CSCMP's Supply Chain Quarterly
October 18, 2018
Forward Thinking

Who benefits most from optimization tools?

Because asset performance is a top priority for manufacturers, they are likely to get the best return from supply chain-network optimization software.

Companies that have invested heavily in their own manufacturing plants to produce large volumes of materials like chemicals, metals, and paper make good candidates for successful use of supply chain-network optimization software. That's the view outlined in the report "Best Practices: Supply Network Optimization in Asset-Oriented Value Chains" issued by the research firm Manufacturing Insights.

The report contends that these types of manufacturers —termed "asset-oriented value chains" —are ripe for optimization because they have made significant capital investments and their high operating costs make asset performance a top priority. In addition, changing demand patterns strain the supply chain because they create regional shifts in distribution and gaps between production and actual demand. Finally, since many of these manufacturers have been involved in mergers, acquisitions, divestitures, and joint ventures, their revamped business structures necessitate a supply chain redesign.

When it comes to using software to optimize supply chain networks, the report says, most manufacturers start out slowly, using fairly simple models before proceeding to more complex ones over time. These types of tools are employed for both strategic long-term planning as well as short-term tactical planning. Supply chain optimization exercises span the gamut, from optimization of inventory and distribution to sourcing and procurement expenditures.

Although the report notes that it's difficult to quantify exactly the return on investment (ROI) or cost savings from network optimization software, manufacturers typically realize savings in the millions of dollars.

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