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How Oii is Driving Supply Chain Cost Reduction and Improved Profitability.

Bob Rogers PhD and David Evans MSc

To set up and manage your supply chain effectively requires detailed understanding and transparency of your Supply Chain Costs. Without this information it is impossible to find the right balance between the level of service you are targeting to your customers and the cost of achieving that. However in many organisations this crucial data is not available at a level that enables this and as a consequence network performance is poor.

Supply chain costs are recorded in the financial accounts but this information is usually high level. Organisations will know their warehousing and distribution costs, factory expenditure and inventory holding costs but the headline figure doesn’t disaggregate down. Unless these costs can be analysed and understood at the item level and used to configure the supply chain planning system, the network will be set up wrongly and profitability compromised.  

With many businesses facing up to the biggest economic challenge since the Second World War it is no longer acceptable for supply chains to be run in this way. As we come out of the Covid-19 crisis reducing costs, freeing up cash and improving margin will differentiate those that survive from those that don’t. Ensuring that the supply chain is set up correctly will become a key competency.

Oii uses the power of Artificial Intelligence to model optimal supply chains. Our patented software identifies the right mix of cost and agility to enable the organisation to maximise service to the customer whilst minimising total supply chain cost. It makes the service v cost trade off transparent down to item level enabling visibility of the impact of the planning configuration on cost and margin. It details each individual cost component whilst finding the optimal total cost to maximise efficiency and improve profitability.

The cost of running your supply chain is directly impacted by the way the supply chain is set up and planned. Factors such as network design, replenishment strategy, stock holding and delivery frequency drive underlying costs. Understanding how these and other planning dynamics impact expenditure is crucial to avoid inefficiencies.

Every item in the network will have a unique cost profile driven by factors such as:

  • Demand and Supply Variability
  • Production Process
  • Supply Network
  • Transportation Constraints (e.g. cold chain items)
  • Storage Considerations (e.g. bulky items)

These attributes impact the way items are planned and produced and in turn the underlying costs associated with providing them to the customer. The planning configuration needs to find the optimal cost profile to meet the level of service targeted.

The right mix of total supply chain cost is a trade off. Greater agility and throughput reduces inventory but drives up factory complexity and transportation fees. Likewise safety stock to offset variability and meet higher service targets must be balanced against inventory holding costs and the risk of obsolescence. A common issue with cost reduction initiatives is that improvements in one area are offset by negative impact elsewhere in the network. The target is to find the best overall mix.

Without transparency of costs at item level and the capability to model this balance effectively plans will drive inefficiency and the organisation will lose out financially.

Oii proprietary Cognitive Self Modelling software delivers transparency of total supply chain cost and optimised planning set up.

The software uses Artificial Intelligence to find the best supply chain planning configuration. It does this by building the millions of options that are available in real time and identifying a costed and optimised solution that is the best fit for your organisations specific strategic needs. Each option is considered in terms of factors such as:

  • Service target
  • Network Variability  
  • Stock holding cost
  • Factory overheads
  • Transportation Fees
  • Lost sales and internal disruption
  • Potential for return and discards

Oii applies a unique concept called SMSpace™ a multi dimensional virtual hologram where all potential future supply chains for a particular network are built, costed and compared. In SMSpace™ the tool models multiple configuration options and plays these out over time, assessing both the probability of the outcomes and the cost versus service profile of each one.

Supply chain costs are tracked at item level enabling the tool to compare every planning configuration option, quantify supply chain costs for each one and through that process determine the best fit. In doing this it enables the optimal configuration to be determined whilst also making the total supply chain cost and its components visible for every item supplied by the business. By making underlying costs transparent the tool also identifies those areas where targeted reduction initiatives will have the most impact.

In identifying the optimal configuration for each item in the network total supply chain cost is significantly reduced, planning performance improved and profitability maximised.

Oii aligns the power of AI/ML with a science-based modelling capability. It unlocks the hidden benefits latent in your planning systems by automating the configuration of the network and maintaining the optimal state as new risks and opportunities emerge, freeing up cash and delivering quantifiable benefit. It introduces a new paradigm of cost management, responsiveness and service to the enterprise: it is the Cognitive Self-Modelling Supply Chain.

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Interface UX for Oii's Supply Chain Management Software.