Optimization is not the only algorithmic tool that supply chain companies need to solve their planning and decision-making problems.More May 2, 2019
What do you need to make an optimized business decision?
Author: Maarten Baltussen
Every supply chain company has its business goals, which are – in essence – a combination of various key performance indicators (KPIs) such as cutting costs and improving on time, in full (OTIF) delivery performance and customer satisfaction. How do companies hit these KPIs and achieve their business goals? By taking the right actions. And how do they ensure they are taking the right actions? By making the right decisions.
The critical, core driver of success in the supply chain world – and in the broader business world as well – is good decisions (that lead to actions that have a positive impact on KPIs and ultimately business goals).
We at ICRON have identified literally hundreds of decision processes present in every supply chain company’s operations, and each one of these processes is crucial – as the quality of decisions by various departments (including sales, marketing, planning, production, procurement, and management) can make or break a business.
Indeed, the fate of each supply chain company’s fortunes rests on its ability to make the right decisions and achieve what we call “decision-centric optimization”. But this, of course, is no easy task. Each decision-maker must wrestle with numerous questions such as:
-What is currently happening in my supply chain?
-What are the factors (we call these “decision variables”) that are impacting my supply and demand dynamics and KPIs?
-What patterns and inconsistencies do I see in my data?
-What would happen if I made a particular decision and took a particular course of action?
-What assumptions have I made in analyzing my data and making a particular decision?
-What would happen if supply or demand conditions changed or if new constraints arise? How would these scenarios affect my supply chain?
-What are the expected results of my decision? What are the best and worst possible outcomes?
-How will I be able to measure the impact and results of my decisions and actions?
These are just some of the many complicated questions that planners and other key stakeholders must ponder each time they make a decision.
Given this complexity, how it is possible to achieve “decision-centric optimization”? The answer, actually, is quite simple. To be able to make optimized decisions, supply chain companies need three things:
1) Data: In today’s Industry 4.0 era, companies are inundated by data from various data collection, storage, and calculation systems, and data forms the basis of all business decisions. Being able to truly and fully use this data – to intelligently compile it, analyze it, and utilize it to make optimized decisions – is a critical capability.
2) Algorithms: In order to be able to process the all data that they collect and utilize it to make optimized decisions, supply chain companies must invest in algorithm-based decision-making technology. Due to the immense volume and complexity of the data that a typical supply chain company generates, manual tools and techniques are simply not capable of managing and analyzing all this data and transforming it into input for optimized operational plans, projections, and decisions.
3) Organization: On an organizational level, supply chain companies must have a solid foundation of well-established business processes and practices in place in order to able to make optimized decisions. This foundation ensures that the right people (for example, planners, team leaders, and senior management) get access to the right information and intelligence at the right times – so they can make the right decisions.
So, if your company wants to be able to make optimized strategic, tactical, and operational decisions (and take the right actions to hit your KPIs and reach your business goals), you must have the right data, algorithmic technology, and organizational processes in place.
Data, algorithms, and organization are the three key ingredients the supply chain companies need to achieve “decision-centric optimization” and, ultimately, greater productivity and profitability.