Designing for Supply Chain Resilience With Nestlé
Imagine you’ve finally figured out the right balance of inventory: just enough to meet customer demand, but not so much you’re stuck with overflowing shelves and products you’ll have to discount. You’re running a well-oiled supply chain machine based on your periodic assessments of demand, production, and so on. When one of your competitors runs into distribution challenges, you’re poised to step up. But then there’s a fire in one of your major distribution centers. Demand for products surges, but you can’t keep up. What do you do?
Many of you don’t have to imagine what this is like — you’ve experienced something like it firsthand.
In today’s world, the companies that stay agile are the ones that will come out on top, or at minimum, stay afloat. Very few can predict disruptive events. But given the increase in disruptions, corporations are making big changes to stay nimble.
Inventory optimization and supply chain design
One change that’s gaining traction is a focus on trying to rightsize inventory to avoid shortages and massive surpluses. Some companies are shifting their focus to create the optimal flow throughout the supply chain to continue to meet customer demand despite volatility. One element of this approach involves grasping the power of technology and using cloud modeling to make their overall operations more efficient and effective. One company working to optimize its inventory and improve its supply chain modeling is Coupa customer Nestlė.
At Coupa Inspire 2022, Nestlė leaders led discussions on the subjects of inventory optimization and cloud modeling as part of their approach to tackling supply chain challenges. Below are some highlights and key takeaways from their experiences.
How Nestlé is adjusting their approach to inventory optimization
Robert Wang, Principal of Supply Chain Organization at Nestlé USA, spoke about his organization’s transformation. First, they recognized a misalignment in their inventory. They were dealing with poor input data quality, a lack of understanding of their models, and more.
Next, they had to take action. But with rising transportation costs, they needed the right data to make the right decisions about where to realign inventory management and transportation. They were dealing with complex situations and needed models that could reflect a regularly changing reality.
Working with Coupa, they took an analytical and data-driven approach to assess replenishment lead time, adjust forecast accuracy, fill gaps in their data, improve input data processing, and validate the results of their models.
Network modeling, scenario planning, and continuous design are helping the organization answer tough questions, bring awareness to the problems they need to get ahead of, and plan for scenarios where distribution capacity unexpectedly decreases. An important aspect of this is the Coupa App Studio, which allows the team to see important data, ask what-if questions, and share information easily with other stakeholders in the design process.
So far, they’ve managed to reduce their replenishment lead time, optimize safety stock, and create significant savings. For Nestlé, inventory optimization was an important part of their overall supply chain optimization.
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Why Nestlé is embracing cloud-based supply chain solutions
On the European side of Nestlé’s operations, at Inspire Berlin, Vincent Delaloye, a physical logistics and end-to-end optimization expert, spoke about how Nestlé needed to plan for complexity and create multi-step supply chain optimizations. Even before the pandemic, they realized that doing about 10 models a year, and only reviewing those models once every few years wasn’t enough. As the complexity of the business and supply chain networks grew, they needed to expand the number of supply chain models and scenarios they ran each year, and to increase the frequency with which they reviewed these models. They also needed to move away from centralized decision-making and empower regional hubs to do network optimization from anywhere in the world.
This is where cloud modeling has proven vital. They’ve worked to adjust procurement sources based on price and availability, moved production volumes to optimize distribution costs and the cost of goods sold, adjusted distribution center coverage to avoid overflow storage, and have been able to manage crises like COVID. And to embrace a global workforce, they moved from desktop operations to a data repository their team members could access from anywhere. With a cloud-based system, they can run complex scenarios with a global team and then localize global models to local contexts.
Since moving to Coupa’s cloud-based supply chain design and planning solution, the organization has been able to model five times faster than before and achieved cost savings across the board. They have improved the quality of their models, and have improved communication to make them more agile, nimble, and flexible.
Factors to consider when designing a more resilient supply chain
How can Nestlé’s experience help your organization? For supply chain networks more broadly, companies have to accept that rare, highly disruptive events are happening more often than before. Whether you’re dealing with regulatory issues, contaminated products, or extreme weather events, it’s imperative that supply chain leaders embrace technology that can help them minimize the effects of these disruptions.
Integrating network and inventory optimization allows organizations to consider completely new supply chain structures such as the opening/closing of distribution centers or manufacturing locations, and immediately evaluate optimal inventory requirements for these new potential networks.
When we asked Robert and Vincent what advice they have for other organizations looking to optimize their supply chain design, with inventory optimization being an important part of the process, they suggested the following:
- Embrace analytics and scenario modeling: By embracing analytics and scenario modeling, more companies can improve their inventory management practices and plan for those seemingly unplannable events.
- Hire the right people to do the job: Investing in human resources and talent to carry out these projects full-time is essential to conducting ongoing analyses. Not everyone needs an advanced degree in analytics to manage this data, but a dedicated person, team, or center of excellence will help your organization get the most out of any modeling software you use.
- Test your inputs AND your assumptions: Make sure you’re using the right data. And always question the assumptions you have about that data. The best scenario planning software in the world will be limited if you’re not working with the right data.
- Make a plan for what you’ll do once you have those pieces in place: Will you build redundancy into your operations? Will you optimize safety stock? Will you consolidate or expand networks?
Every company deals with a different suite of issues, but we hope Nestle’s insights can help shed light on the challenges and opportunities your organization faces.
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