5 Things OptiCon Taught Us About the Future of Supply Chain Design
OptiCon 2022 was definitely one for the books. We discussed topics ranging from how technology innovation was born, sustained and how Supply Chain Design can be re-imagined by combining optimization, simulation, risk management, and cloud hyper-scaling. In case you missed it, here are a few key takeaways from our supply chain thought leadership conference:
1. The Future of Supply Chain Design Must Include Risk
The existing approaches to supply chain design have the following challenges; they are difficult to use, they lack scalability and customization, they are tied to the desktop and they use slow, outdated solvers that cannot account for variability. As the world around us keeps demanding more from our supply chains, we need to consider other factors than just service and costs.
Here’s what we know: The economy is getting more and more variable, risks and disruptions are flaring up, supply chains are more complex than ever and the tools of today just aren’t built to tackle all of the above. While we’ve talked about the importance of resilience and mitigating risks in our supply chains, there’s been very little action taken to actually change this paradigm.
“Sometimes in order to create something truly innovative, we must first destroy. Supply Chain Design, as it exists today, needs to be destroyed and rebuilt with risk at its foundation.”
Just like the design of a supply chain has an associated cost and service level, it also has a level of risk. However, traditional design tools do not measure the element of risk and therefore strategic supply chain management decisions have been made with only a focus on cost and a limited view of service, through the lens of optimization and distance-based service. The riskiness of any given supply chain network design might consider factors such as the location of a facility or the business policies around sourcing or transportation, for example. The time has come where organizations should have visibility into cost, service and risk so they can balance these factors into their strategic decision-making.
Unfortunately, risk isn’t quantifiable in business. With no connection between risk and monetization, it’s hard for organizations to drive time, money, and resources toward mitigating risk. But if we aren’t thinking about what happens when things go wrong, who does? Right now, the answer, as it turns out, is nobody. Risk monitoring is appearing in support of short-term planning and execution, but this is only reactive whereas considering risk in your supply chain design and strategic planning allows for companies to be proactive against risk.
We believe the future of Supply Chain Design falls hand-in-hand with stamping a risk rating on every supply chain design model, including legacy models. Use scenario planning via simulation and optimization to understand the impact of risk on your supply chain and use this to make more informed decisions and create contingency plans for if and when the risk factors might be realized. Mitigate risks, plan for the unknowns, and be prepared for the next tsunami, pandemic or recession threatening your supply chain.
“We need to take the next step and commit to doing risk ratings on our structures, on our designs. And over time, we will find ways to connect that to outcomes and monetization. You know how valuable these are, how important they are. But first we have to start with a consistent measurement. And that actually is something we're gonna bring to the party here.”
2. Incorporating a World-Class MIP Solver Like Gurobi Can Improve Performance and Give Better Answers
We heard from Peco about the challenges they’ve experienced in their design process, from limitations with existing network optimization (NO) capabilities and lengthy model solve times to inaccessible builds that make it near impossible to scale and an unnecessary complexity for MIP formulations. To combat these challenges, Peco showed us that incorporating more solving horsepower and a cloud-based solution (like Optilogic) can yield faster, more accurate results.
Optilogic made it easy for Peco to convert their Supply Chain Guru (SCG) models into a new data schema. Optilogic's underlying schema is then used to run optimizations powered by the world's fastest MIP solver, Gurobi. In testing some of Peco's model, the results were impressive, with over 4x improvement in solver performance. But what was even more impressive was the fact that the answer yielded better cost improvements - an added bonus. Adding on to this is the fact that scenarios can be run concurrently in the cloud - now Peco can kick off more scenarios to dive deeper into their issues without waiting for answers.
3. Businesses of all Sizes Need Enhanced Solutions That Won’t Break the Bank
Every business works within budgetary constraints, but for SMBs, the stakes can be much higher. Technology solutions often represent huge chunks of SMB budgets, so the choices made about which solutions to invest will significantly impact these companies’ bottom lines.
We heard from iGPS and ACR as they dove into how they both leverage advanced solving algorithms with Optilogic’s current tech stack. By using pre-built workflows, they’re able to keep moving forward without missing a beat. For small businesses facing growth, cost and inventory impacts, there’s a real need to evaluate how they are doing business if they want to understand how to truly improve. That’s where simulation comes in and reveals more to an organization than a simplified optimization model would.
4. The Way Supply Chain Design Teams Work Needs to be Re-Designed
Lora Cecere was one of the industry experts and speakers at OptiCon 2022. She stated, “the way Supply Chain Design teams work needs to be re-designed.” Rather than leaning on analysts to crank out optimization models, it should be the executives and SMEs across departments. The business knowledge these members hold would only enhance the value that this modern technology brings to their supply chain. Most of them don’t even know you can create flows to help visualize their entire supply chain. By working together throughout the tiers of an organization, we can train modelers to get the most out of their Supply Chain Designs and leverage the experts within their company.
Once we have the internal team organized for success, next up is to democratize models so we can distribute them and make them more accessible across the board. Having the ability to share models and to manage the effective frontier of growth margin, inventory turns and asset strategies is crucial. When only 4% of organizations are doing better than their industry peer average across a number of supply chain KPI's, there’s room for improvement.
“Of the 700 companies I analyzed, only 4% are outperforming their peer group on growth margin, inventory and return on invested capital. To me, these elements are the heart of any supply chain. And the ones that are outperforming are not the ones on the Gartner Top 25…It’s the smaller companies that are innovative.”
In Lora’s research, she’s found that the companies that are smaller tend to be better at adopting new technologies that outperform the larger companies. You’ll see this play out in all sorts of industries. For example, Monster Beverages does better than Anheuser Bush or how Intuitive Surgical outperforms anybody in medical devices. It really comes down to how margin, not cost, should be a key driver of supply chain design decisions.
“We have always chased cost in our supply chains. By running a cost based agenda, we have weakened many pieces of the supply chain, which are very vulnerable right now, like transportation, the chemical industry, the plastics industry, and the semiconductor industry.”
5. Big Things Are Coming From Optilogic
We introduced our latest technology stack and Supply Chain Design toolkits to support business analysts, power users, and programmers alike. By incorporating risk, optimization, and simulation solvers, we’re paving the future for Supply Chain Design.
“It was great to hear Don’s vision for Supply Chain Design and to see their cloud native approach for tailored and out of the box solutions. I was especially interested in the risk elements incorporated into the supply chain models. No vendor is taking the approach that Optilogic is taking to fully incorporate risk into design.”