Network Design for Business Success
Whether you formally create a center of excellence or not, internal competence in supply chain network design is essential. Here are a few of the reasons why:
1) Weak Network Design Limits Business Success
From an operational perspective, the greatest leverage for revenue, margin, and working capital lies in the structure of the supply chain network. It’s likely that more than half of the cost and capabilities of your supply chain network remain cemented in its structure, limiting what you can achieve through process improvements or even world-class operating practices.
You can improve the performance of existing supply chain networks through analysis of their structural costs, constraints, and opportunities to address common maladies like these:
- Overemphasis on a single factor. For example, many companies have minimized manufacturing costs by moving production to China, only to find that the “hidden” cost associated with long lead times has hurt their overall business performance.
- Incidental Growth. Many supply chain networks have never been “designed” in the first place. Instead, their current configuration has resulted from coincidence or from the impact of mergers and acquisitions.
- One size fits all. If a supply chain network was not explicitly designed to support the business strategy, then it probably doesn’t. For example, stable products may need to flow through a low-cost supply chain while seasonal and more volatile products, or higher value customers, require a more responsive path.
2) It’s Never One and Done
At the speed of business today, you must not only choose the structure of your supply chain network and the flow of product through that network, you must continuously evaluate and evolve both.
Your consideration of the following factors and their interaction should be ongoing:
Number, location and size of facilities such as plants and distribution centers
- Qualifications, number and locations of suppliers
- Location and size of inventory buffers
- The push/pull boundary
- Fulfillment paths for different types of orders, customers and channels
- Range of potential demand scenarios
- Primary and alternate modes of transportation
- Risk assessment and resiliency planning
The best path through your supply chain network structure for each product, channel and/or customer segment combination can be different. It can also change over the course of the product life-cycle.
In fact, the best supply chain network structure for an individual product may itself be a portfolio of multiple supply chains. For example, manufacturers sometimes combine a low-cost, long lead-time source in Asia with a higher cost, but more responsive, domestic source.
3) Focus on the Most Crucial Question – “Why?”
The dynamics of the marketplace mandate that your supply chain network cannot be static, and the insights into why a certain network is best will enable you to monitor the business environment and adjust accordingly.
Strategic supply chain network analysis must yield insight on why the proposed solution is optimal. This will always be more important than the “optimal” recommendation.
In other words, the context is more important than the answer.
4) The Time Is Always Now
For all of these reasons, supply chain network design is more than an ad hoc, one-time, or even periodic project. At today’s speed of competitive global business, you must embrace supply network design as an essential competency applied to a continuous process.
You may still want to engage experienced and talented consultants to assist you in this process from time to time, but the need for continuous evaluation and evolution of your supply network means that delegating the process entirely to other parties will definitely cost you money and market share.
5) Competence Requires Capability
Developing your own competence in network design will require that you have access to enabling software. The best solution will be a platform that facilitates flexible modeling with powerful optimization, easy scenario analysis, intuitive visualization, and collaboration. The right solution will also connect to multiple source systems, while helping you cleanse and prepare data.
Through your analysis, you may find that you need additional “apps” to optimize particular aspects of your supply network such as multi-echelon inventory optimization, transportation routing, and network risk. So, apps like these should be available to you on the same software platform to use or tailor as required.
The best platform will also accelerate the development of your own additional proprietary apps (developed on your own or in collaboration with a partner), giving you maximum competitive advantage.
You need all of this in a ubiquitous, scalable and secure environment. That’s why cloud computing has become such a valuable innovation. The Opalytics Cloud Platform has been built from the ground up to deliver all of this.