Supply Chain Optimization: How to reduce inventory and optimize your supply chain with the science of theoretical minimums

Science of Supply Chain Optimization: Researchers Affirm Benefits of Eliminating Information Delays

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The “Science of Theoretical Minimums” (STM) might sound dry and academic, but lurking within is a proven path to dramatic inventory reductions, supply chain optimization and an accelerated, responsive, efficient supply chain… one that could be the envy of your industry.

What is the Science of Theoretical Minimums?

I’ll get to the juicy bit in a second, but here’s the academic and precise definition for reference:  

“STM provides a methodical approach and accompanying governance structure that enables managers to uncover fundamental latency and the costs that result because those delays. The key to STM is the development of a method to define supply chain-specific minimum resource requirements such as time, inventory, transportation and correlate those requirements using an advanced algorithm based tool to potential cost avoidance.” (EBN Online)

Without getting caught up in the technicalities, here’s the problem:

You have a complex supply chain consisting of many nodes and inventory sites, volatile demand and a lot of variability in supply. Inventory management and inventory optimization across multiple sites across multiple tiers, is a huge challenge. You have to deploy the right amount of the right inventory to the right place at the right time, to prevent stock outs and keep factories and stores running, without over-stocking and wasting money.

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How do you know where to focus your efforts? How do you cut through the myriad of factors where you could waste time and isolate where you should be spending your efforts to optimize your supply chain for maximum return?

I’m glad you asked.

What Happens When You Put on “STM Glasses”?

Let’s apply the Science of Theoretical Minimums. Here’s how it works…

Imagine putting on a pair of Polaroid glasses that filter out the scattered light that causes blurriness and fuzzy, visual noise. The scene comes into sharp focus, in high contrast brilliant color.

Similarly, when you look at your supply chain through the STM “lens,” your supply chain jumps into “value focus.” Hot spots of big value leaks burn red and demand your attention, while optimized areas fade into the background.

Okay, that’s overstating it a bit, and it’s only a metaphor. The bottom line is that STM is essentially a tool for finding and quantifying the “value leaks” in your supply chain. It brings your supply chain into focus, highlights the bleeding gashes costing you money, while filtering out the insignificant pinpricks and droplets.

Rapid Supply Chain Optimization: Reduce Inventory Where It Matters Most

STM identifies and quantifies the value leaks so you know exactly how much it is costing you, and you can prioritize and address them based on their impact.

Instead of struggling and wasting time optimizing nodes and networks that bring little value, you can go for the big wins and see dramatic results quickly.

Speaking with Dr. Adeel Najmi in preparing this article, he explained the significance of STM as not merely an analytical tool, but as a motivator:

“Traditional multi-echelon inventory optimization was being applied with blinders that kept us from challenging why delays were present in the first place. STM does not just propose analytical models to represent impact of physical and information delays but –and more importantly in my opinion – STM challenges us to find ways to eliminate or minimize those delays.”

And that I think is the big takeaway.

Once you know where the leaks are, and how much money is being drained from your business (thanks to STM), the motivation follows to fix them quickly.

The Science of Theoretical Minimums Explained

The researchers who developed the “Science of Theoretical Minimums” and applied it to real world companies will be discussing it in an upcoming webinar, Intro to Science of Theoretical Minimums – Finding value leaks in your supply chain, where you can learn exactly what it is, what it can do, and the technology that enables you to run your supply chain based on the principles of STM.

I’d also recommend reading Gary Hilson’s article at EBN, it’s fleshes out some of the details and nuances of STM: University Research Affirms Benefits of Eliminating Information Delays

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Nigel Duckworth