How good is your supply chain optimisation?

System demos are tedious things at best. The developers are trying to showcase the best aspects of their baby in best possible light. They have spent months, sometimes years, thinking about and developing functionality. It is really a big ask to show off the usefulness of it all, in half an hour or so.

But I sat through this system demo, as I do with many others, because I make it my business to always know what is the latest and greatest in supply chain management.

They called it a revenue optimisation system and it was already being used at one of the customers who had a need for it. I was being asked to assess the commercialisation potential. Because I am not really an expert in commercialisation of new software, I only agreed to provide my opinion on supply chain applicability of the software.

Most developers lack Steve Jobs’ slick user interfaces and presentation skills. It took sometime to understand what the software did, and how. The main reason it was worth doing it was because there was already a live customer, a fortune 500 company – and if one company had a problem that this software solved then surely others would have it too.

My expectations of revenue optimisation included modelling of price elasticity, behavioural scoring to determine optimum pricing, yield management, and perhaps even bundled offerings to upsell and cross sell products and services. On the revenue management side, I expected a smooth workflow of the entire customer order, fulfilment and delivery process to manage price discounts, enable revenue recognition at the right time, and prevent revenue leakages which are so common in many large companies.

When I managed to understand the crux of what this system did, I realised it only helped in recognising the revenue at the right time in the customer order fulfillment cycle. This was necessary for compliance with the accounting conventions, and a very useful function.

However, to call this set of functionality revenue optimisation system, or revenue management system was a gross over-stretch.  This is yet just the most blatant and recent example of system hype that I have encountered.

Optimisation has become the holy grail of supply chain management by now. Everyone talks about optimisation and how well they are doing it. Yet, most people do not have full realisation of the limitations of their optimisation systems.

In my book ‘Unchain Your Corporation’ I recount a story where a supply chain optimisation system with very complex algorithms, and which was installed in a company after spending over $300 Million over 2 years could not compete with simple Excel based manual optimisation system when same inputs were used. This was not an isolated story either. In fact, every system based optimisation must be tested first by common sense, and then by comparison.

In defence of the system, sometimes near enough IS really good enough. Also, sometimes speed of answer is more important than the quality of the optimisation.

Yet, when people use these algorithms to make long term multi-billion dollar supply chain infrastructure investment decisions without realising the limitations of the optimisation itself, they are doing no better than what wall street does when assessing risks of toxic assets using flawed Value-at-risk models based on unrealistic assumptions. Another lesson from this analogy is never to rely on the brand name of the service provider, because you carry the risk of flawed modelling, not them.

Test everything – and understand the limitations of the system you are installing, because there no ideal systems, and every system has some use. You just have to find the right system for the problem you are trying to solve. And, do not seriously look at a system until you are truly clear about what problem you are trying to solve.

 

Care? 'Share'

FREE - Get An Extract From Any Of Our Books!

All you have to do is - comment below. Your opinions are vital for building a vibrant global community of professionals. In time, you will be proud of your contributions:

  • Share Your Opinion

  • Participate in The Conversation

  • Contribute to The Community

FEATURED COMMENTS WILL EARN A FULL COPY OF ANY OF OUR BOOKS.

What are you waiting for?  Share Now, and Win.

 

chiefstaff

  • Campionlabs, Campion Labs offers a professional IOT environment, says:

    Will have a much better idea what clients want

    Because of the IoT supply chain, you will have a much better idea what your clients will want in your product or service. There are many methods that you can make use of the IoT to ensure that your business is growing.

    The great thing about the internet is that doing marketing and getting surveys to clients and potential clients is a lot easier than doing it without the internet. And, this is why Internet of things is a great tool and system to use when you are trying to know what your clients are looking for. The way of making sure that your business is successful, is to make sure that you have a product or service that your clients want, that you can’t find anywhere else. With this system, this is exactly what you need to know what the clients want to change with your product.

  • Bryce says:

    As customer service requirements become more complex, supply chain optimization studies are the foundation for some of the most successful companies’ logistics and fulfillment operations. We look at the best practices behind supply chain optimization.

    A world-class, transformational supply chain begins with a network that employs an all-encompassing view of the various business areas that manage the delivery of products to customers. The result is significant capital, operational, and tax savings while achieving optimal customer satisfaction.

    Optimization has become the holy grail of supply chain management by now. Everyone talks about optimization and how well they are doing it. Yet, most people do not have full realization of the limitations of their optimization systems.

  • Deepti Biswal, Supply Chain Management Professional says:

    When we are talking about Supply chain optimization, there are 2 kinds of optimization i.e.local optimization and global optimization. By optimizing we mean here balancing the supply chain for efficiency and responsiveness at lowest total cost. Supply chain is a complex interaction of different functions. Local optimization means one function is optimized without regards to how it affects the entire supply chain. As an example, transportation function decides to transport full truckloads in order to get TL discounts, but this increases inventory and hence inventory holding costs. Another example of local optimization is manufacturing does long production runs in order to reduce per unit costs, but this decreases the flexibility in responding to changes in demand. As you can see from these examples, efficiency is traded off for responsiveness. With global optimization, what the supply chain seeks is to find a balance between desired responsiveness and efficiency at the lowest total cost.This might mean that costs may increase for some , but for the overall supply chain the costs are decreased . All the functions collaborate with each other , share information and data among supply chain partners and work together to find that balance at the lowest cost. Nowadays there are tools to help companies do simulations and modeling with different scenarios to find the optimal solution for supply chain at the lowest cost.

    • Nat Mortimer, works at RELEX Solutions says:

      Hello there,

      To add to the great explanations already shared, I thought you might be interested in the recent report “State of the Retail Supply Chain 2017”. The findings reveal how retailers are approaching their supply chain planning processes across Europe, and what functionalities they are using to optimise these processes and stay competitive.

    • Yasen Dimitrov, Co- Founder | Intelligence Node | Innovation in Retail Technology says:

      Supply chain optimization is a series of steps to reduce several costs in the production of goods. In my opinion, since these days we are using Web 2.0, cloud computing, and social media a lot more than before, supply chain optimization is facing new challenges. But it is also coming along with opportunities to expand your businesses.

    • Jyoti Sharma, former Content Writer / Supply Chain Consultant says:

      Supply chain optimization is the socilitation of processes that ensures the optimal operation of a manufacturing and distributional supply chain.This includes the ideal placement of inventory within the supply chain, minimizing operating costs.

      • Norma Gulley says:

        Supply chain optimization is the application of processes and tools to ensure the optimal operation of a manufacturing and distribution supply chain.This includes the optimal placement of inventory within the supply chain, minimizing operating costs.

  • James SCM says:

    The conclusion of the above blog is good! We should know our priorities or other limitation of it than we would select an appropriate system to develop SCM strategies.

  • john wincindego says:

    As u said Optimisation has become the holy grail of supply chain management by now. I know we have several ways to understanding MRP. As a newcomer to procurement & supply chain, what technical skills, are needed? Can you describe an approach for setting safety stock levels and what should go into that? If they are

  • >