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Cost Models Lessen Today’s Supply Chain Risks

Orchestrating the right mix of suppliers throughout complex global supply chains has never been easy, but now a growing number of supply chain managers are turning to specialized analysis software to better navigate the added risks of economic volatility and new governmental regulations.

“Companies need multiple sources of supplies because the best source may be in China today, Mexico tomorrow, or Papua New Guinea next week,” says John Bermudez, senior director of supply chain management product strategy at Oracle. “You can’t manage a fluid supply chain using just a spreadsheet anymore.”

Solutions include the cost- and risk-analysis models available from products like Oracle Strategic Network Optimization. Offering a combination of prebuilt models or models created with the application’s development tools, Oracle Strategic Network Optimization helps supply chain managers analyze the wide range of variables that add costs and risks when sourcing supplies from throughout the world.

“Reducing total landed costs are one of the biggest imperatives companies now face, but given the risks associated with various suppliers, just finding the lowest-priced source isn’t necessarily the most economical or best answer,” Bermudez explains. “Sometimes, even if a manufacturer were to get supplies for next to nothing, it may not be a good deal considering shipping delays or risks associated with political unrest, for example.”

To perform analyses, Oracle Strategic Network Optimization models may take into account which supply source offers the best tax incentives and benefits from currency fluctuations. Models may also determine the financial impact of environmental regulations, such as the recent decision by the U.S. government to target greenhouse gas emissions, which could increase shipping costs. The environmental tools can calculate the average greenhouse gas emissions per mile for supplies transported by truck, rail, or ocean freighters.

“Supply chain managers can analyze the multi-variable model addressing cost, risk, and regulatory variables so they can understand the trade-offs among all the available sourcing alternatives,” he explains.

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