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7 Steps: How to Reduce Costs Through Supply Chain Network Optimization

October 13, 2020 | By River Logic

Even before the disruption caused by COVID-19, supply chain costs were going up year after year. This rise in supply chain costs is driven by several factors, including:

  • Increased supply chain complexity
  • Omni-channel supply chains
  • Consumer expectations

 

These increases are unsustainable.

Organizations need to refocus on reducing costs through supply chain network optimization.

Here are some ways to reduce supply chain cost and improve performance.

1. Map Out the Supply Chain

Before initiating cost reduction, it's essential to know what you have.

As a first step toward supply chain network optimization, map out your supply chain.

Crucial features of supply chain mapping include:

  • Extent and complexity
  • Reveal who your suppliers are
  • Who supplies your suppliers?
  • Where are they located?
  • How goods are shipped
  • Who are your customers?

This allows you to identify weaknesses and risks. It reveals inefficiencies and potential opportunities.

2. Review Supply Chain Network Design

Most supply chain networks grow organically with little thought given at the time to their complexity. Reviewing supply chain network design reduces duplication and simplifies structures. This in turn leads to increased efficiency and lower costs. Key steps of supply chain network design optimization include:

  • Clarifying supply chain goals and objectives
  • Creating a supply chain network review team
  • Preparing a supply chain network model
  • Using advanced analytics to run what-if scenarios

supply chain network optimization software

3. Supply Chain Modeling

Consider expanding the supply chain network model to include the entire supply chain. Sometimes referred to as creating a digital twin, supply chain modeling allows you to consider wider issues.

These include:

  • The most cost-effective product mix
  • The best supply chain network model
  • Optimal sourcing and production strategies
  • Best plant and distribution locations
  • Lowest cost distribution strategies

Together, these steps allow you to reduce overall cost while still meeting customer demand.

4. Run Optimization Scenarios

Most supply chain networks are complex. They include factors such as:

  • Interdependencies
  • Constraints
  • Supply limitations
  • Transportation
  • Single and multiple sourcing strategies

Consequently, it's difficult to determine the best supply chain network optimization decisions.

Overcome this weakness with prescriptive analytics-based supply chain modeling. Use optimization software to evaluate different supply network scenarios. Find the lowest cost answers while ensuring business objectives are met. Identify constraints and factor in operational limitations. Easily evaluate new scenarios as your needs change.

5. Enhance Supply Chain Visibility

What you can't see, you can't fix.

Improving supply chain visibility means you and everyone in your organization has a better idea of what influences supply chain costs. Consider enterprise-wide software that offers sales and marketing access to the same supply chain information as the CSO. This information helps executives make better decisions. It lets employees track orders from source to customer. It reduces errors and allows sales to keep customers happy.

6. Enhance Supply Chain Resilience with What-If Scenarios

True supply chain network optimization entails giving consideration to supply chain resilience, flexibility and cost. As many discovered during COVID-19, low-cost sourcing doesn't equal lowest cost to the organization.

A balanced approach is vital.

Lost sales due to supply chain disruption increase overall cost. Evaluate supply chain risk together with supply chain cost to ensure an ability to supply during supply chain disruption.

Evaluate what-if scenarios. Determine your supply chain's resilience and its ability to fulfill orders during supply chain shortages.

7. Choose the Right Supply Chain Network Optimization Software

Take a long, hard look at what you need. Don't be swayed by sales talk.

Take time to understand the difference between supply chain management and supply chain optimization software. Also, appreciate the distinctive capabilities of the different forms of analytics. Determine your level of maturity. Choose supply chain network optimization software that meets your requirements.

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