Breakthroughs in optimization technology (such as Llamasoft Supply Chain Guru) make it possible to actually optimize production on a network level. Companies are able to analyze and optimize complex network structures with multiple factories, lines and products, including the impact on inventory, transport and service. It makes it possible to continuously improve the production and supply chain structure. This leads to cost savings, service improvements and/or risk reductions.
Production footprint is one of the strategic decisions manufacturers need to consider. The footprint represents the location of the facilities where products are manufactured, along with capacities required to make it happen. Production footprint decisions are best made when considering the complete end-to-end supply chain, not just one or two levels. Oftentimes demand for products shifts over time to new regions and sales volumes change, as well as suppliers and cost structures. As these changes occur, the production footprint should also change to stay in-sync. This may mean investing in additional capacity in certain locations or perhaps completely moving production capacity to other locations or regions. Careful modeling of the production footprint and analyzing varying scenarios helps companies to make the right investment or divestment decisions, for now and for the future.
Should we produce this product at all? Prior to any decisions on how to make and distribute products, manufacturing companies should answer this simple question: the “make or buy” decision. A second critical decision is where to make products. This challenge is often referred to as the “off-shore or near-shore” questions. In making these fundamental decisions, companies can fall into the trap of focusing only on the production costs or investment costs and forget to focus on impact on the end-to-end supply chain, which includes interdependencies of many cost factors including production, transport, inventory, and tax. Top-performing companies make decisions that consider the entire supply chain, when possible even including their suppliers and customers.
Once the manufacturing strategy is in place and the production footprint is clear, we dive into the next level of decisions. On the tactical level there are many decisions that can unlock significant cost savings and operational improvements. Optimization models can help a business to effectively allocate products to a specific site and production line, and for example decide on production timing, quantities and batch sizes.
In one of our recent projects a large food manufacturer had already made investment decisions around facility locations and production footprint. The next question was how best to utilize that footprint. Over time, demand for its final product changed to other regions and the company wanted to evaluate the impact of alternative allocations of customers to their facilities. By re-evaluating these allocations, the company realized significant cost savings without any changes to their physical production footprint.