According to Wikipedia, supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Activities in supply chain transform the raw materials in to a finished product and finally delivers it to the customer. Traditional supply chain includes elements like suppliers, manufacturers, wholesalers, retailers and finally customers.
In this blog, I am going to discuss how analytics is playing a crucial role in enhancing the performance of supply chain.To set the context, I will highlight the “three major problems” being faced by supply chain executives and later explain how analytics is helping them solve these problems.
Supply chain challenges
With every economy becoming globalized and companies increasing their presence across countries, operations of global manufacturing and logistics teams are becoming complex and challenging. Delayed shipments, inefficient plants, inconsistent suppliers can stall and delay the shipments thereby increasing the company’s supply chain costs. Some of the major challenges that supply chain executives are facing today are
- Visibility of global supply chain and logistic processes
- Managing Demand Volatility
- Cost fluctuations in supply chain
The increasing importance of Analytics and planning to overcome the supply chain challenges that executives are facing today, cannot be ignored. Most of the organizations are planning to increase their investments in Analytics with a bulk of it going to supply chain function because it holds the greatest potential for innovation and competitive advantage. With business analytics improving significantly in the last decade and offering decision support for the critical tactical and strategic supply chain activities, insights from these activities are helping the companies to reduce their costs and also helping in optimizing the supply chains.
The solutions provided by the analytics to the challenges faced by the supply chain executives are clearly detailed below.
Moving to Smarter Logistics to improve Supply chain visibility
Globalization has created so many suppliers, manufacturing units and distribution locations. While the business growth opportunities are becoming strong, growing product variance to suit the needs of globally dispersed customers has created a complex web of regional supply chains which has to be monitored closely.
Increasing supply chain efficiency begins with enhancing basic metrics and reporting, as these provide the essential data for performance improvement initiatives and provide visibility of supply chain activities. Application of advanced analytics-driven ‘control metrics’ can monitor real-time critical events and KPI’s through multiple touch points. When combined with predictive analytics, these metrics can provide valuable savings in areas such as freight optimization of the customer. Organizations that are investing in supply chain visibility can make decisions to increase supply chain responsiveness, optimize cost and minimize customer impact.
Managing volatility though demand and inventory management
With globalization and increase in product variance to meet the needs of globally dispersed customers, demand volatility has increased significantly and permanently, making demand and inventory management a big challenge. Industries such as retail, consumer goods, automotive require daily or real time forecast generations to perform at market. Advanced analytics can be applied to these areas to more accurately anticipate demand and to predict and monitor supply and replenishment policies and plan inventory flow of goods and services.
Planning inventory flow of goods and services is especially relevant to customer-focused organizations allowing them to leverage their historic data sources to optimize service levels, augment investment decisions, and improve supplier performance and quality controls. Companies will also be able to run a simulation on best-fit solutions, they can program contextual exception handling alerts and use multi-criteria inventory ranking with the assistance of advanced analytics.
Reducing cost fluctuations by optimizing sourcing and logistics activities
Supply chain costs form a significant part in company’s costs and supply chain executives face a challenge in handling these costs. Supply chain costs significantly impact key financial metrics like working capital, the cost of goods sold, and cash flow. Constant need to improve the financial performance should happen in industries which handle large amounts of inventories. Key areas where costs can be controlled with analytics-driven intelligence include:
- Materials: Analytical tools can improve visibility to the true total component cost of products rather than just price. A complete view of supply chain cost for any given material is necessary for making optimal purchase decisions on a should cost basis. By placing complete information at the fingertips of the supply chain managers, organizations can reduce the material purchases through improvements in supply chain practices and better price negotiation outcomes.
- Logistics: Fluctuating demand patterns and an expanding base of suppliers and logistics partners have driven companies to continuously rethink their logistics network strategy. They can realize strong ROI improvements through analytics-driven planning activities such as route optimization, load planning, fleet sizing and freight cost reconciliation.
- Sourcing: As businesses expand into new, volatile markets with diversified product portfolios, managing a multitude of suppliers around the world becomes challenging. There are considerable costs and potential risks when signing on each new supplier. While an industry might play several suppliers against each other to achieve the lowest price, without a proper balance of sourcing and related operational controls, the results could be counterproductive.
Sophisticated analytics programs generate real-time supplier performance management data that supply chain managers can generously use to improve their sourcing strategy. This data empowers sourcing professionals by providing analysis from initial screening to ongoing risk management. Potential supplier risk is assessed through a combination of financial analysis and capability constraints. A strong fact-based supplier selection process rather than one based solely on cost is the result.
Supply chain Analytics. therefore, plays a key role in enhancing the performance of supply chain by improving supply chain visibility, managing volatility, and reducing fluctuations in cost.
I would love to hear your views. Please leave a comment.
The author, Arun Krishnamoorthy, heads Supply Chain Analytics Practice at BRIDGEi2i – A company on a mission to unleash the power of analytics and transform the lives of enterprises and individuals alike. We believe that the solutions to almost all intractable problems lies buried inside the data. The Supply Chain Analytics group within BRIDGEi2i is firmly focused on going the distance with client organizations to make sure that they better manage inventory, reduce working capital through our granular understanding of demand and supplier variability and deployment of cutting edge optimization techniques. To know more visit www.bridgei2i.com/supply-chain-planning
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position or viewpoint of BRIDGEi2i.