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Tue, 08 Feb 2022

Optimization as a major lever of Supply Chain Synchronization

The critical stages of the supply chain are often acting as separate silos, driving to short-sighted decision making and resulting to overstocks / out-of-stocks, waste of resources, disconnected prices to fix mistakes and bad customer relations. Digital supply chain synchronization is key to tend towards a seamless supply chain.

Systemic Optimization at the service of Synchronization

First of all, what is supply chain synchronization?

« Synchronization is the ability to coordinate, organize and manage end-to-end supply chain flows – products, services, information, and financials – in such a way that the supply chain functions as a single entity. »*

Synchronization enables to create a one and only system driven by a common vision to achieve the best performance on the overall supply chain. By making information flow better and consequently taking more relevant decisions, synchronization enables to keep supply and demand in alignment.

Managing operations and resources with a global vision on the different links of the supply chain brings out many benefits: efficiency and performance, reactivity to respond quickly to the customer’s demand, flexibility and agility to adjust to change.

The four pillars of digital supply chain synchronization:

  • Visibility on demand and supply, and on each step of the physical movement of the products across the supply chain. This is about gathering and accessing to data (for instance via IoT).
  • Collaboration between the different business units and stakeholders across the supply chain. This is about sharing the data (for instance via digital platforms).
  • Prediction on future demand to forecast production and inventories. This is about processing the data (for instance via machine learning models).
  • Systemic optimization of operations across the supply chain to determine the best way to handle a future situation. This is about data-driven decision support tools (for instance via mathematical optimization).

From procurement to sales: the importance of a systemic optimization

Traditionally, optimization is perceived as an isolated mean to improve efficiency locally, on a specific challenge of a single link of the supply chain (for instance, optimizing inventory within a warehouse or optimizing delivery routing). In that way, optimization cannot be treated as a strategic asset for operations management. Indeed, optimizing a system locally by dividing each silo leads to a lack of performance and relevance by solving a very small part of the real optimization problem.

However, optimization can be, and needs to be thought more globally through a systemic approach.

What is systemic optimization?

Systemic optimization creates synergies between different decision levels, deals with the most complex constraints and assures a coherence between long-term and short-term vision.

Adopting a systemic decision making, rather than a siloed and disconnected decision making process, implies significant productivity gains: this is where the greatest margins for improvement lie.

The so-called inventory routing problem is a good illustration of what synergies can bring. By optimizing both routing decisions and the timing of the customer replenishment (in a vendor managed inventory scheme), one can save around 10 percents on operational costs, while optimizing routes for fixed customer visit dates can only save a few percent on operational costs.

But benefits are not only on performance, they are also about relevance and resilience of supply chain management. Systemic optimization technologies can be used from the strategic level (e.g. facility location, network design, sizing of capacities) to dynamic real-time re-optimization to face random events.

Both synchronization and optimization aim at achieving an overall performance objective, by relying on each other to create a systemic decision system, more efficient and more collaborative.

*Source: 18th Annual Trends and Issues in Logistics and Transportation

Updated Mon, 06 Feb 2023.