Supply Chain network optimization: a technology and data-driven approach
Supply Chain network optimization
Optimizing Supply Chain networks will provide organizations with an opportunity to not only reduce costs, but also to explore new opportunities for growth.
Business-to-business (B2B) industries are entering a new era, with changing market landscapes. Developments in B2B industries are mirroring those in the business-to-consumer (B2C) sector:
- Customer expectations are growing
- Digitization is transforming business models
- Globalization and the rise of emerging markets are increasing global footprints and extending commercial networks.
For B2B industries, these changes have a significant impact on the Supply Chain, and drive the need for constant monitoring and updating of the status quo. Data provides new ways to optimize and segment the Supply Chain. Optimizing Supply Chain networks will provide organizations with an opportunity to not only reduce costs, but also to explore new opportunities for growth.
To what extent is your organization organized around the customer and actively managing customer expectations?
With the explosive growth of global e-commerce, customer expectations have risen to remarkable levels. Just a few years ago, same-day delivery for consumer goods was unheard of. Now, in many markets it is the standard, and B2C e-commerce companies have optimized their processes to absorb the increased shipping costs rather than passing them on to the customer.
Organizations are now recognizing that their customers are also consumers, and that striving to bring B2C levels of customer service to the B2B realm will be a major point of differentiation going forward. B2B customers are also coming to expect same day delivery, simple returns and a better delivery promise. Companies that optimize their Supply Chains by determining the optimal number of warehouses and strategically placing products to best serve their customers' needs, will be able to meet increased customer expectations.
As companies aim for service excellence and optimize their Supply Chain, there will be an opportunity to offer a larger range of products and services, target different customer segments and offer optimal delivery times. This Supply Chain optimization will also create greater opportunities for direct-to-consumer sales.
How will your company leverage the wave of digitization to optimize your Commercial and Supply Chain organizations?
B2B companies that transform their Supply Chains with digitization will outperform competition, just as B2C organizations have made use of digital technologies to derive a competitive advantage from the data they collect. Advanced analytics, the internet of things (IoT), robotics and artificial intelligence (AI) are all technologies that can be used to good effect in Supply Chains.
Digitization offers an opportunity for companies to facilitate growth and to offer current or future services at lower costs, as driven by increased customer demand. Digital technologies can be used to improve visibility of products across the Supply Chain, track movement of goods, automatically balance inventories or provide multi-point replenishment solutions.
Technology can also be used to optimize logistics operations, with smart robots that work collectively to receive, assemble and ship customer orders. Using real-time sales data, AI can predict likely future orders, and can thus send the robots to an optimal location hereby improving order delivery times. Technology can reduce the need for human input in the Supply Chain which can improve its safety, efficiency and transparency1.
Globalization and emerging markets
Is your company fully integrated across the Supply Chain and ready for competition from emerging markets?
As companies from emerging markets enter the industry, pressure on prices, revenues and profits will grow. With B2B industries currently experiencing supply that is outpacing demand, operating margins are becoming thinner. Companies that structure their Supply Chains to address local as well as global competition will be able to compete effectively in these new markets.
A key differentiator will be the establishment of end-to-end Supply Chain integration. Rather than investing in a single large facility, companies that work with smaller outsourced partners as part of a localized network will be better positioned to meet the demands of a wider range of customer segments, in more markets2.
With the development of Supply Chain network partnerships, the regional ecosystem is becoming more significant; especially third-party network providers that help companies leverage warehouse space or manage logistics more effectively. The decisions that companies make about using data and technology to gain oversight or visibility across these networks will play a major role in determining their success.
Digital tools enable a data-driven network strategy approach
The traditional Supply Chain network optimization focused on cost efficiencies. It relied on finding the cheapest locations to manufacture goods or to ship goods from, and used that as a source of competitive advantage.
Today, however, with a shift towards customer centricity, companies can better optimize their Supply Chains by focusing on improved customer service. In this model, an optimal service level would provide next day delivery, and a guarantee that every delivery is supplied on time, and in full.
A data-driven approach allows companies to perform these assessments on a more frequent basis and at improved speed of execution, ensuring that they remain nimble in an evolving market. Digital tools as Alteryx to easily combine data sources, or Tableau to visualize data and create new insights and possibilities enable efficient execution of such assessments. Optimization of customer service levels can be achieved with digital tools using the following stepped approach:
- Organize a strategy workshop with key stakeholders to collectively identify gaps and prioritize needs.
- Conduct an assessment of current state based on customer prioritization, number of shipments, and shipment volumes.
- Define an initial future network by identifying distribution centers using customer gravity maps, the locations of strategic clients, and existing manufacturing and storage locations.
- Define possible scenarios and model a network using optimization logic to assess new potential locations and assumptions for costs and service levels.
- Develop a final future Supply Chain network based on a comparison of the different optimization scenarios for various locations, and a critical assessment of the current state versus the desired future state.
Preparing for the future
Just as within the B2C realm, B2B companies have relationships with customers, and those customers are becoming accustomed to certain levels of service. Customer centricity is revolutionizing B2B industries, and companies need to act.
B2B industries may have been slower than some others to adapt to this changing landscape, but as awareness spreads that improvements in service levels are possible with limited costs, the transformation will be widely embraced.
A fully digital approach, if adopted fast, gives companies a competitive advantage for the next 2-3 years before competition catches up. This could become a key differentiator in the market. By driving Supply Chain optimization, digital knowledge will allow companies to do a lot more, and for a lot less.
Want to know more?
Please contact Ramanathan Venkataraman, Jan-Pieter van der Maat or Liudmila Cherenkova if you want to know how KPMG can support your company. Our team has extensive experience in using new digital tools in the Supply Chain, kindly refer to one of our recent cases.
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