UNIT IV

Analytics in Supply Chain

Optimum level of Product Availability -Time value of money in
supply chain Analytics –Predictive modeling in forecasting
Supply chain analytics -Representation of uncertainty in Supply
chain (Binominal Modeling) -Trends Challenges and Future of
Supply chain

Optimum level of Product Availability

Optimal inventory levels are the ideal quantities of products
that you should have in a fulfillment center(s) at any given
time. By optimizing inventory levels, you reduce the risk of
common inventory issues, from high storage costs to out-of-
stock items.

What is the importance of optimal level of product

availability?

The level of product availability, also referred to as the customer

service level, is one of the primary measures of a supply chain's
responsiveness. A supply chain can use a high level of product
availability to improve its responsiveness and attract
customers, thus increasing revenue for the supply chain
What are the factors affecting optimal level of product
availability
There are several factors that can influence product availability,
such as Demand, Production And Manufacturing, Supply
Chain, Inventory Management, Distribution, Competitors
And Seasonality.
Time value of money in supply chain Analytics

The time value of money (TVM) is the concept that a sum

of money is worth more now than the same sum will be
at a future date due to its earnings potential in the
interim. The time value of money is a core principle of
finance. A sum of money in the hand has greater value than
the same sum to be paid in the future.
 The time value of money means that a sum of money is
worth more now than the same sum of money in the future.
 The principle of the time value of money means that it can
grow only through in
 vesting so a delayed investment is a lost opportunity.
 The formula for computing the time value of money
considers the amount of money, its future value, the
amount it can earn, and the time frame.
 For savings accounts, the number of compounding periods
is an important determinant as well.
 Inflation has a negative impact on the time value of money
because your purchasing power decreases as prices rise.
 Time Value of Money Formula

 The most fundamental formula for the time value of money

takes into account the following: the future value of
money, the present value of money, the interest rate, the
number of compounding periods per year, and the number
of years.
 Based on these variables, the formula for TVM is:

FV=PV(1+ni)n×t
where:
FV=Future value of money
PV=Present value of money
i=Interest rate
n=Number of compounding periods per year
t=Number of years
Examples of Time Value of Money
Here's a hypothetical example to show how the time value of
money works. Let's assume a sum of $10,000 is invested for one
year at 10% interest compounded annually. The future value of
that money is:
��=$1
FV=$10,000×(1+110%
How Does the Time Value of Money Relate to Opportunity
Cost?
Opportunity cost is key to the concept of the time value of
money. Money can grow only if it is invested over time and
earns a positive return. Money that is not invested loses value
over time. Therefore, a sum of money that is expected to be paid
in the future, no matter how confidently it is expected, is losing
value in the meantime.
Why Is the Time Value of Money Important?
The concept of the time value of money can help guide
investment decisions. For instance, suppose an investor can
choose between two projects: Project A and Project B. They are
identical except that Project A promises a $1 million cash
payout in year one, whereas Project B offers a $1 million cash
payout in year five. The payouts are not equal. The $1 million
payout received after one year has a higher present value than
the $1 million payout after five years.
How Is the Time Value of Money Used in Finance?
It would be hard to find a single area of finance where the time
value of money does not influence the decision-making process.
The time value of money is the central concept in discounted
cash flow (DCF) analysis, which is one of the most popular and
influential methods for valuing investment opportunities. It is
also an integral part of financial planning and risk management
activities. Pension fund managers, for instance, consider the
time value of money to ensure that their account holders will
receive adequate funds in retirement.
Money?
The value of money changes over time and there are several
factors that can affect it. Inflation, which is the general rise in
prices of goods and services, has a negative impact on the future
value of money. That's because when prices rise, your money
only goes so far. Even a slight increase in prices means that
your purchasing power drops. So that dollar you earned in 2015
and kept in your piggy bank buys less today than it would have
back then.
How Do You Calculate the Time Value of Money?
The time value of money takes several things into account when
calculating the future value of money, including the present
value of money (PV), the number of compounding periods per
year (n), the total number of years (t), and the interest rate (i).
You can use the following formula to calculate the time value of
money: FV = PV x [1 + (i / n)] (n x t).
Predictive modeling in forecasting Supply chain analytics
Predictive analytics allows organizations to determine
optimal inventory levels to satisfy demand while
minimizing stock. Using sophisticated models, predictive
analytics allows supply chain managers to determine
detailed inventory requirements by region, location and
usage
Organizations generate vast amounts of data through their
activities at various stages of their supply chains. In order to
better manage inventory, warehouses, shipping, and
procurement, information is recorded with the assistance of
applications.
As a result, supply chain analysis is the analysis of data from
those different applications using a single ERP system.
For example, warehouse management data may not be very
meaningful by itself. However, when all of the information
across the supply chain is viewed together, unlimited value
opportunities appear.
There are many types of data analytics, but supply chain
predictive analytics are the most widely used for most
companies. They allow you to make better decisions, optimize
operations, better serve customers, decrease costs and improve
visibility.
But what are they, and how do you use them? This article will
explain supply chain predictive analytics and how your business
can take advantage of them.

How Is Predictive Analytics Different Than Other Forms of

Analytics?

First and foremost, supply chain predictive analytics can help

you to improve visibility into your supply chain and make better
decisions. By analyzing past data, you can identify patterns, risk,
forecasts and trends that will help you make better predictions of
future events and minimize downtime.
Essentially, they recommend actions based on what they learn
from descriptive and diagnostic analytics.
This allows you to plan for disruptions and optimize your supply
chain operations. For instance, predictive analytics is often used
to forecast demand and allocate resources accordingly.

Some Brief Examples of Predictive Analytics in Use

By looking at historical metrics for supply chains such as total

shipments versus capacity utilization, traffic volumes along a
particular route during peak times, etc., predictive analysis can
predict the future needs of a business based on what has
happened previously in similar situations.

Using this data, supply chains can plan for future needs by, for
instance, increasing their inventory levels when they see that a
certain product is being ordered more frequently.
Predictive analytics can also be used to monitor supplier
performance. Tracking the delivery times and accuracy rates of
suppliers enables supply chains to get a heads-up when a
supplier falls behind schedule or starts producing defective
products.
This proactive monitoring enables supply chains to take
corrective measures before production is adversely affected or
deliveries are disrupted.
By knowing when their products will arrive at their destination,
supply chain partners can schedule how much inventory should
be available for shipment around peak times like holidays.
Predictive analytics helps prevent unexpected delays due to
weather conditions by finding routes with lower risk exposure.
How to Use Supply Chain Predictive Analytics

Now that you understand what supply chain predictive analytics

are and some examples of how they can be used, let’s look at
how you can start using them in your own business.
Collecting data is the first step. You will need to collect data
from all supply chain partners, which can be a challenge in some
cases. However, there are a number of supply chain analytics
tools, technology options, and services that can help you do this.
After you have collected the data, you need to analyze it. Excel
or Tableau are both standard business intelligence (BI) tools that
can do this. Additionally, there are supply chain-specific BI
tools that are specifically designed for analyzing data from the
supply chain.
Finally, you need to decide how to improve your supply chain
operations based on the results of your analysis. It might be
necessary to change policies, processes, or even suppliers. It’s
important to act based on what you’ve learned from your supply
chain predictive analytics.

Which Tools, Technologies And Techniques Can You Use In

Predictive Analysis?

There are a number of different tools and techniques available

for supply chain predictive analytics. The most important thing
is to have good data quality and sufficient historical data. It is
also important to use the right analytical method to meet the
needs of your business.

One popular method is regression analysis, which uses historical

data to develop models for predicting future outcomes. Knowing
how various factors interact and their impact on outcomes is just
as important as developing prediction models.

Examine your data so that it can be used with predictive analysis

tools such as regressions. Determine which supply chain aspects
directly affect operational performance and model those first.
Then, conduct a linear regression before trying more advanced
forms such as logarithmic or exponential regressions.
Another common method is time series analysis, which focuses
on how events in the past affect current events. Time series
analysis is an important tool for supply chain management that
looks at how past events have affected current and future events.
Supply chains are long and complex, involving many different
organizations.
While it is difficult to predict what supply chains will look like
in the future, supply chain managers can predict how they will
change by analyzing historical data which will drive efficiency.

Predictive Analysis For Your Business

Analytics come in a variety of forms, but supply chain
predictive analytics are the most common. The benefits of
supply chain predictive analytics are varying depending on each
business, but you can expect to improve visibility, drive deeper
insights, help make better decisions, improve resource planning
and optimize supply chains.
You can make your supply chain more responsive to changes in
the market and improve your bottom line by utilizing these tools
and techniques. Businesses of all sizes are becoming
increasingly dependent on predictive analytics, so don’t miss out
on these opportunities.
Looking for the right software development partner? RTS
Labs has helped hundreds of businesses of all sizes
successfully develop the right outsourced custom logistics and
supply chain software for many business needs. Get in touch
with us today to learn more about how we can help

Representation of uncertainty in Supply chain (Binominal

Modeling)
Supply chain faces numerous supplier-side vulnerabilities
from many factors in everyday performance of the
suppliers. Broadly, the various types of risks are as follows:
1. Material flow risks: Many examples of natural disasters
such as labour strikes and fires have brought an end to
supply of material. In supply chain material flow,
demand fluctuations and supply disruptions are two
types of primary uncertainties which involve issues as
single sourcing risk, sourcing flexibility risk, supplier
selection/outsourcing, supply product monitoring/quality
and supply capacity.
2. Financial risks: It takes into account foreign exchange,
currency risk, and tariffs and taxes as well as product
price, markups and rebates. It also includes the inability
to settle payments and improper investment. The
common risks are exchange rate risk, price and cost risk,
financial strength of supply chain partners and financial
handling/practice.
3. Integrity risks: Supply chain integrity has become an
important necessity for brand owners across the
industries. It is essential to keep supply chain from being
compromised or interrupted and to ensure its integrity.
Supply chain integrity protects the brand, minimizes
costs due to loss or damage and enables to provide a
quality product to the end consumer. These issues go
beyond fraud alone to include risks associated with
regulatory compliance, conflicts of interest, brand and
reputation.
4. Operational risks: Many times the risks are associated
with the execution of business functions of a company. It
includes risks of tangible and intangible assets. These
risks address not only cost, efficiency, and contracting
issues but also business disruption risk and misalignment
of supply chains. Information risk: Supply chain is one
of the most collaborative environment in an
organization; thus, it inherently poses greater risks to the
confidentiality, integrity, and availability of corporate
information. They should consider the accuracy,
timeliness and relevance of data shared among parties,
information system security and disruption, intellectual
property and information outsourcing risk.

5. New technology risks: Technology risks emerge as

smart phones, tablets, social media, cloud computing and
new types of technology continue to develop
Trends Challenges and Future of Supply chain
1. Material scarcity
Insufficient inputs have been a concern since the pandemic
began, due to an abrupt rise in consumer demand like never
before. Even now, retailers and suppliers alike are struggling to
meet this demand in the midst of limited availability for many
parts and materials.
When speaking to various growth stage brands in our network,
we’ve encountered everything from furniture manufacturers
facing foam shortages, to bike manufacturers losing payment
terms due to maxed out component suppliers.
In fact, a recent survey conducted by the Institute for Supply
Management (ISM) revealed “record-long lead times, wide-
scale shortages of critical basic materials, rising commodities
prices, and difficulties in transporting products across
industries.”
In light of these scarce inputs, a brand’s ability to sustain its
growth is highly dependent on working capital to weather this
downtime and ramp up for peak seasons.
2. Increasing freight prices
Contrary to initial expectations, the need for container shipping
has increased considerably throughout the pandemic. With
worldwide lockdown measures inciting a surge in ecommerce
sales, the response has been a greater import demand for raw
materials and manufactured consumer goods (a large percentage
of which are moved in shipping containers).
And since this demand was much more substantial than
anticipated, it was met with insufficient shipping capacity and an
unprecedented shortage of empty or available containers.
As it often does, this scarcity has led to a large spike in pricing.
In just the last year, freight rates from China to the West Coast
have jumped by a whopping 240%.
3. Difficult demand forecasting
Demand forecasting in the middle of a global pandemic has
added a new layer of complexity to many companies’ supply
chain management. The onset of COVID-19 essentially
shattered the forecasts for countless retailers and suppliers of
consumer goods/services, leaving them without a guide as to
how much inventory to stock or manufacture at any given time.
The challenge, then, has come from trying to improve
predictions for customer demand, while in many ways having to
rely on gut instinct rather than data-driven research. In this
situation, supply chain managers are encouraged to abandon
their bias, pursue new data sets for forecast models, and
continually refine their results for the greatest level of accuracy.
4. Port congestion
Port congestion caused by the pandemic remains one of the top
challenges for the world’s supply chains, seeing as port owners,
carriers, and shippers are collectively still scrambling for a
viable solution to this problem. Congestion occurs whenever a
ship arrives at a port but cannot load (or unload) its freight
because that station is already at capacity.
Although the loading/unloading process typically goes
according to plan, labor shortages and social distancing
associated with the pandemic have notably steered things off
course (creating major bottlenecks at a number of busy global
docks).
Due to this congestion and the backlog it’s created, a myriad of
companies are unable to get their goods out the door on time —
which means carriers are also unable to adhere to their specified
delivery commitments.
5. Changing consumer attitudes
Consumer attitudes and behaviors have changed in some big
ways during the pandemic, as well, like lowering the threshold
for delivery times and raising the requirements for a positive
customer experience.
The challenge comes in having an agile supply chain that can
harness the power of automations to optimize fulfillment and
handle accelerated demand with ease. An excellent example of
this supply chain flexibility comes from multichannel order
fulfillment services and inventory management software.
“The pandemic drove ecommerce demand to an all-time high.
While a rise in order volume was a plus for merchants, new
infrastructural needs and supply chain disruptions were major
points of concern and the subsequent focus for our clients.
Strategically, one of our biggest takeaways was the relationship
management with customers through shared product forecasting,
a defensive tactic that served to prevent negative experiences
and maintain brand integrity.”
— Daniel Gdowski, VP of Marketing at ShipMonk
6. Digital transformation
When it comes to supply chain operations, digital
transformation and IoT can be a mixed blessing. With that said,
there are several technologies with the potential to enhance the
way we approach the traditional supply chain, including:
artificial intelligence, drones and robots, electric vehicles, and
on-demand delivery.
But even though these systems/services are intended to make
ecommerce processes more efficient and cost-effective in the
long run, the challenge lies in implementing them across a
company’s existing supply chain operations.
It takes time and organizational realignment to put these
technologies into action, particularly when working with
multiple warehouses or omnichannel selling. And yet, supply
chains must continuously evolve if they wish to stay ahead of
the competition.

7. Restructuring
There’s no doubt that restructuring is making major waves
among modern retail brands. This process can take many
different forms, from reshoring, to changing suppliers, to
signing contracts with all new carriers. The challenge in terms of
restructuring is to decide when it’s the right time for a change
and how to do so as seamlessly as possible.
For example, switching suppliers has to be carefully coordinated
so that you don’t run out of inventory during the transition
period. This will require you to keep a healthy amount of safety
stock on hand, which can prevent a stockout (and lost sales)
should demand surge while you’re waiting for replenishment or
for the contracts to be finalized.
The same can be said when your company is reshoring, as well.
It’s imperative that you have enough safety stock available in
the event that the transfer takes longer than expected.
8. Inflation
Although it's too soon to say for sure, there’s a strong chance
2023 will be remembered as the year of inflation. While much
has been said about inflation in the United States, the reality is,
quite a few countries around the world are now dealing with the
highest inflation in decades.
As this period of inflation stretches on, businesses must be
prepared for cost increases related to the procurement of raw
materials, finished products, and more. The consequences of
these climbing costs often translate to excess or surplus
inventory, mounting storage fees, smaller margins, and lowered
revenue for your product-based brand.
With that in mind, the challenge becomes accepting the reality
of inflation while doing your best to minimize its impact.
Combating inflation begins with understanding how it affects
your specific business, and then taking steps that’ll help you
survive these trying times.
Fortunately, your company can fix inefficiencies with
its inventory management and reassess its variable costs
(payroll, advertising, etc) to reduce operational overhead
when/where possible. This way, you’ll save some money to
hopefully balance out the rising costs of inflation.
How to overcome supply chain issues
Keep liquidity in your business
Protect your business with flexible access to capital. After all,
having cash on hand is often the difference between meeting
demand and going out of stock.
With sharp ebbs and flows of inventory expected in the coming
months, it’s wise to consider a flexible line of credit that can be
used to stock up on evergreen or perennial items in high demand
and pay for priority manufacturing/shipping (or even air
freighting as needed).
Diversify sourcing in your supply chain strategy
Broaden your range of sourcing, perhaps geographically, to
increase choice and abundance within your supply chain. By
developing multiple supplier relationships, it’s easier to become
more flexible and adjust to a constantly changing market (i.e.
during a prolonged pandemic that alters the entire global
economy).
Many times, diverse sourcing is the key to a brand’s success, as
it readily locates goods and materials while maintaining profits,
growing customers, and boosting innovation.

Work with a freight forwarder

Partnering with one or more freight forwarders can help you
manage and track the shipment of your goods. While freight
forwarding companies are accountable for the transportation of
products from one destination to the next, they can also arrange
the entire process for shippers and negotiate the best price and/or
fastest route.
Retailers who work with a freight forwarder benefit from their
vast knowledge of the supply chain, in addition to their ability to
handle unforeseen obstacles in real-time (such as delayed goods
or rerouted services). What’s more, freight forwarders are able
to negotiate at scale by aggregating shipments of smaller
retailers.
Identify alternative shipping ports
Hedge your bets by seeking out alternative ports to meet your
fulfillment needs and stay on schedule — regardless of
unforeseen events or a sudden spike in customer orders.
With DTC brands increasingly dependent on Asian imports, the
sister ports of Los Angeles and Long Beach have become the
bedrock of Transpacific trade.
Given that these ports account for over 25% of North America’s
ocean freight, it’d be wise to identify a fail-safe in case of
congestion or similar inefficiencies.
Improve demand forecasting
Without fail, the best way to improve forecasting is by
using automations to calculate these metrics on your behalf.
Ecommerce sellers are always looking for a balance between
their inventory levels, warehousing costs, and the demand from
their customers to prevent stockouts or inventory shortages.
With automated inventory alerts, forecasting tools, and cash on
hand, merchants can stock up with confidence based on
predicted product demand or historical sales. What’s more,
prioritizing forecasting can streamline inventory counts and
reduce excess overhead fees.
Stay resilient
Retailers who stay resilient in the face of supply chain
challenges have the best chance for success. By remaining
flexible, your company can better adapt to unforeseen
circumstances and make strategic pivots as necessary. This
might mean coming up with better solutions to complex
problems with your inventory, technology, marketing, and more.
For example, you can review your inventory levels to determine
which products need to be bundled, discounted, or possibly just
promoted. In doing so, you can almost immediately increase
your cash flow and minimize lost revenue from dead
stock inventory.
Alternatively, you might want to upgrade your tech stack to help
you stay afloat and stand out among the competition. Using
comprehensive inventory software, your brand can call out
inefficiencies, reduce errors,