Transport times in tactical optimization
In today’s globalized world, the efficiency and reliability of transport routes play a decisive role for companies in a wide range of sectors. Optimizing transport times is a crucial factor in reducing costs, shortening delivery times and increasing customer satisfaction. We talk to Lovis Anderson, Product Owner in the field of network optimization at OPTANO, about the importance of transport runtimes, the factors that influence them and how companies can improve their logistics processes by taking targeted measures.
Transportation times are currently an important topic for supply chain planning. What makes the question so important in tactical planning?
Transportation lead times play a crucial role in the tactical planning of supply chains, as they directly influence the efficiency and costs of the entire supply chain. It is therefore important to weigh up various objectives: high inventory levels incur higher costs and tie up capital, but ensure continuous material availability for production. On the other hand, low stock levels can free up capital, but always carry the risk that there is not enough material available for production.
It is a difficult task to find the right balance between available liquidity and sufficient stock levels. Long transport times, e.g. from Asia, make it even more difficult and precise planning even more important.
How do you find the right trade-off with all the options available for supply chain planning?
Many things have to be considered here: material and transport costs, production reliability and service level, warehousing costs and safety stocks. And it is not the same for all goods: for deliveries that are not so relevant for production and can be dispensed with for a few days without major problems, you can take more risks than with deliveries that would paralyze the entire production if they were missing. It is virtually impossible to consider all these aspects and their interdependencies manually in a complex supply chain. However, with decision support systems, you can find the optimal trade-off for all variants.
This planning method assumes that deliveries always arrive as planned. You wouldn’t be well prepared for disruptions to the supply chain, would you?
Correct. When planning a supply chain, you initially assume that everything will run smoothly and that the planning will work except for a few minor deviations. However, we all know that reality often throws a wrench in the works. That’s why tactical planning not only considers the question of what the best routes and means of transport are for my company, but also what I can do if problems arise on the planned route.
Everyone will remember when the MS Ever Given got stuck in the Suez Canal and made it impassable for a long time. Suddenly, countless goods were stuck and could not be transported as planned. In such a case, it is important to be able to react quickly and make informed decisions.
With OPTANO Network Optimization, you can simulate various what-if scenarios to better prepare for disruptions like this. For example, if a long transit route becomes unavailable, you can precompute the best alternative routes to ensure the timely delivery of materials, compensating for any shortages caused by the disruption.
What alternatives would be conceivable in such a case?
If we stick with the specific example of the blocked Suez Canal, I see three alternatives:
- Another sea route – this will take longer than the planned route. So I will have to wait even longer for the expected delivery.
- A possible land route by train or truck, which is faster than an alternative sea route, but unfortunately also more expensive.
- Delivery by air. This is the fastest way, but unfortunately also the most expensive. At the same time, the quantities to be transported are smaller than with the other two alternatives.
What might an alternative plan look like in this case?
As I said, it also depends on how much my production depends on the stuck goods. If production comes to a standstill without these goods, the pressure is on to get them as quickly as possible via alternative routes. Whether this justifies the costs incurred is then the crucial question. So you have to weigh up whether the additional costs are lower than the loss caused by production coming to a standstill. This task, too, often cannot be performed manually in the complexity of the supply chain. There are simply too many dependencies.
With decision support systems, however, it can be done quickly and easily. In this specific case, a combination of several options would be conceivable: air freight could be used to bridge the gap until the goods arrive by land. And this could continue until deliveries by sea are running reliably again. The optimization software can determine the quantities for this at optimal cost. The blockage of the Suez Canal is, of course, just one of many examples; the same scenarios are also conceivable in the event of pirate attacks or a chip crisis.
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Does this mean I can quickly create contingency plans in the event of problems in the supply chain?
That’s right. With a decision support system, you can respond much more quickly to unforeseen disruptions because you can map the new situation in the software and choose the best available option for action. This enables a very short response time to sudden disruptions.
Another possible application is for contingency plans created in advance. There are risks in a supply chain that are already known, such as tropical storms or droughts that dry up rivers. Alternative scenarios can be created for these. While it is not possible to plan for such events a year in advance, they can be predicted quite accurately with one to two weeks’ notice.
In addition, planning alternative transport routes and means of transport can also provide further insights: the result may also be that routes where problems frequently occur are avoided and fundamentally safer alternatives are chosen. This in turn has an impact on transport times and corresponding costs, which can change overall strategic planning. In today’s uncertain times, it definitely makes sense to proactively prepare for disruptions in order to make the supply chain as secure as possible.
We would like to thank Lovis for this interview and point out that our contact persons will be happy to answer any questions you may have and that you can arrange a demo appointment at any time. Further information, such as release notes, can be found here.
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