What is supply chain optimization?

Supply chain optimization makes the best use of technology and resources to improve efficiency and performance in a supply network. An organization’s supply chain is a critical business process that is crucial for a successful customer experience. A high-performing supply chain enables business efficiency and responsiveness, so customers get what they want, when and where they want it — in a way that is both profitable for the organization and contributes to supply chain sustainability. 

There are three phases that occur within a successful supply chain optimization process:¹

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Supply chain design

Describes network design processes like where warehouse facilities are located and how product flows between them, and strategic objectives like demand forecasting, establishing supplies, and the planning and scheduling of manufacturing operations. 

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Supply chain planning

Includes the creation of a strategic supply chain deployment plan, inventory planning, and the coordination of assets to optimize delivery of goods, services and information from supplier to customers — balancing supply and demand.²

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Supply chain execution

Focused on execution-oriented applications and systems: warehouse and inventory management, transportation management, global trade management, and other execution applications, such as real-time decision support, supply chain visibility and order management systems.³

The AI revolution coming to transform your business network

“71% of supply chain leaders believe supply chain will be a key driver of customer satisfaction by the end of 2020.”4

 

 

Why is supply chain optimization important?

Supply chains are complicated. A well-designed supply chain optimization process addresses these issues:

  • Silos: Supply chains can’t get the insight they need because data is siloed and they lack end-to-end visibility — ultimately this impacts their ability to meet customer needs. A supply chain optimized through connected technology is the best solution for informational silos. 
  • Client needs: Rising customer expectations mean supply chains must innovate and optimize every step of the way to meet those needs. Streamlining the supply chain is a priority for organizations that want to continue to meet and exceed customer expectations. 
  • Competitive advantage: Supply chains of the past focused on network design — warehouse placement and the distribution fleet. Today optimization is key to building competitive advantage and protecting the brand, with a focus on execution-oriented applications and real-time decision support.
  • Agility: How fast can your supply chain respond to change, whether customer demands, competition or supply disruptions? Modern supply chains must be agile to remain competitive.
  • Sustainability: Supply chains have enormous environmental and social impacts. Today’s customer wants to know if your goods are produced in a sustainable and ethical way, using renewable or low-impact extraction methods.

The evolution of supply chain optimization

In a pre-Amazon world, supply chain optimization focused on investments in the design phase – how to get the lowest trucking costs, where to locate the warehouse and how to ensure inventory was in the right place at the right time. This worked because the world moved at a slower pace and change was manageable. Emerging technologies – artificial intelligence (AI), cloud, blockchain and the Internet of Things (IoT) – have created a different landscape. Customer demands have evolved. Sustainability issues are critical. Supply chains need answers in real time. 

Today we live in an increasingly complex global network where events happen fast. Traffic exceptions, natural disaster exceptions, customer complaints leading to image problems, and more. This creates uncertainty. How do you manage it? How do you enable decision making across the supply chain? No matter how well you plan, the forecast can go wrong. 

Supply chain optimization today uses technology to provide superior exception management. It’s key to remaining competitive. Businesses have better visibility across the supply chain, and better decision-making capabilities in real time – not just across their own organization, but across the entire business partner ecosystem. 

Another factor in the evolution of supply chain optimization is this movement toward business networks – communities of trading partners who work and communicate on business processes that extend across multiple enterprises, with an end-to-end shared focus.⁵ These multienterprise business networks (MEBN) facilitate better business processes through real-time collaboration.

The supply chain of the future

Globalization, technology and empowered consumers are changing the way businesses manage their supply chains. According to Gartner, the supply chains of the future will self-regulate and take appropriate actions, and as a result, will increase and augment the capabilities of humans well beyond what is known today.⁶ Supply chain operators will use technologies, such as AI-powered control towers, to provide significant insights into performance, and orchestrate activities across the supply chain. They’ll anticipate anomalies in logistics costs and performance before they occur and have insights into where automation can deliver significant scale advantages. These technologies will continue to transform supply chain optimization:

Artificial intelligence

AI will make supply chains intelligent and self-correcting, providing end-to-end visibility and automated, real-time alerts.

Internet of Things

Data from IoT sensors will provide insight into inventory location and status.

Blockchain

Will verify authenticity, improve traceability and visibility, and improve transactional trust.

Intelligent order management

Supply chains will master inventory visibility with improved demand forecasting and automation.

Quantum computing

Unprecedented computational power will solve previously unsolvable problems.

Explore five trends that will shape the supply chain of the future.

Key features of effective supply chain optimization

Visibility
Get up-to-the-minute inventory tracking and available-to-promise data

Intelligence
Leverage composable data and AI services for real-time intelligence

Order management
Customize pricing, send quotes, track orders and manage returns

Reporting and analytics
Evaluate patterns in processes to forecast future demand and sales

Inventory tracking
Know exactly where inventory is across the supply chain

Using supply chain optimization software

What can a supply chain execution solution do for your supply chain?

Source

  1. "Supply chain management: Explain the three decision phases that must be made in a successful supply chain," Lahore School of Economics, Course Hero, Inc.
  2. Supply chain planning (SCP),” Gartner Glossary, Information Technology.
  3. "Supply chain execution (SCE),” Gartner Glossary, Information Technology.
  4. "Drive your own disruption," Donniel Schulman, Mohammed Hajibashi, et al., Accenture Research, 2018.
  5. What are Multienterprise Supply Chain Business Networks?” Gartner Research peerinsights, 2020.
  6. "Four factors that will impact the future supply chain," Christy Pettey, Smarter with Gartner, 8 January 2019.