What Are the Best Tips for Supply Chain Optimization?

Supply Chain Optimization (Supply Chain Optimization) is "decision plan under constraints or limited resources". It mainly has two types: global optimization and local optimization. The overall optimization is to find the optimal solution from a large number of solutions. However, in actual situations, there may be no optimal solution or no method to detect whether the obtained solution is optimal. Therefore, it is necessary to perform local optimization. The optimal solution is obtained. This method depends on the initial solution of the solution. Different initial solutions have different optimization results.

Supply chain optimization

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Supply Chain Optimization (Supply Chain Optimization) is "decision plan under constraints or limited resources". It mainly has two types: global optimization and local optimization. Overall optimization is to find the best from a large number of schemes

The supply chain optimization problem consists of decision variables, objective functions, and constraints. Decision variables are the decisions that need to be made. There are the following decision variables in logistics: when and where to order raw materials from suppliers; when to produce; when to deliver products to customers and how much. The objective function is the objective to be achieved economically or otherwise. The logistics has the following objective functions: the largest profit; the lowest supply chain cost and the shortest life cycle; the highest customer service quality; the shortest delay; the largest output; meeting all customer needs. Constraints are the conditions that variables must meet. The following constraints exist in logistics:

Generally speaking, optimization goals are considered from two completely different perspectives: private enterprises and public organizations.

The goals of private business

There are many forms of definition of optimization goals in the supply chain management system. For example, "optimization is the key to the highest ROI (return on investment). Its goals include the lowest cost, the highest customer service level, and the shortest production cycle." However, in When discussing the optimization of the inventory chain, some people think that the goal of the maximum ROI is "to increase customer service levels, reduce total costs, reduce workload, reduce inventory while increasing profits"; "maximize ROE (return on assets) or increase competitiveness" ; "The company has the largest profit and the largest market share" and so on.

However, if these goals are used in a decision model, they must be translated into clear, measurable goals. More specific goals are usually profits and their derivatives-costs and revenues, where costs include capital, production and operating costs, warehousing and transportation, inventory holding costs, administrative costs, IT costs, and packaging costs; revenue is subject to the company's services The impact of quality, including punctuality, product availability, etc.

The cost factor (minimum) and customer service quality (maximum) are usually contradictory. In order to be able to compare with each other, they must be converted into the same dimension and all the goals must be turned into a general goal. The lowest cost includes many different cost factors. Customer service is usually expressed in terms of revenue, so that it can be measured along with costs in terms of maximum profit. If not all goals can be converted into money-related factors, weights must be used. The weights reflect the relative importance of different goals, so the problem becomes a single-objective planning. At present, weights can be derived using some complex methods, or some software can be used to provide visual weight settings. Another approach is to define the priorities of these goals before optimizing.

Objectives of public organizations

We discussed the commercial profit we are pursuing. At the same time, we should also focus on the public interest. Some basic goals have been proposed in recent years. In 1987, the World Commission on Environment and Development proposed that "development should meet current needs, but not at the expense of future generations." If there is a relevant implementation policy, these goals must be explained clearly and in detail. There are three main aspects of public goals: economic, environmental and social. Every aspect can have an impact on supply chain design. Private enterprises aim to have the lowest facilities and transportation costs, while public organizations have different goals.

Environment: The construction of facilities and transportation will affect the environment. The environment will affect the human body and the next generation, mainly including: local air quality (affects people and threatens health); regional air quality (bad for crops and trees); Noise; long-term hazards (energy crisis, thinning of the ozone layer, greenhouse effect), etc.

Economy: mainly related to the improvement of the economic system, including: improving national competitiveness (including reducing industrial transportation costs); supporting underdeveloped regions; strengthening regional linkages and expanding outreach; market standardization (standard and open); increasing employment and reforms And the economic performance of exports.

Society: mainly related to residents and employees, including: safety of activities in the workplace and transportation; operating conditions of work; attention to disabled people; changes in social assets (the impact of income distribution).

Private companies do not have to consider the above factors in their decisions, but the government must consider them. Now many parties have reached consensus: relevant environmental standards must be formulated. Of course, individual organizations should also try to consider these standards in their decision-making process.

On the other hand, low-income regions and underdeveloped regions are strengthened to support their cohesion. For example, the European Social Foundation implements vacation training and employment assistance, and regional development organizations implement these standards by encouraging investment, infrastructure and small businesses. The implementation of these policies has led to reduced investment or higher quality labor. Therefore, private enterprises believe that these policies reflect market position and prices of products and services.

The same is true of the pricing mechanism in the transportation industry, which aims to ensure that transportation decisions include all costs. At present, external costs are not reflected in the price system, but through taxation, the price system can fully reflect external costs. In this way, from the perspective of a private company, the company's environmental concerns are integrated into target costs and profits. If the company does not consider environmental costs into external costs, the company can still implement the original plan when making decisions.

Rule-based system: It is not an optimization tool, but it is widely used in control systems. Rule-based systems can control hundreds or even thousands of rules. The interrelationship between rule systems and rules is very complex. If the system changes without changing the rules, the system cannot guarantee the optimal solution. Rule-based systems include neurons and ILOG.

Linear programming: This method is the best. It is the most widely used optimization tool and is usually used in resource allocation problems. Any problem with decision variables, linear objective functions, and linear constraints is a linear program.

Constraint propagation: Affected by constraints, each constraint has a certain range of variables. Decreasing the variable field causes a reduction in the number of variables related to the constraint. This method is especially effective in large network constraints.

Genetic Algorithm: Find the optimal solution by improving the existing solution. Although many iterations are needed to obtain the optimal solution, the genetic algorithm is simple to solve and runs fast. This type of optimization method is particularly suitable for problems with complex constraints and objective functions, such as nonlinear functions.

The above are just some common optimization methods, not all optimization methods are included.

Different optimization levels of the supply chain

After a comparative analysis of different levels of optimization in the planning process, we can conclude that there are three levels of optimization in the supply chain:

· Strategic level, ie high-level planning, the cycle is usually long-term;

· Tactical level, that is, mid-level planning, the cycle is usually one season or one month;

· Management level, that is, the bottom-level planning (planning, re-planning, and implementation). The cycle is usually one week, one day, or one shift.

Four analysis of supply chain

Strategic analysis: used to analyze the acquisition of resources and other decisions, such as the establishment of new facilities and the design of new product supply chains;

Long-term tactical analysis: supply / manufacturing / distribution / inventory planning for the entire supply chain of the decision-making company within one year;

· Short-term tactical analysis: including logistics optimization and production planning optimization systems;

· Business analysis: including production planning optimization system and distribution optimization system.

Although different planning levels are described above, they do not fully explain the impact of different decisions on other decisions, such as strategic decision optimization must assume optimal tactics and business planning. Various optimization problems at different levels will be described in detail below.

strategy

The strategic decision of supply chain management is mainly based on the network design of the chain to determine the location, scale, and number of workshops, distribution centers, and suppliers, such as "purchase and deployment plans for each workshop, distribution center, and customer." Strategic decision testing network design, while also considering logistics in the supply chain. Generally speaking, inventory management is a tactical decision, however, warehouse location is a strategic decision.

Tactics

Tactical optimization is "supply planning for a given supply chain structure, optimization of logistics facilities":

The supply chain network already has the following entities: suppliers, workshops, distribution centers and transportation routes;

· Supply planning based on time buffer concept (supply chain planning is usually January or 1 week);

· Supply plan integration considers workshop production plan and product raw material plan;

Consider the start-up and alteration cycle, but not the impact of manufacturing facilities;

Manage

The management-level supply chain planning can be understood as follows:

Production planning, including allocation of personnel, equipment and materials;

Transport routes and planning;

· Frequent implementation of such plans requires regular planning to accommodate machine failure, material inventory, and other delays.

With the development of modern logistics and technology, production and supply chain planning is becoming increasingly complex. Development trends of the supply chain:

Customers demand shorter life cycles and demand for specific deliveries

Mass product customization

Increase in production lines and products in stock

Globalization of operations-including procurement, production, sales and marketing

Manufacturing outsourcing

Third-party logistics providers increase joint inventory management with suppliers and customers, such as VMI and continuous replenishment programs

Implementing agile manufacturing

Implementing supply chain integration concepts

Corporate mergers, acquisitions and restructurings

As supply chain developments become more complex, companies must use software to optimize their planning processes.

Best supply chain practices are generally flexible, costly, and difficult to implement. First, we need to purchase tangible assets such as equipment, automation devices and software systems, and recover their costs through supply chain practices. At the same time, we need to return investors in the form of improving customer service and delivering shareholder value.

Supply chain optimization from a financial perspective

In supply chain practice, there are some projects that cannot be measured by financial indicators, such as business blueprints, management procedures, and strategic vision. For all projects other than that, financial returns must be considered.

From the financial point of view, the ultimate goal of implementing supply chain projects is to maximize profits. Then, you need to increase sales income or reduce the current expenses to reduce costs. Therefore, we usually use two methods to measure the ROI of an investment, that is, whether the cost reduction or income increase exceeds the cash flow of the period.

ROI ten-step analysis

The idea of generating a project or an investment often comes from the following factors: market pressure, cost factors, security needs, customer needs or spontaneous generation. But no matter what the project is for, in order to verify the correctness of your idea, you must go through the following steps.

Step 1: Define the task

As the most important step in the ROI evaluation process, your task is not to verify the feasibility of the project, but to strive for the full use of your company's resources. Defining this goal is very important for the entire analysis process.

Step 2: Define the planned cycle

In determining the planning cycle, consideration should be given to factors such as the useful life of the project-related fixed assets, the company's future development planning, economic expectations and environmental stability. If the above factors cannot be determined, ten years can be selected as the planning cycle.

Step three: propose goals

Elaborate on the reasons for this investment and keep it in mind. In the evaluation process, you may find some new content that supports project investment, but the focus is still good at exploring some potential factors. Only in this way can the goals of the proposed supply chain project be systematized, and the content of ROI analysis will be more specific.

Step four: identify alternatives

This step seems simple. The traditional view is to choose between "invest and not invest", which is incorrect. Here, you must brainstorm and list some of the currently possible solutions (their costs and benefits vary to varying degrees) until you find the best solution.

For example, when making a decision on whether to establish a new automated warehouse, the following options can be considered: rebuilding an existing warehouse, building a new automated warehouse, establishing a semi-automated warehouse, and cooperating with third-party logistics to manage inventory.

Step 5: Estimate the cash flow of each alternative

This is an important step. Make a detailed plan for each plan, and record the company's recent cash flow. This work needs to be from an operational and financial perspective, covering all relevant departments in the company that may benefit from the project. Only in this way can complete data be finally formed and provide a strong guarantee for the smooth evaluation and analysis process.

Step 6: Set the inflation coefficient and capital cost

This assumption will affect the calculation of the internal rate of return and may cause some changes in the expected economic returns. Therefore, when setting, try to combine some generally accepted indexes.

Step 7: Compare alternatives

After obtaining cash flow data, the results of investment payback period, internal rate of return, and return on investment are compared. If there are two or more alternatives, choose the one with the most reliable data and compare the other.

For example, a comparative analysis of pallet handling technologies, including forklifts, monorail catenary chains, pallet conveyors, automatic guided vehicles (AGV), and so on.

Step 8: Perform a sensitivity analysis

Here, you need to make appropriate adjustments to the input data that you are not sure about. Through experiments, test whether the final result is particularly sensitive to one or two of the factors.

Step 9: Choose the best solution

Based on the goals set before, simulate an optimal solution that meets all the goals. Is it a project that must be implemented under any condition of return on investment? Is there any other project investment that can get a better investment report rate than the program? After answering the above questions, your working group should apply for the right to make this decision.

Step 10: Test results

After you determine and put it into practice, you need to compare the actual results with the expectations you set at the right time, and check several questions: Does the cost reduction or sales revenue increase reach the expected level? At what point did the actual cash flow not match the estimate, and why did it differ? This step is often overlooked, but it can help you improve the supply chain process and accumulate relevant experience to achieve greater success in your next job.

Supply chain optimization is a very complicated and uncertain work. How to ensure the smooth implementation of supply chain optimization? Through the above ten steps, risks and uncertainties in the early stages of supply chain optimization can be effectively avoided, thereby ensuring the smooth implementation of supply chain optimization projects.

Every time I visit the company, I hear a lot of complaints from various departments: the production department complains that the purchasing department is out of stock and the sales department needs change rapidly; the purchasing department complains that the sales department does not provide the sales plan in a timely manner, and the production plan is adjusted frequently; The department cannot meet the sales plan; logistics complains that the sales department promises customers too short time to cope with it; etc. There are always various problems in the enterprise, and these problems are related and intertwined. How to solve the problem and how to judge whether the problem reflected by the business department is fundamental or apparent? This requires a comprehensive review and systematic diagnosis of the supply chain.

Find the core issues that affect supply chain efficiency: In diagnostics, care should be taken to grasp the nature of the problem rather than its appearance

Find out the problems that can be solved in the current situation: there are many problems that cannot be solved in the current situation: for example, for the shoe industry, the raw material procurement and production cycle takes about 30 days, and the sales cycle of a pair of shoes may only be 30 days. The production cycle is relatively long and the sales cycle is short. It is impossible to replenish production in time according to sales conditions. Production must be prepared in advance, which leads to high inventory and possible product backlogs. However, it is difficult for enterprises to shorten the procurement and production cycle in a short time. It is more feasible to consider shortening the longest procurement time in the procurement and production process, which can significantly reduce the order response time. Therefore, supply chain optimization can take shortening the procurement cycle time as the main goal. In this way, this problem is the current problem.

Formulate goals, methods, resource requirements and their value to the enterprise to solve the problem: first, the company must clearly define the goals to be solved, the goals must be clear, measurable, and unambiguous; second, analyze the problem-solving ideas and develop a detailed work plan To ensure that the plan is decomposable and executable; Finally, to estimate resource requirements, how many people need to be invested, how much time, how much money, etc., and how people participate in the work, these need to make detailed plans. Of course, detailed and highly operational plans are also easier to get high-level approval and support.

Through the diagnosis of the supply chain, it is very clear what problems to solve, ideas and improvement plans. The next step is to implement the improvement plan. The difficulty of this step lies in the process control of the supply chain improvement project. Ensure that the project is progressing according to its intended goals. It is best for an enterprise to form a project team to promote the optimization of the supply chain, because the optimization of the supply chain will cross departmental boundaries, more coordination is needed, and high-level authorization is required. By establishing a cross-departmental team, the project work can be effectively promoted.

In the process of project promotion, we must pay attention to the value of the project to the enterprise at all times, and we must promote the optimization of the supply chain based on the value. A project can get the support of senior management, project team members, and other employees because it can generate value to the company. At the same time, for participating members, supply chain management is also a new field. The success of the project is for them. , Is also an important part of professional experience. Therefore, the advancement of the project should also consider the value of the project to relevant personnel and ensure the enthusiasm of project members. However, the internal and external environment of the company is constantly changing. Things that are valuable to the company may not be valuable in the new environment. The original project scope needs to be changed. To ensure that the project is on the right track, it is necessary to constantly check the value of each project work to the enterprise and ensure that the project maximizes the value of the enterprise.