Over the last hundred years, the economy took a turn towards globalization—and with it, made optimization in supply chain a crucial topic of conversation. Ever since the multimodal shipping container was invented, trade around the world started to live through a golden era. Consumers were no longer limited to the products produced by their countries alone. And, for companies, this meant that they could expand their processes beyond the confines of a single country. The process, commonly known as offshoring, began to draw attention with the beginning of the 20th century, and reached a peak in popularity by the 1980s. This, in turn, allowed for supply chains to grow ever more complex, in a perpetual pursuit of better talent and cheaper inputs.
The problem was that complexity is not always synonymous with efficiency. Now, companies face a serious question: how to make their supply chains more efficient? That is the leading force behind supply chain optimization. But what does this mean and how does it work?
Trends in Google Search for the Term “Offshore” and “Outsource”
(Data from Google Books)
What Is Supply Chain Optimization? Explained
Supply chain optimization is the process through which companies restructure their existing supply chain in search of increased efficiency by greater production, lower waste, and minimized costs. This includes, by definition, the entire process behind making a product, from the procurement of raw materials, to manufacturing, and its eventual delivery to the customer. It is, simply put, the backbone to modern logistics and order fulfillment.
By engaging in a supply chain optimization process, companies are looking for opportunities through which they can simplify their current processes and generate benefits for the entire organization. Namely, optimization in supply chain is a process generated by a company’s desire to improve in the future.
No two companies are alike and so, the particular metrics they seek to optimize are likely to differ. Generally speaking, companies call these metrics KPIs, short for Key Performance Indicators. Amongst them could be the speed of delivery, the number of errors made in a factory, the reliability of suppliers, and even the costs associated with production. Another common metric is how responsive supply chains are to different forms of shocks or incentives—be it how well they adapt to the state of the market or how easily they withstand large disruptions. The specific KPIs a company seeks to improve will also determine the best strategies to be followed.
Importance of Supply Chain Optimization
Supply chains are intricate structures that, oftentimes, tend towards over complicating processes in search for lower costs. Some might even do so on a global scale, accessing lower wages, but increasing logistical complexity and requiring mass collaboration. To understand this, it is useful to look at the essential components of a supply chain and how many opportunities naturally arise to increase efficiency.
Supply Chain Process
1. Raw Materials Procurement:
First, one must secure raw materials to make the product in question.
2. Component Suppliers:
Then, those raw materials are transformed by suppliers into the initial components of a product.
3. Assembly:
These, in turn, are taken to a final assembly line where the product is put together and packed for its consumption.
4. Delivery:
Finally, the goods are taken by a distributor to its end customer, be it a retail store or sold directly to them.
5. Final Retailer or Consumer:
All throughout, various transportation and warehousing companies will interact with the product, adding another level of friction in the form of inventory management—one which could be both domestic or international in nature.
Simplified Supply Chain Structure
(Images from Flat Icon - Full credits at the end)
As you can likely tell, there are a number of areas where supply chains could be inefficient. Raw materials might be difficult to come by, adding volatility to the process. There might be a large number of suppliers that range in costs and quality. Not to mention the potential for miscommunication between any parts of this process or unexpected delays in transportation.
If, furthermore, we consider that many of these steps can be divided across countries—and even continents—supply chains soon become ripe with inefficiencies. All of this without touching on the large variety of documents needed to ensure the process runs smoothly, from Purchase Orders to Bills of Lading.
Given the complex nature of logistics and supply chains, optimization becomes a necessity. There are always opportunities to improve on current processes and ensure companies are maximizing their KPIs.
How to Optimize Your Supply Chain
Although the specific optimization process will change according to each company, there are at least four steps needed to implement a successful strategy: visibility, planning, execution, and measuring. These can be seen as the basic elements to good supply chain optimization solutions. All of these have a key goal: making the company more efficient.
Operations Visibility
Visibility is the cornerstone of supply chain optimization. It implies giving a company full knowledge of the metrics it seeks to enhance across its supply chain. Think of it as a needed prerequisite. For you to improve on a given area, you must have visibility as to your current situation.
Once a company gains full visibility on its operations and the specific KPIs it hopes to improve, it can determine which are the areas that need most improvement and plan accordingly. To do this, the company must agree internally on the desired parameters it hopes to reach across all areas. These could include the speed of delivery, the cost of manufacturing, and also the quality of goods—all different KPIs that can be examined in the planning phase.
Supply Chain Planning
In this second phase, the company must, at a minimum, establish three things:
The goals it wishes to achieve
The timeframe for their implementation
The person responsible for executing the project.
Process Execution
After planning, companies will implement their strategies on the ground. Quite likely, they will encounter a number of problems in the process. While executing, companies must bear in mind the end goal they wish to achieve and iterate their plans accordingly.
Review Metrics and Optimize
Finally, once an intervention has concluded, companies should take a moment to evaluate its success. That is, to measure the actual impact and determine its overall benefits to the company’s process as well as supply chain performance.
Key Features for an Effective Supply Chain
(Images from Flat Icon - Full credits at the end)
How Does Supply Chain Optimization Work?
Supply Chain Optimization works by taking into account the preferences of a company and ensuring its procurement, manufacturing, and distribution processes are all aligned to that vision. That is why we have emphasized the importance of KPIs and how they might differ from company to company .
Companies must know what their values are and, in turn, design the KPIs needed to measure their success in such areas. Although we often think of “optimization” in terms of costs, that is only one metric companies might look for. Others could optimize the quality of their goods, the ease with which they can change providers, or even the resilience at external shocks. Not to mention that companies could be minimizing the degree a supply chain disruption impacts their final products.
Oftentimes, the way supply chain network optimization works is by implementing internal strategies or acquiring technology that enables meaningful improvements in efficiency. Desteia is one of such technologies that gives users end to end visibility on their transactions while using AI algorithms to alert of potential disruptions and suggest improvements where possible.
The Future of Supply Chain Optimization
The future of supply chain network optimization is tied to technology. In particular we, at Desteia, are convinced that Artificial Intelligence (AI) will bring companies to a next generation of efficiency.
Our focus is on transnational logistics, focusing on how companies import and export goods. In a world of complex and global supply chains, this has grown into a core necessity which we’ve noticed amongst clients. Companies want to have full visibility of their supply chain process as well as the needed imports and exports for them to function smoothly.
As such, we are building tools through AI that can understand your supply chain processes while also tracking real world phenomena. This, in turn, allows us to alert customers of potential disruptions in their supply chains while also putting together all relevant information for their import and export processes. Not to mention that the above is done with minimal integration to ensure the comfort of our clients—all we need is access to your main sources of communication and we will help optimize your supply chain with that data.
Simply put, Desteia is an AI copilot that uses AI to understand client data, structure it in an easy to understand manner, and provide actionable alerts when possible.
In the end, we seek to use AI to help companies enter the world of supply chain optimization. With our tools, we deliver the needed visibility and insights to plan and implement further implementations. Meanwhile our tool will alert companies of potential disruptions in their supply chains, allowing them to plan accordingly and mitigate impacts in areas such as international commerce or inventory management. All this while using AI models that help us understand your logistics processes and provide the best support possible.
The future of supply chain optimization is tied to technology.
Why Does Supply Chain Optimization Matters?
In the end, supply chain optimization is a process deeply tied with the pursuit of efficiency. Companies naturally grow complex as they expand their supply chains to produce a broader variety of goods or reach a larger share of a market. This, however, creates large inefficiencies that could easily be solved through the use of technologies such as Desteia. But, above all, supply chain optimization is an opportunity to reduce potential impacts while defining the KPIs companies seek to prioritize.
Icon References:
Buyer icons created by nangicon
Supplier icons created by Slameticon
Robot icons created by xnimrodx
Raw materials icons created by Freepik
Delivery icons created by Freepik
Web visibility icons created by Ranah Pixel Studio
Calendar icons created by Freepik
Business strategy icons created by HANIS
Measure icons created by Eucalyp