How Good Is Your Supply Chain Optimisation?

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Supply Chain Optimisation

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How Good Is Your Supply Chain Optimisation?

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.

Understand Supply Chain Optimisation Before You Regret.

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.

Supply Chain Optimisation Is So Famous,

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.

learn More About Supply Chain Optimisation

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.

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ABOUT THE PRINCIPAL AUTHOR

Today, Vivek and his partners are among 20-30 people on the planet earth who have this deep understanding of supply chain systems, practices and tools. CEOs, COOs, executives and Boards call them in most challenging situations once they know the full potential of supply chain based transformations. Following are key milestones in Vivek's journey:

  • Started in 1983 as a merchant navy cadet at 18 years age, worked his way to qualify as a Captain – qualified to take command of any merchant ship, worldwide.
  • Earned a top tier MBA from UNSW at the top of his class.
  • Joined highly regarded strategy consulting firm Booz Allen & Hamilton, consulting to the CEOs, Boards and senior management of global corporations within Australia.
  • To learn and specialise in supply chain – against all odds, sought out the co-inventor of supply chain in Germany and convinced him to be a partner in his firm, GLOBAL SUPPLY CHAIN GROUP, launched in January 2000.
  • More than 500 successful blue chip projects with high impact business transformations in large corporations using the full power of SUPPLY CHAIN MANAGEMENT.
  • 4 Seminal and path breaking business books IN SUPPLY CHAIN MANAGEMENT – these are available in bookstores and universities and libraries worldwide.

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THE 5-STAR BUSINESS NETWORK

If you are deeply passionate about the world of business and supply chain networks as I am, and enjoy digging answers to critical questions that will help build and steer your business with wisdom, then join me. This book is a journey of exploration through the world of business networks that run along the veins of today’s commercial world.

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OUTPERFORM OUTSOURCE OUTPROFIT

The trend of outsourcing continues to grow unabated with the whole gamut of services, from simple to mission-critical tasks. There is not a single company on earth that does not outsource anything. It is not just about cost arbitrage, it is also a finer expression of division of labour at the organisational level. Like all leverage, outsourcing is a double-edged sword too. On one hand, it allows you to do more, faster. On the other hand, if it goes bad, it can easily kill your business. If you do not believe that is possible – you can google the Fox Meyer saga from the 90s and see for yourself.

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UNCHAIN YOUR CORPORATION

Businesses Are Chained By Unseen Chains. If You Are Looking For Ways To “Unchain Your Corporation” A Successful Business Transformation Is Required.

Successful Business Transformations Are Difficult, Yet Rewarding.

Business Transformation Is Fast Becoming A Question Of Survival In The Modern Globalised Era.

Modern Supply Chains Integrate Businesses And Economies Faster By Systematic Information Sharing From Internal And External Sources.

Companies Can Multiply Profits By Progressively Ramping Up Cohesion And Collaboration Of All Moving Parts In B2B Network To Achieve Tighter Integration.

4.3
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GREEN SUPPLY CHAIN – AN ACTION MANIFESTO

It is generally accepted that environmental consciousness is now changing to environmental proactiveness as organizations are discovering that it makes good commercial sense.

Boards are asking the management to review their policies related to environmental norms, not only to bolster their corporate social responsibility aims, but also because consumers are asking for greener supply chains

It is also widely agreed that consumers will increasingly prefer to buy more and even pay more for products or services provided in an environmentally sound manner.

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