Author: Nate De Jong, Districon Solutions, a Gurobi Alliance Partner
In the aftermath of COVID-19, supply chain disruptions have emerged as one of the most significant challenges for organizations worldwide. The call for a resilient supply chain has become paramount, yet resilience often comes with a substantial price tag. Costs can include additional safety stock, relocation of manufacturing bases, and building in redundancies, all of which can erode margins. In addition to focusing on resilience, cost efficiency remains a non-negotiable for supply chain executives.
Designing a resilient supply chain is more than just safeguarding against disruptions. It is also about balancing cost, profit, resilience, and sustainability. Simple optimization for one objective could undermine the others, leading to a poorly performing supply chain in the long term.
Supply chain optimization software, such as Gurobi, can assist in this balancing act using multi-objective optimization. This technique enables supply chain managers to assign relative weights for each sub-objective, creating a more balanced and resilient supply chain design. For example, in a commodities supply chain with a projected global surplus, one could assign 50% weight to cost, 30% to sustainability, and 20% to resiliency.
However, a challenge arises when comparing sub-objectives. When combining the three into one mathematical optimization equation, it is crucial to measure each sub-objective on a common scale. A typical approach is to quantify all factors in monetary terms. For instance, potential lost revenue from unfilled demand could quantify resilience, while carbon emissions could be valued by implementing a carbon pricing mechanism.
The recent past has taught us that even the most unlikely disruptions can occur. Questions such as “What if lead times triple?” or “What if demand decreases by 50%?” are no longer theoretical but real-world phenomena for some companies. Although predicting the next disruption is impossible, running your supply chain through a battery of stress tests can identify and mitigate vulnerabilities. Optimization techniques and analytical tools such as sensitivity analysis, scenario analysis, and discrete event simulation can provide insights into the resilience of your supply chain under a variety of conditions.
By virtually stress-testing your supply chain, you can prepare for the unpredictable and strengthen your supply chain’s resilience.
Despite the best efforts to design a resilient supply chain, eliminating all risks is impossible. However, identifying the key risks and taking action is within your grasp. For instance, consider a crucial component supplier threatened by increasing flood events. If relocating the supplier is infeasible due to high costs or a lack of alternatives, engineering solutions such as flood barriers or uninterrupted power supply systems may be needed.
Quantifying these key supply chain risks is critical. Using potential revenue impact and mitigation cost as metrics allows you to prioritize the key risks.
While the mathematical optimization field is over 70 years old, many organizations are still learning to make the most of its capabilities. That is why Gurobi established the Value Accelerator Program. We want you to be successful with optimization, so start with 12 free hours of guidance with Districon at no cost.
Districon Solutions specializes in fast, agile, custom supply chain solutions. It brings Gurobi Optimizer to life, creating logistics and supply chain solutions that address strategic and operational challenges.
Together, Districon and Gurobi enable enterprises to integrate prescriptive analytics applications into their day-to-day operations and optimize their real-time decision-making and execution. Check out the Value Accelerator Program to learn more.
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