How to optimize supply chain performance?

By Uche Okongwu

Supply chain optimization essentially involves finding a compromise between striving for customer satisfaction at the same time as profitability. By adjusting the different supply-chain planning parameters, each company can achieve the performance level in line with its strategy and objectives.

The concept of the supply chain is as old as economics: from the supply of materials to production and delivery, the successive players involved in any given market represent the links in a chain, acting as customers and suppliers to each other respectively. However, increased competition and globalization have made companies realize that all the different players in their supply chain share a common goal, namely customer satisfaction. Consequently, how the supply chain is organized and how it performs are of crucial strategic importance for companies, and increasingly so. In this regard, the example of the aerospace industry is regularly covered in business news and highlights this strategic role perfectly; indeed, the industry has had to increase production rates to meet the growing demand and this has created tension throughout the chain. However, this problem actually concerns all sectors of the economy, whether in industry or in services. Over the last twenty years, researchers and managers have been looking at ways of optimizing supply-chain management to improve companies’ performances, based on the ideas of collaboration, integration and information sharing.

The difficulty in resolving this issue lies in the complexity of the supply chain itself; in addition to the number of links in the chain, we need to take into account the number of performance indicators and particularly the number of parameters that a company can adjust in order to meet its performance targets, which is infinite. Until now, the research had focused on one parameter or another, sometimes combining them, but in a limited way. For the first time, our study aims to go further by combining several parameters positioned at different stages and functions in the chain (planning, procurement, production, delivery), in order to establish which combination of key factors produces the best performance.

Performance: always a question of compromise

The first issue that needs to be addressed concerns the supply-chain performance, indicators. Many indicators are used, some of which are contradictory, since certain indicators are linked to profitability and others to customer satisfaction. For our study, we selected three: profit margin, on-time delivery and delivering the quantities requested. Ideally, an optimized supply chain should make it possible to achieve maximum scores on all these parameters, but in reality, no company can claim to be the best in every area. As such, you have to reach a compromise at some point, according to your market and objectives, by accepting to “sacrifice” part of your performance on a given indicator. With this in mind, the idea of optimum supply-chain performance depends on the objectives the company sets in terms of profitability and customer satisfaction, but also in relation to its position in the market. Consequently, the main challenge in supply chain planning is finding this compromise.

The case on which we worked was inspired by a real situation. It concerns a supply chain in the field of furniture, for the production of tables and shelves. Out of the 12 general supply-chain planning parameters we identified, we decided to alter six and to observe the result of the simulation on our performance criteria: the planning time-frame(short or long), the production capacity in terms of human resources (constant or adapted to the demand), the production sequencing (priority given to the oldest or the most recent orders), the duration of the cycle, the reliability of the forecasts and the availability or otherwise of stocks.

In the case of this supply chain, the production capacity appears to have a strong impact on margins and the ability to meet demand, whereas sequencing has a greater impact on the promptness of deliveries and the extent to which the response meets the demand.

Addressing the company’s priorities

These results confirm the initial hypothesis, namely that different combinations of planning parameters will have different impacts on the performance indicators. The different planning parameters cannot be considered independently of the performance criteria, hence the need to make choices. The ideal combination of parameters depends on the performance sought by the company.
Using the model developed in this study, managers responsible for supply-chain planning have a theoretical and practical tool to help them in their decision-making, allowing them to determine the best combination based on the company’s priorities. The framework and methodology developed, as well as the results obtained, are a genuine breakthrough in terms of research. To take things further, it would be interesting to combine even more parameters – as long as the computer-simulation tools available make this possible -, and to test the model on different supply chain structures and in other market environments.

Methodology

To conduct this study, Uche Okongwu (TBS), Matthieu Lauras (TBS, Ecole des Mines Albi), Julien François and Jean-Christophe Deschamps (Bordeaux University) reviewed the available literature on the topic of supply-chain performance. Based on the following research question: “What combination of key factors in supply chain planning make it possible to optimize the performance of the supply chain?”, the authors developed equation models that they tested on a real supply-chain case in the furniture industry. The study was published in January 2016 in the Journal of Manufacturing Systems, in an article entitled: “Impact of the integration of tactical supply chain planning determinants on performance”.

Uche Okongwu has been a Lecturer in Operations Management and Supply Chain Management at Toulouse Business School since 1991. He has combined his career as a researcher with that of an engineer and consultant in industrial organization. In 1990, he obtained a doctorate in Industrial Engineering at the Institut National Polytechnique de Lorraine (Nancy, France). He is currently Director of Educational Development and Innovation at TBS, having already set up the School’s industrial organization division.