December 8, 2022

How Optimization Helps Companies Mitigate the Impact of Inflation and Navigate Recession

In a situation where closely monitoring and reducing costs is of paramount importance, businesses need a solution that can help them easily identify opportunities for significant cost reductions and margin improvements — and calculate and compare multiple potential scenarios to see which courses of action could have the biggest impact on their bottom line.
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Anna Burschik

The looming threat of global recession raises the question: how long will this economic downturn last? Many businesses around the world related to manufacturing and the service industry are already seeing a financially difficult fourth quarter in 2022 and are expecting this trend to continue until at least mid-2023. The exploding costs of energy, persistent high inflation and increasingly difficult global supply chain challenges are taking a toll on companies by raising the complexity of today’s operating environment.

To cope with their own financial struggles, companies usually have little choice but to pass on the price increases to their consumers, who are also suffering just as much—if not more—from the effects of inflation. The rising prices will push many European customers to cut back on their spending and save money in order to cope with soaring expenses from electricity and gas bills—further impacting daily consumption goods and leading to a collapse in consumption.

From there, the economy could continue its downward spiral into a crisis that even dwarfs the globally debilitating effects of the COVID-19 pandemic. As this crisis takes its course, the combined effects of low sales, little to no margins and disrupted supply chains will continue to mount the pressure on earnings and liquidity for companies everywhere.

Making the best of the economic downturn within constraints

For some, it can be difficult to draw the line between pessimism and justified panic. The looming economic downturn is driven mainly by rising costs that result in little to no margins, with some companies being affected badly enough to lead them to reduce or suspend their production of lower margin lines entirely.

In a situation where closely monitoring and reducing costs is of paramount importance, businesses need a solution that can help them easily identify opportunities for significant cost reductions and margin improvements — and calculate and compare multiple potential scenarios to see which courses of action could have the biggest impact on their bottom line.

In such a major crisis, companies sorely need the capability to make faster optimal decisions that take into account all business rules, regulations and constraints. Imagine a digital solution that could enable companies to:

  • Calculate and identify the biggest cost saving opportunities in minutes
  • Reduce total production and transportation costs by 3 to 20 percent
  • Accurately predict the impact of temporarily shutting down a production facility
  • Better leverage multiple sources of supply to improve resilience and reduce material costs

When relying on legacy systems, companies have to resort to tedious and painstaking efforts to enrich the available data with information that was not yet available at the time the original calculation was made. But what they really need is the ability to collect and view real-time information, integrated with advanced planning capabilities. With a tool that can accurately reflect organizational changes, price changes and changes in customer demand in real time, planners are well-equipped to see what options are available to them and choose the best course for immediate action.

Being equipped with such a powerful integrated solution helps businesses:

  1. Balance and optimize financial objectives with operational and sustainability goals. Efficiency is more than throughput and can be quite complex. It’s about being able to model and optimize the right mix in your operations and supply chain network to maximize efficiency based on different business metrics and ever-changing constraints. As business metrics like sustainability become higher priorities, the integrated business planning process must include these as part of supply chain planning.
  2. Gain global supply chain control and visibility. Taking a holistic approach is key to better decision-making and intelligent supply chain planning and optimization. Tactical supply chain issues can often be the root cause of missing major business goals: for example, single supplier shortages leading to end-product delays, or key workforce disruptions delaying product distribution. It is therefore important to have visibility to all aspects of the supply chain alongside being able to evaluate and optimize multiple sources of upstream supply for both cost and availability, as all the details matter.
  3. Reduce inventory levels and maximize cost efficiency. Failing to balance forecasts between supply and demand can lead to companies either failing to achieve the production and distribution required to meet customer expectations or producing more than they need, leading to high inventory levels. Better alignment between supply and demand planning can help companies overcome this problem.
  4. Manage resources efficiently and make strategic spending decisions. Failing to optimize resources use can lead to high levels of wastage, incurring unnecessary cost. Integrated planning with optimization capabilities can help companies identify the best course of action moving forward and enable smarter, strategic spending decisions.
  5. Improve agility in every aspect of supply chain, manufacturing and operations. Unlocking end-to-end visibility is crucial to helping companies identify and mitigate bottlenecks and disruptions early to minimize negative impact on the business. When powered by optimization technology, integrated planning solutions can help them take this one step further in supporting them to make decisions with the greatest positive impact for their bottom line.
  6. Accelerate digital and technology initiatives to drive continuous improvement. Many companies know the importance of embracing digital transformation, but starting a transformation journey without a proper plan can easily lead to failure. To drive continuous improvement, a company needs to do more than just install new technology; embracing modern processes and instilling a transformation mindset across the organization is crucial to an effective transformation.

Realizing optimization and continuous improvement with DELMIA Quintiq

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The ideal optimization tool needs to be an integrated solution, with capabilities to support effective real-time collaboration between all relevant stakeholders across departments. This is how companies can unlock real-time visibility over all business processes and KPI changes while also gaining access to relevant information such as supply chain parameters and the impact of changes to cost.

Key decision makers can be immediately notified of changes at any stage; this company-wide transparency will be fundamental to smarter and more agile decision making as a team. Companies can only make this happen with a fully integrated end-to-end planning solution that offers a wide range of business functions to deliver significant value to both short-term and long-term business strategies.

Unlock the path to supply chain optimization and future-proof your supply chain to thrive through economic uncertainties with DELMIA Quintiq. As an integrated solution that functions as a single source of truth, DELMIA Quintiq can effectively replace multiple manual and legacy systems, forecasting workbooks and countless spreadsheets.

The powerful optimization capabilities of DELMIA Quintiq can help companies cut their planning time from days to just minutes—allowing planners to have more time to focus their expertise on preventing and mitigating disruptions. By evaluating and comparing millions of different possible scenarios and recommending the best one, DELMIA Quintiq equips and supports manufacturers in many industries to make the best decisions in alignment with their business and sustainability KPIs.

Discover how you can drive significant improvement with DELMIA today and get the most ROI out of your digital transformation journey. Download our ebook Business-Based Optimization to Orchestrate Disrupted Supply Chains to learn more.

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