Optimizing The Supply Chain Network And Reducing Distribution Costs - An Andersen Point Of View

The objective of supply chain logistics - to provide goods to the right place at the right time in the right quantity - is easy to understand, but achieving this objective while minimizing costs is not an easy task.

Each decision made at one level of the supply chain has an impact on another level. The goal of conducting a network analysis is to determine: "From how many facilities, which ones and how will which products service which customers?" By optimizing the network while factoring these variables (and more) into the equation, a company can save between 5 percent and 15 percent of their supply chain costs.

This is Part One of a two-part note on Optimizing The Supply Chain Network. Part Two will discuss the Network Design Elements.

A Network Analysis Example

If a company increases the number of distribution centers (DCs), they will be closer to their customer base, reduce outbound transportation costs and improve service levels. On the other hand, this solution will have a negative impact on the Inventory Carrying Costs (ICCs), inbound transportation costs and fixed costs at the DCs, so the total logistics costs may not be reduced. Figure 1 illustrates this example and the relationship between different elements of a supply chain network analysis and the total cost.

Figure 1. Relationship of supply chain costs

Two Levels Of Supply Chain Optimization

Complex supply chain decisions are made at two levels: operational and strategic. The operational decisions involve satisfying demand with high service levels, while trying to minimize costs within the constraints of an existing network. Different decision support tools, such as manufacturing planning systems and transportation management systems, are available to assist enterprises in making the best decisions regarding optimizing and scheduling production runs and raw material utilization, as well as delivery routes and frequencies. Enterprises have created value by using these tools in their daily operations.

The strategic decisions include questions about the number, type and location of manufacturing and distribution facilities, as well as the transportation channels and modes used to service customers. The target service level itself is an important strategic element. Just as with operational decisions, excellent tools are available to optimize these strategic decisions and, in so doing, create value for the enterprise. By taking advantage of the tools' powerful linear programming and algorithms, between 5 percent and 15 percent of total supply chain costs can routinely be saved.

SOURCE:http://www.technologyevaluation.com/research/articles/optimizing-the-supply-chain-network-and-reducing-distribution-costs-an-andersen-point-of-view-16528/