Over the past decade, the field of logistics has undergone an unprecedented level of upheaval and transition.
By Dr. Rajiv Saxena, APL Logistics
Look beyond the surface of the dramatic
transformation in logistics, and
you’ll discover one recent ‘trend’ that is
anything but new and just as likely
to be earning praise 10 years from now:
supply chain optimization.
Optimization is the process of using
systems, models and complicated
mathematics to search out and identify
the best-case solution for a challenge.
Introduced in the 1940s, it’s
been widely accepted in the engineering
profession for years. However, it
wasn’t until recently that it entered the logistics
vernacular and became a cornerstone of many
companies’ supply chain efforts.
Like many of today’s business developments, at least
part of the reason for this change lies thousands of
miles away.
Since China joined the World Trade Organization in
2001, more than $50 billion in manufacturing investment
has moved
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there, and more growth is expected.
As a result, Asia has grown to be one of the world’s preferred
manufacturing continents, and the U.S. companies
that have shifted their manufacturing there have
found themselves faced with a staggering number of
unfamiliar supply chain variables: multiple countries,
cultures, carriers and modes, just to name a few.
This has made it difficult for many businesses to
use one of their most effective supply chain planning
tools—past experience—with any degree of confidence.
The international history simply isn’t there yet.
In light of this, optimization has proven to be a
very effective and expedient supply chain planning
alternative.
Other factors that have made optimization increasingly
relevant have been U.S. port congestion, rising
fuel prices, the current truck driver shortage and the
numerous natural and manmade disasters that have
occurred in recent years.
Optimization Basics
Optimization is effective for addressing strategic,
big-picture issues, such as logistics network
design (choosing how many facilities you should
have and where they should be located), inventory
deployment policies optimization and supply
chain contingency planning. However, it can be
equally useful when applied to more tactical
opportunities, such as facility layout, product
slotting, mode selection, route selection
and carrier selection.
Moreover, it has many plausible starting
points. For example, some experts
say it’s best to optimize every time your
company reaches a watershed. Others advocate
optimizing based on pre-established
intervals—every day for freight, every few
months for a dedicated fleet or every year or two
for a distribution center network. Some favor a path
that’s familiar to anyone who remembers the halcyon
days of Total Quality Management: beginning where
your clearest and largest pockets of inefficiency exist
and moving on from there. The beauty is none of the
experts are wrong. When it comes to optimization, any
time or place can offer room for improvement.
Optimization is often mentioned in the same breath
as supply chain simulation, another popular decision
support technique. The latter uses computer-generated
processes to provide detailed, real-world answers to logistics
challenges or questions.
Optimization offers a few advantages that simulation
doesn’t. For one thing, it’s more forgiving in terms of
the inputs companies need to get started. A simulation
requires very specific and detailed facts and figures,
and often, companies don’t have these detailed figures
readily available; by contrast, optimization often allows
you to provide inputs based on ballpark assumptions
or commonsense estimates, and that can be helpful
when you’re treading new ground.
Downside
Despite the many merits of optimization, it does
have one powerful limitation: It’s only as good as the
professionals who perform it.
There is no such thing as an
Optimization for Dummies book
or an “Optimization 101” course
to which you can send your most
technically oriented people. And,
even if there were, you should be
leery about using them because
you can only make this complex process so easy.
Optimization tools need to be
used by people who understand
how they work and know how to
capitalize on the full functionality
of the systems. And, often, that
requires hiring—and budgeting
for—professionals with advanced degrees and substantial engineering
backgrounds.
The important things businesses
need to know:
- Optimization works;
- Optimization pays;
- In a world where nobody’s
perfect, it will always be relevant.
Next Steps
Hire the right resources .
Optimization's complicated, linear,
non-linear and integer mathematical
models require engineering
aptitude. Put people in
place who can 'do the math.'
If possible, start by optimizing
your supply chain network. Start
your optimization at a level that’s
as strategic as possible because
that’s probably where your exercise
will yield the most dividends.
Don’t fence it in. If you limit
your use of optimization to strategic
exercises, such as contingency
planning, you’re missing a significant
opportunity to improve and
fine tune many tactical elements
of your supply chain.
Set quantifiable goals for your
optimizations. You need to have
specific measures for how you
will know if your supply chain has
been improved.
Where appropriate, reinforce
your optimizations with simulations.
Optimizations are excellent
for finding best-case solutions for
logistics challenges. Simulations
are great ways to see how those solutions
will play out, given certain
circumstances.
If you don’t want to commit to an
in-house optimization team, consider
outsourcing. Many third-party
logistics providers have in-house
optimization departments.
Rajiv Saxena is vice president, global
supply chain engineering for APL
Logistics, which provides a wide variety of
supply chain services and operates more
than 20 million square feet of distribution
space on six continents.
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