SUPPLY CHAIN OPTIMIZATION

 

Supply Chain Optimization

With the advances in logistics and supply chain management technology in recent years, there’s been an explosion of interest in the topic of “Supply Chain Optimization”. While many businesses leaders have heard the term used, few know exactly what Supply Chain Optimization is, or how it could help their business. In this article, I’m going to explain what supply chain optimization is, as well as help you decide how it could help your business. Supply chain optimization is just that – optimizing your supply chain. A more precise definition is that supply chain optimization is the practice of combining resources in a supply chain with the intent of eliminating bottlenecks and other problems that interfere with the process and helping the supply chain function in a more smooth, timely and cost-effective manner.

Generally speaking, supply chain optimization begins with the use of advanced planning and scheduling (APS) technology. This technology uses various methods to analyze supply chain data and create simulations that help supply chain planners make decisions that help them reach their goals more effectively.

For example, if a company’s supply chain managers want to pursue a course of action that wouldn’t be feasible based on available resources, APS technology can alert them to this beforehand, saving them precious tie and money. Furthermore, this technology allows planners to decide on an alternate course of action that would allow them to achieve the objective they wish to achieve through other means.

While the concept of supply chain optimization has been around for years, given the immense logistical complexities of today’s interconnected and global marketplace, supply chain optimization and the benefits that it provides become less of a luxury and more of a necessity with each passing day.

One of the key factors that has led to this rise in the importance of optimizing the supply chain system is customer preference and demand. As customers have grown more accustomed to instant-gratification-oriented services, such as e-commerce and express delivery, and as the internet has provided them with an ever-increasing range of products and vendors to choose from, businesses have been forced to adapt by maximizing the speed and efficiency with which they can get the product to the customer.

For example, just a few decades ago, a customer would have gladly been willing to wait several weeks for a piece of electronics equipment to arrive in the mail. Now, customers not only expect an option for next day delivery when they place the order, but the company that lacks the means to fulfill this expectation risks driving the customer straight into the arms of the competition.

Also, as mentioned earlier, the globalization of applications such as marketing and distribution has led to the creation of the global supply chain and added additional layers of complexity to the process. Companies now routinely have production and storage facilities, offices, and customers located on the other side of the world. All of these facilities and customers have needs that have to be fulfilled on time if the company wants to maintain its profits.

How Supply Chain Optimization Solves Problems

Many companies have come to realize the value of supply chain optimization not only for improving customer satisfaction, but also for keeping their supply chain costs to a minimum. Specifically, optimizing your supply chain is done with the purpose of eliminating or at least minimizing the supply chain issues that would normally arise when either time or resources are limited.

Because it takes time to acquire materials, manufacture products, and deliver these products to customers, and even the largest and most established companies have limited resources for performing these activities, a considerable effort must be made in order to keep customers happy. This effort begins with advanced and detailed planning, and continues with effective execution of that plan. However, even under the best of circumstances, problems arise. Supply chain optimization attempts to systematically prevent those problems from arising or to provide solutions to them if they do arise.

Problems in the supply chain process are typically either internal or external. An internal problem could be one that stems from decisions that the supply chain planner has to make, such as when to order and when to ship. An external supply chain problem, on the other hand, is one that stems from the supply chain itself, such as a supplier experiencing a shortage of materials or parts, or a lag-time in the distribution network.

Of the various types of problems that can affect the functioning of a supply chain, some are more serious than others. For example, if a delivery truck has a maximum carrying limit of 500 Widgets, deciding to pack 600 widgets in order to meet a deadline could be destructive to the widgets and the vehicle, or even dangerous to the driver and others.

On the other hand, a customer having to wait two extra days for his widget to arrive due to short supply is a much less pressing issue, provided that this is a very rare occurrence. Furthermore, in the event that a delivery gets delayed, a company can also choose to give the customer a reward (eg: a coupon towards their next purchase) as a gesture of apology and goodwill.

Typically, supply chain optimization efforts make use of models designed to represent how these internal and external factors (constraints) relate to the company’s desired objectives. These models need to be as realistic as possible in order to accurately describe the problem that the company is facing and improve supply chain efficiency.

The models used in calculating a solution to an optimization problem are usually used to create a solver, which is a mathematical formula, or algorithm embedded into a computer program and designed to arrive at a logical solution that helps the company achieve its objectives.

There are three types of logical solutions that a computer can suggest to solve an optimization problem. These three types of solutions are known as feasible, optimal, and optimized. A feasible solution is one that solves the constraint, but may or may not accomplish the company’s objective. An optimum solution is one that achieves the company’s objective. Usually the best feasible solution becomes the optimum solution. An optimized solution is one that achieves the company’s objective in a way that is satisfactory, but not necessarily optimum. In other words, an optimized solution accomplishes at least part of the company’s objective, but isn’t necessarily the best solution to the problem.

So for example, a feasible solution to the problem of labor strike that causes a widget shortage which threatens to delay customer delivery dates might be for XYZ Widgets, Inc. to hire a labor negotiator to try and resolve the dispute. While this solution might resolve the immediate product constraint by ending the strike, it would not necessarily accomplish XYZ Widgets, Inc’s objective of getting the widget to the customer by the expected date.

An optimum solution might be to temporarily partner with a secondary widget supplier so that the widgets could still be delivered to the customer on time. This solution accomplishes the XYZ Widgets, Inc’s goal of fulfilling the expected delivery date.

An optimized solution to the problem might be to ship the widgets to the customers at a later date after the strike has ended. While this doesn’t accomplish the company’s objective of getting the widgets to the customers on time, it does accomplish their goal of getting the widgets to the customers. As such, this is a partial solution to the problem.

Three Keys to Effective Supply Chain Optimization

Solvers, data and models are the three most important elements in any supply chain optimization effort. The relationship between the three is that data is used to create a model, and the model is used to create a solver.

Because of this relationship, it is vital when creating a model that the data fed into the model be accurate. If the data is not valid, an incorrect model will be generated, resulting in an ineffective solution to the optimization problem.

However, depending on the level of supply chain planning, detailed data and models are not always necessary. Generally, the higher-up levels of supply chain planning, such as strategic planning, do not need extremely detailed models and source data. For these higher-up levels, data such as general demand trends may be sufficient. On the other hand, tactical planning usually does necessitate detailed models with specific amounts, dates and numbers.

In conclusion:

·         Supply chain optimization encompasses the entire process of combining resources in a supply chain with the intent of streamlining the process and leading to faster, more efficient and more profitable results.
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·         Supply chain optimization uses models and planning to formulate solutions to internal problems and external problems. Internal supply chain problems can take the form of complex decisions that the supply chain planner has to make, while external problems stem from the supply chain itself.
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·         Three keys to effective supply chain planning are data, models and solvers. Data is information about the supply chain, which is used to create a model. The model, which is a representation of the supply chain problem, is then used to create a solver. As such, the solution to a supply chain problem always begins with effective data.
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·         The trend recently has been towards holistic approaches to optimization. A holistic approach takes into account the various aspects of the supply chain process in order to generate a synergistic whole. This greater trend has focused on three micro-trends: synchronized concurrent planning, synchronizing planning levels, and real-time planning and execution.

So as you’ve seen, supply chain optimization is a complex and evolving field with many applications. Taking advantage of these applications is a crucial part of ensuring that your business remains profitable and your customers remain happy. While it would be impossible to include all the nuances of this process in just one article, hopefully the information provided here will set you on the path to learning more about how this process can best fit your business.

RISK ASSESSMENT

Introduction

Risk assessment is a process that involves evaluation of the impact and its probability of occurring. Risk is a function of the likely hood of a given threat – sources exercising a particular potential vulnerability and the resulting impact of that adverse event on the organization.

Preventive and mitigative risk factors

Risk mitigation are the steps followed to reduce the adverse effects. There are four types of risk mitigation strategies that are unique to business continuity and disaster recovery. It’s important to develop a strategy that closely relates to and matches your company profile, these strategies include:

a)      Risk acceptance

It doesn’t reduce any effects, however, it’s still considered a strategy. This strategy is a common option when the cost of other risk management options such as avoidance or limitations may outweigh the cost of risk itself. A company that does not want to spend a lot of money on avoiding risks that does not have a high possibility of occurring will use the acceptance strategy.

b)      Risk avoidance

This is the vice versa of risk acceptance strategy. It is any action that avoids any exposure to the risk whatsoever. It is usually the most expensive of all the risk mitigation strategies. Example;

1)      Not buying a business or property in order to not take on the legal liability that comes with it.

2)      Not flying in order not to take the risk that the airplane were to be hijacked.

c)      Risk limitation

This is the most common risk strategy used by businesses. It limits a company’s exposure by taking some actions. It’s a strategy employing a bit of risk acceptance along with a bit of risk avoidance, or an average of both. An example of risk limitation is a company accepting that a disk drive may fail and avoid a long period of failure by having backups.

d)     Risks transference

It is the involvement of handling risk off to a willing third party. An example is numerous companies outsourcing certain operations such as customer services, payroll services etc. this can be beneficial to a company if a transfer risk isn’t a core competence of that company. It can also be used so a company can focus more on their core competence.

e)      Periodically re asses risks that are accepted in ongoing process as a normal feature of business operations and modify mitigation measures.

f)       Design a new business process with adequate built in risks control and containment measures from the start.

g)      Risk sharing

It is defined as sharing with another party the burden of loss or benefit of gain, from a risk and the measures to reduce a risk you can hence transfer a risk to a third party through insurance and outsourcing. In practice, if an insurance company or contractor go bankrupt or end up in court, the original risk is still likely to revert to the first party as such in the terminology of practioners are scholars alike, the purchase of an insurance contract is often described as transparence risk. Example; A personal injuries insurance policy doesn’t transfer the risk of a car accident to the insurance company. The risk still lies with the policy holder namely the person who has been involved in an accident. Insurance policy simply provides that if an accident (the event) occurs involving the policy holder, that is, commensurate with the suffering/damage.

h)      Risk reduction or optimization.

Involves reducing the severity of the loss or the likelihood of the laws from occurring. Example; sprinklers are designed to put out the fire to reduce the risk by fire, this method may course a greater loss by damage hence may not be suitable.

i)        Risk retention

This involves accepting the loss or benefits of gain when it occurs. True self-insurance falls in this category. It is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained. All risks that are not avoided or transferred are retained by default. This includes risks that are so large or catastrophic that they either cannot be insured against or the premiums could be unfeasible. Example; War is example since most properties and risks are not insured against risks, so the loss attributed by war is retained by the insured.

Hierarchy of prevention and control measures

Employers need to assess the risks for their staff and then preventive measures or controlled measures have to be derived from these assessments. The types of measures can be classified:-

a)      Elimination of hazards

b)      Minimizing or separating the hazards from the works by;

1)      Technical measures (example; encasing, exhausted)

2)      Organizational measures (Example; only qualified employees are allowed to do specified work.

3)      Personal measures ( Example; wearing PPE)

4)      Behavioral measures (Example; Peer observations)

Legislation requires following the hierarchy in order to always select the most effective type of measure. Preventive measures aim at avoiding risks whereas control measures are put in place in order to reduce and manage risks. To combat the vast number of very different risks, for example, slipping, falling, developing muscular skeletal disorders (MSD) radiation stress etc. Researchers, technicians and practitioners have developed an even higher number of preventive and control measures. This means employer need guidance in order to choose the most efficient measure.

General Principals of prevention

a)      Avoiding risks

b)      Evaluate the risk which cannot be avoided

c)      Combating the risks at source

d)     Adapting the work to individual, especially as a regard to workplaces, choice of work, equipment, and the choice of working and production method with a view in particular.

e)      Adapting to technical progress

f)       Replacing the dangerous by the non-dangerous or less dangerous

g)      Developing a coherent overall. Prevention policy which covers technology, organizational work, working conditions, social relationships and the influence of factors related to the working environment.

h)      Giving collective protective measures priority over individual protective measures.

i)        Giving appropriate instructions to the workers.