering and analysing data, it is crucial to develop a clear strategy and communicate it across the organisation. Only then will you know if you are collecting and analysing the right data, and ultimately whether your optimisation is truly optimal.

Richard Muratore is manufacturing practice lead for Europe at FICO. He can be contacted by email: richardmuratore@fico.com.

Richard Muratore

FICO