Create Continuous Supply Chain Visibility Through Modeling

As the supply and demand disruptions of COVID-19 continue to draw attention to the global supply chain, more companies — from big multinationals on down — are taking advantage of the benefits of supply chain models to find missed cost-saving opportunities and explore ways of increasing risk tolerance.

Supply chain issues are in the mainstream, but they’re not any easier to solve

Transport is becoming increasingly expensive — ocean freight in particular. Some of these rates have increased by a factor of seven compared to 2020, leaving many asking how long prices can keep rising. When prices go up this quickly, it’s no wonder that deciding when you should reach out to different suppliers can be a tall order. You’re going to have to at some point, if you’re going to have any hope of keeping your operations profitable in the long term. And, come to think of it, do you have an accurate estimate of the impact of transport on your total landed cost? Alas, most shippers don’t.

A model can provide insight into the relationships within your supply chain

It’s high time you gave some thought to the actionable supply chain intelligence possible through supply chain modeling.

It wasn’t long ago when conventional wisdom dictated that practitioners think of modeling as a primarily theoretical exercise. However, those days are over. Today’s supply chain models can accurately replicate the intricacies of your operation, how they will interact with many variables and how the network will respond to specific changes.

These capabilities endow you with sufficiently clear visibility into your supply chain to enable senior leadership to identify cost saving opportunities with the network as currently configured, test its robustness and resilience, and evaluate and validate alternative supply chain strategies.

Modeling and evaluating network cost-saving opportunities

Here’s an example that finds cost savings opportunities within the current network. Identifying the least expensive suppliers and shifting business toward them can add up to substantial savings. However, you shouldn’t allow the baseline lowest cost to fool you. To optimize costs across your network, you need to consider the total landed cost. Besides the simple purchasing cost of an item, one should consider transport, duties, taxes, warehousing and labor costs when moving products to the end-customer. That’s what a supply chain model can do for you.

The robustness and integrity of your network is a good indicator of the resilience of your supply chain. Isn’t this something that you — as well as management and the board — would like to know? Peace of mind comes from knowing that your supply chain can function under duress and continue to fulfill customer demand.

Prepare your supply chain network for the next black-swan event

Geopolitical risks are some of the major concerns for supply chain managers and can stress-test your supply chain. COVID-19 gave all of us a veritable smorgasbord of such risk, e.g., the partial closing of some large harbors in China. Do you know how well you’re prepared for the next such event? A supply chain model allows you to calculate the impact of these events in terms of costs, lead time and what items become unavailable because of export restrictions.

A continuously maintained supply chain model opens the door to ongoing visibility. Periodic studies give way to continual analysis, allowing you to not only reap the benefits of sustained cost optimization but also maintain readiness to deal with the next unforeseen disruption.

— By Daniël Wissink