Using a digital twin to optimize inventory strategies

It’s always nice to grow your business, but that growth may affect your supply chain. When demand in certain countries or regions keeps growing, your logistics operation may no longer be able to serve your customers within the standards you are used to.

Or maybe you want to change your strategy and set your sights on guaranteeing your customers the lowest price instead of the highest service. Or offer them a choice when it comes to service levels.

Whether your strategy is to grow through high service and a fast delivery or by offering the lowest price, you need to ensure your supply chain aligns with your business goals.

Aligning Your Supply Chain to Your Growth

Let’s look at an actual business case from a leading global paint company with expertise that spans decades. They develop and sell solvent-based and water-based paints. Ahlers has been managing their logistics operations in Russia for years, resulting in a trustworthy relationship that has been standing strong for years.

With a significant increase in sales in the eastern regions, there was a need for a redesign of the supply chain in Russia. Costs went up because of longer transportation lanes and customer lead times became significantly longer, as goods needed to come from St-Petersburg and Moscow. This strategic supply chain redesign was supported by the Ahlers Data Analytics Services team.

The team used the customers' supply chain data, combined with expertise on distribution networks in Russia, and created a digital twin of their supply chain. In this case, the digital twin acted as a digital replica of the physical supply chain, it offered an always-on reference model to inform strategic plans and to visualize all current facilities, flows, and policies. These models can be built from the current period to years in the future to evaluate different decisions with complete tradeoff analysis.
Using this digital twin, we were able to run different scenarios and determine the optimal locations for new warehouses to serve the east of the country better. This led to opening additional warehouses in Novosibirsk as well as in Chelyabinsk. The opening of these two warehouses made shorter delivery possible in the east and helped the customer to get the goods to market faster.

Revise Your Supply Chain Strategy Based on Data-Driven Decisions

The outcome of the footprint study showed the supply chain department the power of a digital twin. Recently they expanded their digital twin model. They added more sales and customer data, and together with the Ahlers Data Analytics team, they included the customer segmentation based on service levels.

The supply chain department looked at what would happen if they categorized their customers in different categories based on service levels. A high service level means having more products on stock to be fast delivery. A low service level would mean longer lead times when ordering products. They took into account service levels and the cost to serve per customer. Per brand and segment, they created sales plans, considering the impact on their supply chain. This enabled them to look at the cost to serve versus revenue, aligning their service levels accordingly.

 Some of the scenario’s they could run:

  • What if we make sure every customer receives their order within 24 hours? This high service scenario means higher cost but also more revenue and potentially the option to charge a higher price. Total costs rose by ten percent in this scenario.
  • What if we minimize the number of warehouses? This low service scenario means lower logistics costs, which means charging a lower price and increase revenue that way. Total costs were ten percent lower in this scenario.

Now that the digital twin is filled with the correct data, they could investigate a myriad of different scenarios. The options are near endless.

  • What if demand doubles?
  • What if we introduce a new product?
  • What if demand drops by fifty percent?
  • What if a client moves?
  • What if a specific customer wants a focus on sustainability?

Align Your Supply Chain to Your Strategy

Is your supply chain fully aligned with your strategy? Do you have plans to change your strategy, and are you wondering what the impact on your supply chain would be?

Contact one of our experts to learn more about the possibilities of making data-driven decisions based on your very own digital twin.