Why supply chain optimization is the next big thing

<!– Supply chain optimization –>Here’s a prediction some may find surprising: The era of significant supply chain improvements from ERP systems is coming to an end.

Which brings me to the theme of next week’s Gartner supply chain executive conference in London, Re-imagine supply chain: Fast, forward, focus.

If ERP systems of record are no longer a competitive differentiator, what will it take to re-imagine your supply chain and achieve market dominance?

I believe we’re entering an exciting new era in supply chain planning – one marked by a growing reliance on advanced decision support and supply chain optimization.

Limitations of the old era

ERP systems are great at analyzing what went wrong or right in the past. They were never designed to help you make the best decisions about the future.

Forecasting, too, has its limitations. Extrapolating what happened in the market in the past isn’t necessarily going to help you navigate the almost infinite number of ways you can shape the future.

An example may help. A small logistics provider with six trucks and 43 delivery locations has 10 to the power of 50 ways to make those deliveries. 10 to the power of 50 is a lot of options. It’s about the total number of atoms on this planet.

Of course logistics companies don’t have just six trucks. They often have at least 100. With a 100 trucks and 1000 delivery locations, the number of ways to make deliveries explodes to 10 to the power of 2500. There’s simply no way of grasping the immensity of that number.

A new era of supply chain optimization

Which of those gazillion options would be best for that logistics provider? Which would enable the business to achieve the right balance among competing KPIs? Answers to critical questions like these go straight to your bottom line. Unfortunately, they’re also the kind of questions that forecasting tools and ERP systems fail to address.

Many companies are still making supply chain decisions that seem satisfactory (based on rules of thumb or a planner’s experience), but that are, in fact, far from optimal. With 10 to the power of 2500 possibilities, the likelihood of planners uncovering optimized routes that achieve significant improvements in efficiency and delivery performance is less than slim.

The solution lies with supply chain planning and optimization (SCP&O), a mature technology that’s already adding significant sums to the bottom lines of leading companies worldwide.

How significant? Our approach to SCP&O typically produces improvements of between 5% and 20% in planning challenges ranging from  manufacturing and logistics, to workforce planning.

The reason for that 20% ceiling is obvious once you think about it. A plan that’s more than 20% worse than what our optimizers achieve tends to be noticeably bad and gets revised by planners. Anything less than that, and human planners are often incapable of spotting the difference between plans that save millions and those that leave millions on the table.

Those hidden millions point to a missing piece in the profit economy – and your ability to optimize profitability. They are also the subject of my presentation at the Gartner supply chain executive conference in London where DELMIA Quintiq is a premier sponsor.

Join me at Gartner and discover how to reimagine your supply chain and take control of the future. See you soon!

 The Missing Piece of the Profit Economy (is not ERP) by Arjen Heeres: 23 September 2013, 3:45 – 4:15 p.m.

 Premier sponsor panel with Arjen Heeres and Ismo Platan, Corporate Senior VP and CIO of Ruukki: 23 September 2013, 9:15 – 9:45 a.m.