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June 14th, 2021
For many years, local and global optimization tactics have been deployed in supply chains around the world. Similar in name yet different in practice, both localization and globalization efforts have been utilized in conjunction with the aforementioned methods to enhance strategic sourcing practices.
So how does it all fit together? In the third and final part of our strategic sourcing series, we’re going to focus on the methodological considerations necessary for achieving a successful sourcing strategy with the help of supply chain visibility software. That is to say, how local optimization and global optimization assist both localization and globalization initiatives in the supply chain.
That probably sounds like a mouthful, so if you’re just jumping into the series or need a little refresher on what we’ve covered so far, you can check out the previous blogs here:
1. How Strategic Sourcing Helps Manufacturers Increase Agility
2. Why Global Supply Chain Management Is Turning Local
What Is Local Optimization in the Supply Chain?
Historically speaking, local optimization in the supply chain refers to the optimization of a single unit without considering how the changes may affect the rest of the supply chain. An example of local optimization in the supply chain is opting for alternative transport from factory to warehouse which results in a three-day-early delivery. The increased speed of delivery is surely an optimization, but if warehouse space is limited, it will be overcrowded in no time. Not to mention everything else that could be negatively affected.
Supply chain managers are most often advised to avoid local optimization tactics unless they are deployed solely for testing purposes in an isolated instance. In a controlled setting, local optimization practices can be used to identify opportunities to improve a very specific area of the supply chain. In these instances, this approach should be seriously evaluated.
What Is Global Optimization in the Supply Chain?
You probably guessed it: As opposed to local optimization, global optimization in the supply chain refers to the optimization of one or more areas of the supply chain while taking into account all affected units. As with the speedy delivery example above, it’s clear that even minor adjustments can have significant influence across the board. Therefore, global optimization in the supply chain is challenging and much more time consuming than local optimization—all potential outcomes must be considered.
Local and Global Optimization Tactics for Strategic Sourcing
Both local and global optimization tactics are necessary when it comes to determining the best sourcing strategy (or strategies)—you just have to know when to use which.
To summarize, companies should utilize local optimization tactics in order to test new strategies in one or more isolated instance(s). This will help them to determine what is possible and what is not, as well as what will need to be considered before implementing changes on a broader scale. From there, global optimization in the supply chain can be considered; the test phase will likely have provided enough information to either take the next step or go back to square one.
The Importance of Supply Chain Visibility Software
In terms of procurement, the best supply chain visibility software—or at least the most useful—is an end-to-end EDI solution. In today’s environment, it’s no longer possible for manufacturers to rely on manual processes and expect to compete. Most manufacturers are already required to engage in EDI exchanges with customers, especially the larger retailers, and many have already implemented fully automated EDI solutions of their own in response.
By digitalizing document flows in both directions, order-to-cash (with customers) and procure-to-pay (with raw materials suppliers), manufacturers are able to dramatically improve transparency and advance sourcing strategies. With detailed analytics on all business exchanges that flow through the system, an advanced EDI solution doubles as supply chain visibility software.
With a complete overview of all procurement-related data with raw materials suppliers in combination with customer order history and shipment details, it becomes much easier for manufacturers to spot very specific areas of the supply chain to improve. Once opportunities are identified via the EDI solution (AKA supply chain visibility software), local optimization techniques can be utilized, tracked, and evaluated in real time. Over time, opportunities for global optimization in the supply chain become more obvious and, therefore, less risky to test.
Whether it’s testing multiple sourcing possibilities, evaluating localization options, or diversifying sources at a global level, an EDI solution is the best supply chain visibility software available for manufacturers. In other words, it enables manufacturers to start small with local optimization, then go big with global optimization.
