This section we discuss the retail industry supply chain.
Supply chain optimization has applications in all industries
manufacturing and/or distributing goods, including retail, industrial products,
& consumer packaged goods (CPG).
Typically, supply chain managers are trying to maximize the profitable operation
of their manufacturing & distribution supply chain. This could include measures
like maximizing gross margin return on inventory invested (GMROII)( balancing
the cost of inventory at all points in the supply chain with availability to the
customer ), minimizing total operating expenses (transportation, inventory &
manufacturing), or maximizing gross profit of products distributed through the
supply chain. Supply chain optimization addresses the general supply chain
problem of delivering products to customers at the lowest total cost & highest
profit. This includes trading off the costs of inventory, transportation,
distributing & manufacturing.
[edit] What approaches & solutions exist?
The classic supply chain approach has been to try to forecast future inventory
demand as accurately as possible, by applying statistical trending & "best fit"
techniques based on historic demand & predicted future events. The advantage of
this approach is that it can be applied to data aggregated at a high level (e.g.
category of merchandise, weekly, by group of customers), requiring modest
database sizes & small amounts of adjustment. Unpredictability in demand is then
managed by setting safety stock levels, so that for example a distributor might
hold one weeks of supply of an article with steady demand but seven time that
amount for an article where the demand is more erratic.
Then, using this forecast demand, a supply chain manufacturing & distribution
plan is created to manufacture & distribute products to meet this forecast
demand at lowest cost (or highest profitability). This plan typically addresses
the following business concerns: - How much of each product should be
manufactured each day? - How much of each product should be made at each
manufacturing plant? - Which manufacturing plants should re-stock which
warehouses with which products? - What transportation modes should be used for
warehouse replenishment & customer deliveries?
The technical ability to record & manipulate larger databases more quickly has
now enabled a new breed of supply chain optimization solutions to emerge, which
are capable of forecasting at a much more granular level (for example, per
article per customer per day). Some vendors are applying "best fit" models to
this data, to which safety stock rules are applied, while other vendors have
started to apply stochastic techniques to the optimization problem. they
calculate the most desirable inventory level per article for each individual
store for their retail customers, trading off cost of inventory against
expectation of sale. The resulting optimized inventory level is known as a model
stock. Meeting the model stock level is also an area requiring optimization.
Because the movement of product to meet the model stock, called the stock
transfer, needs to be in economic shipping units such as complete unit lots or a
full truckload, there are a series of decisions that must be made. plenty of
existing distribution requirements planning systems round the quantity up to the
nearest full shipping unit. The creation of for example, truckloads as economic
shipment units requires optimization systems to ensure that axle constraints &
space constraints are met while loading can be achieved in a damage-free way.
This is generally achieved by continuing to add time-phased requirements until
the lots meet some maximum weight or cube.
Optimization solutions are typically part of, or linked to, the company's
replenishment systems distribution requirements planning, so that orders can be
automatically generated to maintain the model stock profile. The algorithms used
are similar to those used in making financial investment decisions; the analogy
is precise, as inventory can be considered to be an investment in prospective
return on salesSupply chain optimization may include refinements at various stages of the
product lifecycle, so that new, ongoing & obsolete items are optimised in
different ways: & adaptations for different classes of products, for example
seasonal merchandise.
Whilst a few program vendors are offering supply chain optimization as a
packaged solution, others are walking the program on behalf of their clients as
application service providers.
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what are the claims for supply chain optimization?
Firstly, the techniques being applied to supply chain optimization are claimed
to be academically credible. Most of the specialist companies have been created
as a result of research projects in academic institutions or consulting firms: &
they point to research articles, white papers, academic advisors & industry
reviews to support their credibility.
Secondly, the techniques are claimed to be commercially effective. The companies
publish case studies that show how clients have achieved reductions in inventory
whilst maintaining or improving availability. There is limited published data
outside of these case studies, & a reluctance for some practitioners to publish
details of their successes (which may be commercially sensitive), therefore hard
evidence is difficult to come