Optimization projects in logistics and supply chain management

Open-heart surgery – Why many optimization projects in logistics and supply chain management fail and how to do it right.

We are living in exciting times with massive challenges in our supply chains. Uncertain procurement sources and channels, uncertain demand, shifting procurement and sales markets, rising manufacturing and transportation costs, challenging CO2 reduction targets, personnel, material and capacity bottlenecks, extended delivery times; the list goes on and on.

All of these challenges are putting massive pressure on the productivity of our value chains and supply chains. We urgently need to work on increasing productivity in order to keep up with international competition.

No wonder many companies are planning projects to optimize their value and supply chains. As early as May 2019, the 10th Hermes Supply Chain Barometer showed that 78% of German companies are systematically working on optimizing their supply chain. However, it became clear that 23% of optimization projects in logistics and supply chain management in companies with more than 250 employees were abandoned due to a lack of success. In the meantime, the need for action has increased further, as has the scale of the challenges. This means that even more companies are likely to be working on supply chain optimization and an even greater percentage of projects are likely to fail.

In his study, Hermes points to three main causes of failure:

  • Communication difficulties
  • Lack of resources for the project and lack of know-how
  • Underestimation of the time and cost required to implement the solutions

Comparison between the reasons managers give and the underlying causes

The reasons given are in line with the statements we hear in discussions with managing directors, operations and supply chain managers. However, in most cases the reasons given are only the symptoms of underlying causes:

Objective figures avoid communication difficulties

Different departments, company locations or companies quickly come to different conclusions, even if the common goal is clear. Here it helps to objectify the discussion by evaluating the targeted optimization measures with objective figures.

Workshop-based project work can effectively compensate for a lack of project resources and know-how

In our complex world, a lack of know-how is nothing to be ashamed of. This is where external consultants like us can provide support. This also applies to resources, but here external parties are very expensive. In addition, an internal project team is still necessary, as external parties should not and may not decide and implement everything on their own.

With the right project methodology, however, a team of consultants and internal employees can carry out an optimization project in such a way that it can largely be managed by the internal team alongside day-to-day business without increasing external costs. To achieve this, the project must be carried out on a workshop basis: The tasks between consultants and company employees must be distributed in such a way that options for action are discussed and reviewed in the workshops, which the consultants then work out and quantify by the next workshop.

Simulation in the digital twin massively reduces the time and costs involved in implementing the solutions

In many optimization projects in logistics and supply chain management, value streams must be considered and changes made to the value stream model, planning and control mechanisms, warehouse levels, inventory distribution and much more. With a traditional project approach, this is laborious, time-consuming and costly. This starts with the collection of data. If you want to compare alternative solutions and attempt to do so using static calculations that do not take into account the time dynamics of events in the value and supply chain, the results are uncertain and questionable.

Rapid implementation of the developed solutions is risky and a reason for the failure of optimization projects. A cautious implementation of the developed solutions, for example by first feeling your way with a few articles or a product group or only implementing a small part of the necessary adjustments, costs a lot of time and can lead to activities becoming bogged down. If there is no end to the project and no clear successes, the motivation of the project team members quickly declines.

The challenge of cost and time expenditure can be met very elegantly with modern analysis and optimization methods: We carry out such optimization projects in logistics and supply chain management using a digital twin in which we map the entire value and supply chain. The required data can be transferred from ERP or merchandise management systems. Such a digital twin contains all articles, semi-finished products and raw materials and not just a supposedly representative selection. In a simulation mechanism, the entire behavior can be mapped and simulated in the digital twin over the course of time. This allows different alternative courses of action to be considered in detail, reliably evaluated and improved in a differentiated manner. This means that the analysis and conception phase can be completed quickly and efficiently and risks can be identified and eliminated in advance. Implementation can then proceed quickly, as the necessary adaptation measures are known in detail and have been tested in advance.

We use simulation to make the supply chain predictable

Ensuring long-term success thanks to the digital twin

What’s more, boundary conditions are constantly changing, which is why the structure of the value and supply chains and their planning and control mechanisms must be constantly adapted and readjusted. Optimization is never actually complete. The optimization leap of the initial project must be followed by continuous maintenance and care. A digital twin allows adaptations to be tested quickly, efficiently and reliably and thus implemented quickly. This is an essential prerequisite for ensuring that value and supply chains are always optimized and that productivity effects are not lost again after a short time.

If value streams and supply chains or planning and control strategies are optimized using empirical simulation in a digital twin, optimization measures can be reliably identified, quickly implemented and easily readjusted if necessary. None of our optimization projects have been shipped or failed so far and you will also succeed in optimizing, just take courage!

Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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