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S&OP is a critical business process for transforming strategy into execution and driving supply chain performance. Even though technology has advanced, many companies are still stuck using old-fashioned and inefficient methods, And there are some big misconceptions that are getting in the way. They exist because businesses don’t fully understand what S&OP is really about. It is time to debunk the myths.

What is S&OP?

Let’s begin by discussing what S&OP – Sales and Operations Planning – actually entails. S&OP is a forward-looking planning process, superior to the operational process and subordinate to the strategic process, bridging the gap between the two. It serves as a mechanism for aligning a company’s strategic objectives with its operational activities.

S&OP is used to continuously identify disparities between a company’s desired goals and its current trajectory, and find strategies for closing these gaps. This can include a range of actions, such as intensifying sales efforts within specific markets or product segments, increasing manufacturing capacity to meet projected demands, or reallocating resources to areas where they are more effectively used. In essence, S&OP is a structured approach to navigate a company toward its desired future state.

5 myths about S&OP – let’s debunk them

Now, let’s clear up some common myths and get to the bottom of the real value of S&OP.

Myth 1: S&OP is not a relevant operational process today

The concept of S&OP originated in the 1950s, evolving from a production-centric approach to enhance efficiency. It was never designed to be a process for gaining detailed knowledge of every aspect of a company’s operation. Instead of striving for operational precision, S&OP is a tool for planning and fostering flexibility. Today, the fundamental need for tactical planning persists.

Many of today’s companies find themselves caught in the “too late corner.” They primarily focus on assessing their order backlog for the next couple of months, and as a result, they struggle to maintain control and end up spending their time putting out fires.

To overcome this, it is not viable to merely focus on the short term and hope for the best. Looking further into the future and making the most of the information you can capture is essential. Companies must adopt a broader perspective and examine the dynamics of supply and demand across extended time horizons. This entails not only periodic assessments but also frequent monitoring to identify fluctuations and their recurring patterns. A key objective is to understand the flexibility required and how quickly you should adjust your capacity.

Myth 2: It is not worth it, as we cannot predict the future anyway

S&OP is not about predicting the future – it is about planning for the future. Sure, you can use it to analyze historical sales data and create forecasts to align supply with demand. But to unlock the true potential of S&OP, it should be used to understand where your business is today and where you want to be in the future. What is your current trajectory, and what is your desired destination?

This approach places you in control rather than at the mercy of the process. It allows you to gently steer your business in the intended direction. You can accelerate, decelerate, and manage marketing and capacity efforts accordingly.

Used correctly, S&OP is a multifaceted decision-making and gap-bridging process designed to guide your company toward its strategic objectives. It is not about predicting the future – it is about understanding the evolving reality that lies ahead.

Myth 3: S&OP is yet another time-consuming planning process

If this sounds familiar, it might be time to ask yourself this question: How much of your time do you spend on firefighting? The answer might reveal a significant gap in your organizational structure – an absence of a well-defined S&OP process.

As the old saying goes, “If you don’t plan, you plan to fail.” This is especially true when it comes to S&OP. While it isn’t a magic bullet that guarantees flawless outcomes, it serves as a cornerstone for informed decision-making and facilitates a culture of collaboration.

Imagine sending eleven soccer players onto the field without briefing them on their roles, the game strategy, or whether they should play defensively or offensively. Chaos would occur, and the chances of succeeding would be fairly small.

In the world of S&OP, the scenario is strikingly similar. Planning not only saves you from the chaos of reacting to problems as they arise. It also grants you a more transparent path toward achieving your objectives. S&OP, when executed right, is not just another planning procedure, but a value-adding mechanism.

Myth 4: S&OP is solely a supply chain issue

This myth is rooted in a silo mentality where each department operates in isolation, failing to communicate or collaborate effectively. This is often driven by performance metrics solely tied to individual functions. A “you handle yours, and I’ll handle mine” attitude dominates the workplace, and the overall success of the company – which should be the primary objective – becomes overshadowed.

In contrast, S&OP is the opposite of this approach. It shifts the individual focus towards an integrated plan and places the organization within an ecosystem where all departments work together towards a common goal, collectively contributing to the company’s success. The breakdown of traditional silos and adoption of a broader perspective fosters collaboration. Succeeding in S&OP is very much connected to acknowledging interdependence and prioritizing collective performance.

In summary, S&OP is not just a supply chain concern. It is a collaborative effort that involves the entire organization, including sales, operations, product development, finance, sourcing, procurement, and marketing.

Myth 5: A fancy S&OP tool is overkill when we have spreadsheets

Even though technology has advanced, many companies still rely on spreadsheet programs such as Excel or rule-based processes in ERP systems to manage their S&OP. So, isn’t using spreadsheets good enough? Well, it depends on the purpose.

Excel is a great tool for creating prototypes to test ideas in the context of S&OP. However, it is primarily designed for data input and manipulation rather than supply chain planning. As it relies on manual data entry, it has significant limitations in supporting comprehensive planning requirements, making it prone to errors.

The problem usually arises as organizations grow in their product portfolio, markets, or volumes. The more data they put into the system, the more complex it gets. This often leads to shortcuts and inaccuracies, making it inefficient and difficult to manage. Consequently, businesses may experience higher costs and operational inefficiencies.

Relying on spreadsheets for supply chain optimization and critical business decisions simply isn’t sustainable. Companies need to realize that spreadsheets must be replaced with more robust solutions for S&OP that support their future business requirements.

Do you want to improve your S&OP process?

Don’t settle for outdated S&OP methods. It is time to say goodbye to manual and tedious Excel corrections and welcome a highly flexible and easy-to-use solution.

With a track record of over 1,000 successfully completed projects and a 30-year integration heritage, Optilon is a trusted supply chain optimization partner.

Our flexible system for S&OP can be tailored to align with your specific processes while remaining adaptable to your evolving business needs. It is easy to implement and offers effortless integration with other systems to streamline your operations seamlessly. Explore our S&OP offer here!

The past eventful years have had a profound impact on global supply chains. It has exposed vulnerabilities in the system and highlighted the need for resiliency. In this context, supply chain design has become increasingly critical. For many businesses, it may seem like a massive challenge lies ahead. But the reality is the time to embrace supply chain is now. Companies that see and make good use of the opportunities presented in this new supply chain era we are entering can achieve significant competitive advantages now and in the future.

Macroeconomic effects on the global supply chain

A lot has happened in the world lately. We are now living with the legacy of a transformation that has taken place in the past few years. It started with the coronavirus outbreak leading to shutdowns of factories as well as ports worldwide. This had a massive impact on global supply chains and challenged many businesses worldwide. Then, as we all hoped the pandemic would be the worst hit of the decade, the invasion of Ukraine happened. Sanctions against Russia, increased inflation rate, and higher global commodity prices, among other consequences, caused further disruptions in global supply chains.

We now find ourselves in a macroeconomic situation where geopolitical events and new economic conditions are forcing companies to really think about their supply chains: How resilient are they? And what is the best strategy to stay competitive in the global market?

The focus has shifted

Five years ago, few raised an eyebrow when businesses decided to source energy from countries such as Russia or move production to low-cost countries such as China. But now, due to the current state of the world and increased vulnerability, priorities have changed. The focus has shifted from keeping costs down to minimizing risk exposure, shortening lead times, improving service levels, and ensuring supply chain sustainability.

Businesses are no longer willing to take the risks involved in long-distance sourcing, and they are becoming more selective in which countries they choose to do business with. At the same time, supply chain sustainability has emerged as a key corporate goal. Due to stricter laws and regulations but also increased consumer demands, businesses must now navigate a new regulatory landscape and manage both supply chain risks and opportunities related to environmental, social, and governance criteria.

Are local supply chains the answer to vulnerability?

As a response, many companies are considering shifting from a global to a regional supply chain setup. While this has quickly become somewhat of a global megatrend, it is, however, important not to jump on the bandwagon just for the sake of it.

Here is an example: A global medtech company provides the European market with hearing aids. They produce their products in China to keep costs down. But now they decide to move their production closer to their customers in Europe. By moving the production to Europe, they hope to reduce vulnerability in the supply chain. However, in Europe, there are no suppliers that can provide the medtech Company with the material they need to produce their hearing devices. The medtech company ends up having to still source the material from suppliers in China. Although production is now closer to their European customers, the problem remains.

Add to the equation the complexity of a much broader product portfolio with multiple suppliers, production sites, distribution points, logistics partners, network nodes, customer segments, and markets – and you can imagine the challenge.

How to design an optimal supply chain

Shifting from a global to a local supply chain setup is not a universal solution that fits all. In fact, there is no “one size fits all” solution for optimal supply chain design. Each company needs to thoroughly analyze their current supply chain setup to design the best solution for their business. The first question to ask is: What is the most important for my business? Is it reducing cost, minimizing risk exposure, shortening lead times, improving service levels, or ensuring a sustainable supply chain?

The answer will be different for every company. Here are a few examples:

For a company that produces standard products, keeping costs down is probably central as their customers are only willing to pay so much. A company that sells spare parts probably prioritizes fast delivery times over cost as their customers will immediately turn to competitors if they have to wait for the products – and they are probably prepared to pay extra for that. A retail company with high requirements for recycling materials and lowering CO2 emissions probably has sustainability on top of its agenda – and so on.

Most companies are likely to seek a balance between all the dimensions – cost, risk, lead time, service level, and sustainability to make trade-offs between risks and gains and conclude when to use which supply chain strategy or setup.

In addition, today’s debate is very much centered around supply chain from a supply perspective. But equally important is the customer perspective. Businesses need to think not only about what provides orders but also what provides customers: What requirements do customers have in terms of cost, time, service, and sustainability? And what are the consequences of these requirements on the supply chain?

The new supply chain era brings possibilities

For many businesses, it may seem like a massive challenge lies ahead. But the reality is the time to embrace supply chain is now. Supply chain has gone from being a decentralized issue to becoming a CEO issue and a boardroom-level topic. In fact, the willingness to invest in supply chain has never been stronger. Now, post-pandemic, we are entering an era full of opportunities – and now is the time to make good use of them.

Do you want your supply chain to be a growth driver and engine for your business? Don’t just go with the flow and follow the next big trend. Ensure you put time and effort into analyzing your current setup in order to create a more agile, customer-focused, and resilient supply chain.

Do you need help from an expert?

Are you considering redesigning your supply chain to stay competitive in the global market? Perhaps, you are unsure what setup is the best for your company or what options or possibilities there are? At Optilon, we are experts in efficient supply chain decision-making. We help businesses build, strengthen, and optimize supply chain design through well-proven processes and technology. We can help you create a future-state roadmap with scenario comparisons and analyses, articulate supply chain complexity and relevant actions, evaluate the consequences and risks, and make decision recommendations. Sounds interesting?

Let Optilon unlock the potential of your supply chain. Book a meeting today!

Explore our Supply Chain Design offer here!

ABC inventory classification has been around for so long that most planners just assume it is the only way to segment inventory. Spoiler alert: it is not. And it is far from the best way. This method hails from the 1960s, a time when computers were room-sized giants. Today’s tech can do so much more. Let us dive into how inventory management has evolved into multi-echelon inventory optimization (MEIO), helping companies minimize inventory investment while hitting service-level targets and improving profitability.

How does ABC classification work? (And what is wrong with it?)

To understand why ABC inventory classification falls short, let us unpack how it works. Traditional inventory management applications calculate safety stock for each individual Item-Location (warehouse) combination in isolation. For such an application to work, the planner needs to assign a service level target (%) for every combination.

With companies often managing tens or hundreds of thousands, or even millions, of Item-Location combinations, it is impractical to set service levels individually. A simplification is necessary, and ABC classification is one way of doing it.

A common approach is to use a 3×3 matrix with volume value on the Y-axis and order lines on the X-axis, creating a “double” ABC classification. Typically, 80% of the volume value is assigned to A items, 15% to B items, and 5% to C items. The same 80/15/5 breakdown applies to the number of order lines. A few high-volume value items usually hit the 80% threshold of the AA category quickly, leaving most items in the CC category.

Example of ABC classification.

Service levels are then assigned to each ABC class through a “trial-and-error” process. The AA class typically gets the highest service level targets, and the CC class gets the lowest.

If the aggregated service level doesn’t meet the company’s overall target, say, 95.o%, adjustments are made to the service level targets per class. Once the settings are in line with, or slightly above, the company´s overall target, 95.5% in this example, the process stops.

Now every item in each ABC class shares the same service level target. For example, if there are 10,000 stocked items in a location, all 5,400 items (54% from the ABC classification example above) in the CC class will have the same target. Safety stock levels can then be calculated.

The drawbacks of ABC classification

Now, let us pause and think for a moment.

The stock investment depends on the service levels set for each ABC class. Could other service level combinations achieve the same 95.5% result? Absolutely. There are countless combinations that could give the same 95.5% overall service level, all with different stock investments.

So, how do we know if our chosen assignment of service level per ABC class is optimal? We don’t. That’s why we call it inventory management – not inventory optimization.

The example above describes one level, but supply chains are often more complex, with multiple levels/tiers (central, regional, and local warehouses). Some traditional inventory management software uses an 8×8 ABC matrix for each location. With many locations, setting up and maintaining this system can become a very labor-intensive task. And we still can’t be sure if we have the optimal set-up.

Why inventory optimization beats traditional inventory management

So, is there a better way to segment items, assign service level targets, and optimize safety stock levels today? Yes, there is.

While traditional ABC classification focuses on operational logistics, often ignoring sales, marketing, and customer needs, inventory optimization looks at the product range and the business.

This modern approach uses “Service Classes,“ for example, “Accessories”, “High-margin products”, “own-brands”, and “Critical spare parts”. This categorization is more relevant to sales and marketing, who might not even understand ABC classification.

Stock-to-service for better inventory management

In inventory optimization, you set service level targets per service class, not ABC class. The software optimizes each Item-Location’s service level and safety stock level using a “stock-to-service” curve. This ensures that you meet the aggregated service class target but with minimal stock investment. Let´s think about this. Using the ABC approach, all items in a class are assigned the same service level as an input. In inventory optimization, the software optimizes the individual Item-Location service level, this is an output,

Schematic Stock-to-Service curve (Efficient frontier).

This automated differentiation of service levels (known as mix optimization) within each service class, considering lower bounds, is an outstanding way to reduce stock investment and increase service level at the same time. For example, “Accessories” might have an overall target of 93%, with a lower bound of 90%. The software then assigns service levels between 90% and 99.99% in such a way that the service class still reaches 93% as a group but with minimum stock investment, i.e. optimization. Similarly, “Critical spare parts” may target 99.5%, with a lower bound of 99.0%, still giving the system some level of freedom in the mix optimization step.

The result? Each item in each location is optimized individually but in relation to all other items in the same service class and in relation to upstream and downstream locations (known as Multi-Echelon Inventory Optimization, MEIO). Actually, they compete about the stock investment among each other you could say. In inventory management, items are treated as isolated entities. Inventory optimization software models tens of variables such as demand variability, standard cost, order quantity, lead time, lead time variability and more – unmanageable with the traditional approach.

Modern inventory optimization automates the planning of complex supply chains with hundreds of thousands of Item-Location combinations, guaranteeing service levels with minimum stock investment. This is all done with a very limited number of planners.

Ready to upgrade your inventory management?

Are you still relying on old inventory management methods? Transform your inventory strategy today with cutting-edge inventory optimization tools. Say goodbye to outdated ABC classification and hello to smart, efficient, and cost-effective inventory optimization.

Get started with inventory optimization today!

In today’s fast-paced business landscape, optimization is key, especially in supply chain. With the right system in place, companies can boost efficiency and ultimately drive greater success. Yet, rolling out a new supply chain planning system is a complex task – and pushing that button can feel quite daunting. To pave the way for success, here are 7 tips to help you go live with your new supply chain planning system.

The need for an advanced supply chain planning system

There are many reasons for implementing a new advanced supply chain planning system. While some companies want to reduce tied-up capital and improve agility, others want to optimize inventory levels and refine forecasting processes.

In an increasingly turbulent world, businesses are also looking to invest in more robust systems to mitigate risks and increase operational resilience. They want a flexible solution that can navigate the rapid changes of the global landscape and offer security.

There is also a growing demand for automation among businesses that rely on manual data entry and individual expertise. These businesses want to move away from a high-risk, people-dependent set-up to a more process-driven approach that enables growth and scalability without personnel dependency.

Are you one of those companies, eager to adopt a future-ready solution, yet cautious about ensuring a flawless launch on the scheduled date?

How to successfully go live with your new supply chain system

To pave the way for success, here are 7 tips to help you go live with your new supply chain planning system.

1. Define clear and measurable goals

When implementing a new supply chain planning system, it is crucial to establish goals that clearly articulate what you aim to achieve with it. These goals should be specific, quantifiable, and measurable so that you can track progress over time. They should address specific pain points or areas of improvement within the supply chain that are aligned with your organization’s strategic priorities. Setting clear goals also makes it easier to communicate the purpose and expected outcomes to your organization. Also establish a timeline to create a sense of urgency and accountability. This will help you focus efforts and ensure timely progress towards implementation milestones.

2. Get involved and take ownership already in the design phase

The design phase of a new supply chain planning system lays the foundation for its success in many ways. It is during this stage that key decisions are made regarding system architecture, functionality, and user experience. While it may seem tempting to leave the design solely in the hands of experts, getting involved early on is important for understanding how the new system works, ensuring it meets your organization’s needs, and taking part in the decision-making process. Even though you may have experts handling the technical aspects of the system design, it is essential for you to take ownership of the process. By doing so, you not only increase the likelihood of successful implementation but also foster a sense of buy-in among the users in your organization.

3. Make sure to get everyone on board – especially the sceptics

In the journey of implementing a new supply chain planning system, effective change management is essential for success. The impact of this transformation usually extends beyond the project team, often including finance, sales, sourcing, and procurement, either directly or indirectly. Identifying key people and engaging them is critical for project success, especially in addressing sceptics and dissenters. Winning over these hesitant voices can serve as a catalyst for internal project advocacy. Once convinced, you will often find that these people evolve into project ambassadors, championing its cause.

4. Devote enough time to thorough testing and validation

Ensure you allocate enough time for testing and validating your new supply chain planning system. This process will help identify and address potential issues before going live, facilitating a smoother transition. Address all potential challenges and uncertainties right from the start. Run both systems – your existing and the new one – simultaneously to carefully examine any differences. Compare and analyze the results to uncover underlying reasons for discrepancies and use feedback from pilot testing to make necessary adjustments and improvements. This proactive approach will establish a robust foundation and mitigate risks as you proceed with the implementation.

5. Don’t aim for perfection – stick to the 80/20 rule

While striving for excellence is important, it is essential to acknowledge that achieving absolute perfection is unrealistic. Understand that there will always be corner cases, exceptions, and unforeseen challenges. Embrace this reality and adopt the 80/20 rule: focus on addressing the most critical aspects that will have the greatest impact. Be prepared to address issues as they arise, using a proactive approach to correct any discrepancies. It is crucial to prioritize the optimization of systems for the majority rather than clinging to outdated ones. The effectiveness of any system should be measured by its ability to improve overall functionality for the majority. Striving for adequacy ensures steady progress while maintaining flexibility to address emerging challenges.

6. Time to push that button and go live with your new system

It is easy to fall into the safety net trap. However, after thorough testing and validation, it is crucial to recognize the pivotal moment: the decision to transition to the new supply chain planning system. Summon the courage to push that button and go live! While it may seem daunting, remember that after investing considerable time, money, and resources, proceeding otherwise would be a financial misstep. By initially keeping the old system in parallel, you will have a contingency plan, in case of any unforeseen issues.

7. Start with the most receptive market and let them lead by example

When rolling out a new supply chain planning system across multiple countries, begin with the market most receptive to change. By allowing them to lead by example and create an early success story, you instill motivation and interest in other markets to transition to the new system. Start the deployment there and then gradually expand to the other markets. This is an effective strategy for promoting the new system internally across your global organization. This approach also acknowledges and empowers the individuals involved in adopting the new system, highlighting their achievements.

Here to support you throughout your supply chain journey

Are you ready to adopt a future-ready supply chain planning system and eager to ensure a flawless launch on your planned schedule? With a track record of over 1,000 successfully completed projects and a 30-year integration heritage, Optilon is a trusted partner in supply chain optimization. From technology selection to seamless implementation, integration, and ongoing support and insights, we are committed to accompanying you every step of the way on your supply chain journey.

Book a meeting today with one of Optilon’s supply chain experts.

A lot is happening in the world right now. Understanding these changes, how they affect our businesses, and the critical role the supply chain plays, is necessary to navigate the future and maintain competitiveness in the market. This article outlines 5 supply chain trends in 2024 by supply chain experts Anders Remnebäck and Fredrik Jersby that you shouldn’t ignore.

1. Robotics and autonomous vehicles will revolutionize last-mile delivery

There is a huge wave of technological progress underway, leading to advancements and breakthroughs. Robotics and autonomous vehicles are at the forefront of this transformation, although it has taken longer and proven to be far more challenging than anticipated.

The ultimate challenge lies in achieving fully autonomous vehicles capable of navigating entirely new urban environments without prior training or constraints in that particular area. This involves more than simply getting from point A to point B; it is about mastering complex real-world scenarios.

Similarly, integrating robotics into human environments presents its own set of challenges. But if we can create bots with human-like abilities, from ordinary tasks to understanding nuanced contexts, and combine this with fully autonomous vehicles, last-mile deliveries will be revolutionized.

Having a vehicle that efficiently travels from point A to point B is one thing. Still, the last 20 meters present a unique challenge: delivering the package, navigating to the building, ringing the doorbell, or leaving the package securely. Without solving this final leg, the efficiency of reaching point B is diminished.

It is evident that we are steadily progressing in this direction, leveraging technologies like reinforced learning, and neural networks. Once all the necessary components align, the impact on the entire supply chain will be profound.

As one of the founders of Skype pointed out, this could even make delivering something as small as a single toothbrush profitable. The question is: How long will it take to fully realize this vision?

2. AI and automated decisions will replace humans

In the past year, there has been explosive growth in reinforced learning and neural networks, opening new possibilities for supply chain planning. We foresee that this advancement will pave the way for digital supply chain planners and autonomous supply chains capable of making decisions based on sophisticated models.

We are moving towards a future where human involvement in decision-making becomes less prominent, mirroring previous transitions in technology adoption. Historically, we transitioned from manual processes to automation with the introduction of industrial robots, followed by the integration of Enterprise Resource Planning (ERP) and advanced planning tools.

As more decisions become automated, this shift may lead to a reduction in the roles of middle managers. However, humans will continue to play a pivotal role, becoming more involved in dialogue and collaboration with automated systems. Human expertise will remain essential in guiding and fine-tuning these automated processes to align with strategic objectives and evolving market dynamics.

3. Electrification will impact industries unable to transition fast enough

The transition to electrification is a critical trend that calls for urgency. The scale and complexity of shifting the world from fossil fuels to renewable energy are immense but inevitable. It won’t happen overnight; rather, it will unfold gradually, with hybrid solutions emerging before complete electrification.

And there will be winners and losers. For companies reliant on fossil fuel-driven transportation, understanding and planning for this transition is paramount. However, this requires a certain scale and capability. Companies with legacy investments in outdated technologies will struggle, while others, like Tesla, are poised to accelerate this transition through vertical integration.

In Europe, the failure of car manufacturers to adapt to electrification could have significant consequences on jobs and compliance with new regulations, such as bans on gasoline and diesel cars.

In essence, the electrification trend represents not only a technological but also a geopolitical shift with far-reaching consequences. Only companies that proactively plan and innovate will thrive in this new era of sustainable energy.

4. The transition from on-premise software to cloud will bring challenges

There has been a noticeable shift towards cloud services, with companies increasingly favoring web-based solutions over traditional on-premises setups. Initially driven by consumer-oriented needs, this trend has extended to the entire Enterprise Resource Planning (ERP).

Moving critical transactions and data to the cloud offers significant cost benefits. However, this transition may also introduce limitations on flexibility and adaptability, raising concerns about potential lock-in effects, integration costs, and data accessibility.

One pressing question is whether cloud systems will become more closed and rigid or if customers will demand greater access and interoperability. As companies navigate this transition, it is important to carefully evaluate the trade-offs and consider their long-term strategic objectives.

5. A turbulent world will demand a shift in supply chain strategy

We find ourselves in a new era marked by significant turbulence globally. From war and conflicts to climate change and new legislation. This increased unpredictability has underscored the importance of supply chain and the ability to withstand disruptions.

As a result, the interest in scenario modeling and understanding the consequences of events is rapidly growing. More companies recognize the need to invest in people who understand supply chains and systems that can help them swiftly react to events when they happen – and more importantly – proactively anticipate and mitigate risks.

To reduce risk exposure, many are moving towards more regional and local supply chains. This shift represents a departure from the previous focus solely on cost optimization. While centralizing operations can offer cost savings, there are risks associated with a single point of failure. The expenses of redundancy are now outweighed by the potential consequences of its absence.

At the same time, new sustainability legislation is reshaping supply chains, mandating not just reporting but also restructuring supply chain operations for compliance. This means companies will want to balance sustainability with cost and risk as well as service levels to make trade-offs and conclude when to use which strategy.

To navigate these changes effectively, companies must establish robust foundations for decision-making. Planning is key, and continuously exploring alternatives and scenarios and developing action plans are crucial to meet future challenges.

Authors Fredrik Jersby and Anders Remnebäck have deep knowledge and vast experience in the supply chain field.

Do you need the help of a supply chain expert?

Understanding the ramifications of these changes and trends is paramount. Remaining stagnant is not an option; instead, embracing a forward-leaning approach is essential for adaptation and success. The goal is to create supply chains that are resilient, adaptable, and sustainable, capable of weathering the storms of an increasingly turbulent world.

At Optilon, we are experts in efficient supply chain decision-making. Our solutions help businesses design and optimize their supply chains through well-proven processes and technology. We can help you create a future-state roadmap with scenario comparisons and analyses. We can assist in articulating supply chain complexity and relevant actions, evaluate the consequences and risks, and make decision recommendations. Sounds interesting?

Book a meeting today.

The transition from a solely global to a more balanced global-local supply chain is not without challenges. However, it is a necessary evolution to navigate the multifaceted global business landscape. But how? Here are 4 step on how to balance global and local in supply chain.

How to balance global and local in supply chain

Prescriptive algorithms, like Linear and Mixed Integer Linear Programming (LP/MILP), are powerful methods commonly used for Network Optimization problems. Network Optimization can be used to mathematically solve complex supply chain problems. These problems can be related to logistics, facility location, resource allocation, inventory positioning, and the flow of goods. The goal is to minimize costs, meet service requirements, and maximize performance metrics, all while considering various conditions and assumptions.

Combined with massive scenario analysis, Network Optimization models allow you to gain insights not only into the uncertainties stemming from our unpredictable world, but also those created by the limitations in available data and its quality.

4 steps toward a balanced global and local supply chain

Here are 4 steps to achieve a more balanced supply chain using Network Optimization models.

1. Carry out scenario analysis of local versus global needs

Network Optimization models can be used to analyze how different levels of glocalization impact your supply chain. It helps you understand the effects of global versus local strategies across different regions, segments, and phases of the product life cycle. By testing different demand scenarios, the models provide insights into configurating a global-local supply chain to meet demand changes in different markets.

2. Optimize cost, service, and risk adjustments

Network Optimization models can analyze cost trade-offs between global and local strategies, such as transportation, customs, or local compliance costs. It can also assess the impact of glocalization on service levels, such as response times to market changes and customer lead time. They can also evaluate the impact of supply disruptions and assist in designing a supply chain that mitigates risks associated with geopolitical issues or other global disruptions.

3. Improve sustainability and regulatory compliance

Network Optimization models can help you analyze the carbon footprint of different supply chain configurations and design a supply chain that aligns with your company’s sustainability goals. When it comes to legal adherence, it can capture the costs and implications of regulatory compliance across different regions under various glocalization scenarios.

4. Optimize capacity planning and multiple objectives

Network Optimization models can help you optimize production and distribution capacities to meet demand in the most cost-effective manner, in alignment with the global-local configuration. It can also facilitate multi-objective optimization to achieve a balanced approach between global efficiency and local responsiveness, along with other objectives.

Do you need advice from a supply chain expert?

At Optilon, we see the Network Optimization model as a cornerstone of long-term strategic planning and an ideal tool for analyzing the impact of glocalization. We support a modern implementation that relies on thorough scenario analysis, aims for automating the analytic process, and becomes part of your ever-evolving decision-making process.

Contrary to common beliefs, we argue that the “algorithmic approach” is not about finding one perfect answer. Instead, it is about increasing organizational awareness of various possibilities. This heightened awareness will empower you to consistently make well-informed decisions, especially in the face of uncertainty.

Do you need advice on balancing global versus local in your supply chain? Book a meeting with one of our supply chain experts today.