How to Power Manufacturing Supply Chains with Constrained Optimization

Manufacturing Supply Chain

Thanks to our changing world under Covid-19, we’ve learned even more about how vulnerable our manufacturing supply chains are to dynamic market conditions. Whether we’re experiencing shifts in raw material availability or shifts in buyer behaviors and expectations, our ability to continually optimize is often less than we need. 

That’s why competitive manufacturing supply chains leverage constrained optimization techniques to assure their operations are optimally tuned. Constrained optimization helps manufacturing supply chains by identifying the best path forward as dynamic conditions change sourcing options and buyer requirements. 

As a simple example, constrained optimization can identify:

  • The probable combinations that will result in the minimum supply chain cost for a specific product or a set of products, where the cost is constrained by other costs, such as raw materials, labor, or other resources involved in creating that product.
  • The combinations of vendors and materials to best achieve this lowest cost. 
  • Logistics options to assure on-time, lowest-cost, least warehouse costs for delivery of products as they are manufactured. 

How Manufacturing Supply Chains Benefit

Let’s look at other ways constrained optimization benefits manufacturing supply chains, from inbound raw materials to outbound distribution. 

  • Transportation Efficiency. Constrained optimization (CO) is used to identify optimal locations for plants, distribution facilities, and other logistics hubs. Even a mile difference in placing a plant can make a significant difference in the costs and productivity of the overall network.
  • Warehouse Management and Distribution Services. CO is applied to optimize global and local shipping and loads, warehousing and delivery for lowest cost, optimum efficiency and productivity. Imagine having to schedule shipments of thousands upon thousands of computers, televisions, or cars across the globe using a piece of paper or a spreadsheet. 
  • Inbound Logistics. From order levels to delivery to the production line, optimization can drive maximum production levels at the best cost. Even one lost shipment or forgotten vendor can wreak havoc on a production line. Now imagine having to schedule and maintain all of the parts of a car, computer, TV, refrigerator or ATV using a spreadsheet, especially when you’re managing hundreds of thousands of units. That’s what constrained optimization makes easy… without the spreadsheet.

A Major Chip Maker and Constrained Optimization

Consider how a major chip manufacturer utilizes constrained optimization to reduce supply chain costs significantly for a new low-cost chip. 

When it began the process, supply chain costs were approximately $5.50 per chip. When units were selling for $100, that was a reasonable cost. However, its newer chip needed to be sold at a fraction of that legacy price, at about $20.

The only way to meet the margins needed on the newer chip was to reduce the levels of inventory. Inventory had been maintained at a high level to support the rather lengthy nine-week order cycle. To achieve the supply chain cost needed for a profitable new chip, the cycle time and resulting inventory costs/time needed to be reduced dramatically. 

Through the power of constrained optimization computations, the chip manufacturer identified the optimum cycle time and how to adjust to meet this new, reduced order time of two weeks.  

The result? A supply chain cost reduction of $4+ for each new chip, fulfilling the required cost to deliver the profit margin the innovative chip required for mass success.  

The Bottom Line

Manufacturing supply chains are increasingly under pressure to respond to changing demands. More factors than ever before need to be optimized to meet customer and profitability expectations. 

These kinds of constrained optimizations are ideally suited for quantum computing and smart leaders are readying their businesses today to take advantage of these new technologies. To learn how you can get started in your business, download our Executive Brief: Three Ways to Make Your Business Quantum Ready.  

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