What is Supply Chain Optimization?

In the simplest of terms, supply chain optimization pertains to running your supply chain to get the products to the customer, in the right quantity, at the right place, at the right time, while minimizing your cost & carbon footprint.  So essentially, you need to meet or exceed your customer service expectations, while ensuring that you keep your costs minimized, as well as minimize the carbon footprint of your supply chain. While the definition is simple, achieving this is extremely challenging for mid and large-size companies. Supply chain complexity has increased exponentially in the last decade across industries. Hundreds (and sometimes thousands) of processes operate within a supply chain to help execute the supply chain. Often, there are multiple supply chains embedded within one supply chain for large corporations. For a supply chain to be truly optimal, every element of the supply chain needs to work in sync with the other.

Key Elements of Supply Chain Optimization

To understand the key elements of supply chain optimization, let us revisit the definition above and understand the optimization requirements for each element. In the right quantity: It all starts with customer demand. So a critical piece of supply chain optimization is demand forecasting. Customer segmentation is another powerful tool that can be used, often to build dedicated supply chains for specific customer segments, or enhance a supply chain to cater to unique aspects of certain segments. Manufacturing and warehousing also play a key role in this bucket. These supply chain segments need to ensure that the product is available to fulfill i.e the right quantity can be shipped to the customer. At the right place and at the right time: At an operational level, transportation plays a key role here to ensure that the product gets at the right place, and at the right time, assuming that the product is available. On a strategic level, supply chain design is also a critical element that ensures

Why is Planning in the Cloud an Enabler?

We will again revisit the two key buckets described above to understand the role cloud-based solutions can play in supply chain optimization. In the right quantity: Understand customer demand better: Forecasting is not always about using historical data, more so in certain industries. Analytics can help determine product attributes and customer preferences in a more scientific way. However, this requires the capability to collect and process a massive volume of data, and often real-time data from POS locations. Cloud infrastructure is hence a viable way to build these solutions. Forecast demand more accurately: This has been something that organizations have worked on for decades but the cloud brings a whole new perspective to it. More advanced AI and ML-based forecasting approaches, like deep learning, can be leveraged (if these algorithms show remarkable improvement in accuracy) and the cloud ensures that the intensive technology requirements are met effectively. In fact, all major hyperscalers now have cloud-based forecasting solutions for offer. Manufacturing planning: For those familiar with the advantages of a digital twin and who understand the capabilities of Industries 4.0 networks, the role of the cloud in optimal manufacturing planning is a no-brainer. Even if you do not have Industry 4.0 capabilities, cloud-based Manufacturing Execution Systems (MES) offer better performance and are more cost-effective as compared to on-premise solutions. Also, you can integrate cloud-based MES solutions with advanced automation as well as with in-house developed AI tools that can supervise manufacturing KPIs. Inventory Planning and Management: Inventory today is managed across locations for a complex portfolio of SKUs. Cloud-based planning solutions can not only help track inventory in real-time but the data can be leveraged for real-time inventory planning as well. The same underlying data can be used to feed inventory optimization solutions (off-the-shelf or in-house) as well as AI-enabled inventory planning solutions. Read SAPinsider's research report "Modernizing Inventory and Logistics Tracking" for detailed insights in this area. At the right place and at the right time: Transportation optimization: Transportation optimization has two key elements. One is to design an optimal transportation network footprint, interweaved with your manufacturing and distribution footprint. The second element is optimizing aspects like your transportation modes, lanes, and carriers. While technically, all this can be performed in an on-premise setting, cloud-based solutions work better in terms of integrating to carrier systems, external pricing databases as well as in-house point systems. With effort, an intelligent cloud-based solution can be developed that ensures that your network always has an optimal selection of modes, carriers etc., and flags discrepancies. Cloud-based solutions can also help perform an automated intelligent audit of carrier invoices. Route optimization: Both middle and last-mile optimization are becoming more and more challenging, with widely varying customer demand. Static, on-premise route optimization solutions hence are becoming obsolete. A more dynamic route optimization solution will almost always leverage cloud-based features, like real-time traffic and weather data, embedded. In smart fleet scenarios, data from smart fleet can also feed into dynamic route optimization solutions. Warehousing layout and processes optimization: Like most of the supply chain, Warehouse operations are becoming more complex. Due to this increasing complexity, and the exponential increase in data being generated across warehouses due to digitalization and automation, legacy WMS systems are becoming constraints vs enablers. Then, just like manufacturing, there is this aspect of edge devices capturing data. All this means that you can't have robust warehouse management and execution system that is purely on-premise. Supply chain network design: As mentioned previously, the supply chain network footprint plays an important role in ensuring that the products get to the customer at the right time. Supply chain optimization solutions play a key role in helping companies design optimal supply chain networks. Just like transportation optimization solutions, these solutions can be on-premise but we are seeing more and more off-the-shelf solution providers providing cloud-based solutions. This works from many different aspects, like computing resources, integration with external data sources (like parcel rate list for example),