The ideal image of modern production logistics is characterised by the idea of market-synchronised production: we produce what the market needs. Ideally, not in advance, but just in time. This ideal vision of market-synchronised production is hardly feasible in any company today - if it ever was.
Customers and markets are far too impatient. They demand high product availability, want short delivery times and on-time deliveries. The increasing number of variants in the product portfolios further exacerbates this problem. Usually, an only moderately increasing demand is spread over a broad product portfolio, which lowers the demand for the individual product and increases fluctuations. In practice, when trying to produce this broadly distributed and fluctuating demand in sync with the market, we regularly hit our heads against the ceiling because of lacking capacities in production, missing personnel or the suppliers' inability to deliver.
Strategy mix against impatience
In order to survive economically in such an environment, it is necessary to find the minimum between flexibility costs of the supply chain and inventory costs. Five basic strategies are available for dealing with flexibility costs and inventory costs. The right balance of these variables is an essential element of a logistical business model:
Of course, neither of these strategies comes for free. At the very least, there is a risk that we will lose customers and turnover to competitors. Unfortunately, it is rarely possible to calculate exactly how high the opportunity costs are. But anyone with a few years of practical experience knows that these costs do occur.
If customers absolutely need the products, a de facto monopolist can perhaps force them to grudgingly wait in the short term, but economics shows us that de facto monopolies do not last long. Perceived monopolies can remain effective for a longer time, as the car industry taught us over the years, but this incurs high marketing costs and customers get lost anyway because of too long delivery times.
None of the five basic strategies represents a real silver bullet. It is the right compromise between these strategies that is decisive for the success of supply chain management.
By means of simulation, the solution is not witchcraft
The dynamic value streams of modern supply chains make it practically impossible to find the right strategy mix using simple static considerations, such as a classic value stream analysis. Neither is it sufficient to focus on representative items, nor are average values sufficient for a differentiated analysis of the situation.
However, finding the right compromises to work as economically as possible is not witchcraft. By applying a dynamic simulation based on empirical data, it is possible to develop a coordinated strategy mix. For this purpose, extensive data from the ERP system is transferred to a digital twin and thus the value streams are mapped together with the planning and control model. Such a digital twin not only allows a stress test of the existing logistical business model. It also makes it possible to further optimise the logistics strategy and arrive at the appropriate strategy mix.
