In the short term, historic order patterns will not be sufficient to run the supply chain.
These are the words of Lora Cerere, Founder of Supply Chain Insights, in a recent article published in Forbe’s magazine.
Unfortunately, Lora has contracted the Covid-19 virus and we wish her well.
In that article Lora points out that the recent supply problems experienced across world result more from the way that reorder signals are set than supply constraints. In addition, the impending recession and potential high unemployment mean that the recovery will not be ‘business as usual’.
In Lora’s words, the answer is modelling.
Supply Chain Simulation Can Help Identify the Optimal Model
We agree that the resuscitation of our global supply chain will most certainly be a daunting task and that an effective recovery will potentially require companies to redesign their network. This can involve significant operational risk.
The key to minimizing this risk is to utilize “what if’ capabilities and perform supply chain simulation to understand impacts.
Let’s dig a little deeper into the two examples provided by Lora.
- Toilet Paper: in this example, the supply chain is stressed by a sudden uptick in demand resulting in what Lora accurately refers to as The Bullwhip Effect. She states: “Under normal circumstances, the order replenishment for toilet paper is ten to twenty days. The United States retail shelves are not empty because manufacturers do not have inventory. Brand owners sit on seventeen days of inventory in their warehouses. The issue? The brand owners are just not getting the replenishment signal from retailers on a timely basis.” “When the demand for toilet paper increased in the recent days, manufacturers could not see it because they were tethered to an order not a shelf signal.”
- Luxury Goods (handbags, prom gowns and dress shoes): in this example, the supply chain is stressed by a sudden decline in demand; thus, resulting in excess stock or as Lora states: “goods that will never be sold because the order signal is out-of-step with the markets.“
“What-if” supply chain simulation capabilities enable businesses to model and understand the impact of dramatic changes in their supply chain such as the toilet paper and luxury goods examples, as well as many other scenarios.
“What-if” functionality allows companies to adjust key supply chain input parameters (e.g. Lead Time, Lead Time Variation, Target Service Level, Forecast Trend, Probability of Order Cancellation, Fixed Reorder Interval, Minimum Order Quantity, Order Multiple, Replenishment Method, and Management of Large and Unnatural Spikes in Demand) to run multiple simulation scenarios, thus, identifying the optimal model prior to actual adoption in their supply chain environment.
Simulation Reduces Risk
All supply chain professionals have experienced the situation where they believe changing a couple specific inventory parameters will optimize their environment, only to find out the changes did not have the impact they desired.
Or, even worse, perhaps they created the opposite effect of what was desired!
The problem in a “live” environment is that you must make changes and wait a substantial amount of time for the results, given real-world adoption time. By applying the appropriate “what-if” capabilities you can simulate those changes and understand the impact within minutes!
This enables you to work smarter, not harder, and minimize your operational risk by simulating the impact of changes to your supply-chain. This, in turn, can enable you to enhance responsiveness, clear bottlenecks, and better serve your customers.
RSI understands the stress that supply chain professionals are under right now, if you want to see how our “what-if” capability can help your organization, please reach out to us.
Alternatively, click here to see a short video on RSI’s “what if” functionality.
You might also be interested in this Spare Parts Inventory Optimization Software: Selection Guide.