With comprehensive financial and operational knowledge of their companies, solid data analysis and a robust supply chain infrastructure impervious to single node failure that can cause the chain to break, professionals are well-positioned to face risk.
So how can CEOs and their colleagues go about optimizing their companies’ supply chain operations?
Network optimization factors
To truly make a network as streamlined and efficient as it can be, weigh firm-specific internal and external factors specific to put together a customized, strategic approach that will work best for the individual company, advised L.N. Balaji and Sandeep Kumar – president and vice president of ITC Infotech (USA) Inc., respectively – in a July article for IndustryWeek. Specifically, internal factors will likely include the often conflicting objectives of sourcing (stable volume, large quantities, large lead time), manufacturing (long runs, stable volume, high buffer inventory), logistics (streamlining warehousing processes and maximizing transportation efficiency) and sales/customer service (availability, flexibility and responsiveness with regard to order cycle time). Meanwhile, external factors are composed of elements such as the political and economic climates, and the regulations and trends that accompany these.
Balaji and Kumar recommended taking a “pragmatic approach that delivers reliable results quickly and helps drive strategy into action” by paying attention to the needs and wants of each part of the optimization hierarchy, implementing a two-stage approach that combines funneling with sensitivity analysis, setting up a simulation framework to gauge the effect of small parameter changes and frequently reviewing key metrics and goals to optimize performance.
Build vs. buy
When approaching the task of network optimization, leverage customized software packages (build) or mobilize commercially available solutions (buy). As Supply Chain Quarterly noted, customized and commercial offerings both have their merits and drawbacks. The former can be molded to more closely address a company’s unique needs and problems, but this comes at a cost, both in terms of time and money, while the latter do much of the work for you – including anticipating aspects you would have otherwise overlooked – but aren’t quite as malleable in terms of serving a particular firm’s every need.
“[W]hen faced with the task of optimizing a supply chain, supply chain managers should not automatically reach for a commercial solution,” advised the article’s authors, Larry Snyder, Alan Sargent, Matt Schlosser and Stacy Orwan. “Instead, they should carefully compare the costs along with the advantages and disadvantages of customized versus commercially available tools to select the best solution for their companies.”
Outsourcing vs. “Made in America”
Where items are manufactured is a core component of the supply chain. In the wake of an outsourcing trend that saw many firms take advantage of cheaper operating costs overseas, some companies are “reshoring” – bringing formerly outsourced production back home. Big names engaging in reshoring include Apple, Caterpillar, Chrysler, Ford, General Electric, Lenovo and Whirlpool, which have either already taken steps to reinvest in old U.S. plants or set up entirely new ones, according to The Guardian.
Often, the question of whether to go with outsourcing or insourcing is presented as an either/or choice, but as Mindtree’s Scott Staples pointed out in a recent article for IndustryWeek, there’s another option: rightsourcing.
“Rightsourcing implies the use of common sense to determine where certain services should be delivered,” Staples explained. “The right location of tasks and services is driven by quality, cost and availability of talent. Rightsourcing is directly tied to business goals and should be unique to each company – meaning there is no cookie-cutter approach to determining what sourcing model will work best for your company. Insourcing might work for some tasks and outsourcing for others.”
Summing it all up
When engaging in supply chain optimization, it’s important to take into account internal and external factors affecting the network, determine whether customized or commercial network optimization solutions are best for a company’s specific needs and decide between outsourcing, insourcing/reshoring or a mix of these strategies (rightsourcing). Moreover, the CEO must collaborate with the CFO, the CIO, the Ops leader and the supply chain leader to ensure the correct strategy is in place and bring together the necessary disciplines to effect change.
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