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Using Supply Chain Optimization for More than Just Optimization

By Vicky Foreman  November 18, 2015

This week I published a piece in Impact Magazine, an operations research publication about supply chain design with LLamasoft. The piece covered many things including some history of LLamasoft, how design can positively impact business as well as some unexpected use cases for optimization and simulation technology. I recommend checking out the piece in its entirety (here, starting on page 34), but here are a few highlights.

Identifying Other Challenges with Optimization

Supply chain optimization software is typically used to overcome a vast array of business challenges, but the most common goal is to design the most optimal network to uncover improvements in cost, service, risk and sustainability.  However, sometimes the technology is used in a different way to tackle different challenges. For example, LLamasoft is proud to work with the supply chains of a variety of global health organizations to deliver medicine and supplies to at-risks populations in remote areas of the world. In some of these cases, before an optimal network can be determined via network optimization, other inefficiencies need to be addressed. In one project, with a goal of delivering medical supplies in a number of clinics in a West African nation, LLamasoft worked with the local Ministry of Health (MOH) to identify roadblocks to meeting goals, then determining the best means to meet service levels. Before service levels could be met and the optimal network design, the MOH had to determine whether to have a centralized or decentralized network, and if decentralized, what hub locations would be best to meet service levels. By first addressing those challenges, the team was then able to focus on a more traditional network optimization project and determine the optimal network design to reach all goals.

Is Optimization Enough?

There is no such thing as the perfect supply chain, but optimization technology helps organizations get pretty close. Optimization provides the most mathematically optimal solution, based on a number of complex algorithms, but sometimes that can miss the fluctuations are day-to-day operations.

LLamasoft encourages our customers to utilize not just optimization, but also simulation technology to build a bridge between what is mathematically optimal and how your supply chain operates in the real world. While simulation is still just that, a simulation, it does allow for much greater granularity and detailed results, versus the aggregate data and outputs offered through optimization.

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Coupling Simulation with Optimization for More Impactful Results

We find that the customers that have the most impactful and long-term sustained success use optimization and simulation in-tandem. First organizations use optimization to determine their baseline model or the current-state of their network, then run a variety of what-if scenarios to simulate the impact on their real-world supply chain. This is often an iterative process, with optimization and simulation run many times throughout a project to allow modelers to make adjustments along the way to render the most positive results. Simulation technology can be a strategic differentiator for a company, providing the insight to avoid unnecessary risk and plan for variability. However, simulation can also be used on an operational level to test the impacts of daily processes, like changing inventory levels, transportation frequency and more.

Check out the full piece to read additional case studies and see what I believe the future holds for supply chain technology.