Supply chain network design should be a key part of every organization’s supply chain optimization strategy. Managing an optimized supply chain network is a delicate balance between reducing transportation and supply chain operations costs while increasing customer service levels. Striking this balance is what will give your organization the competitive advantage it needs to thrive in the market.
What Is Supply Chain Network Design?
Supply chain network design, also known as strategic planning, is a systematic process that leverages simulation tools to replicate a company's transactional inbound and outbound data to understand the cost and time it will take to deliver goods to market. Input data such as SKUs, POs, inbound and outbound transportation and customer orders are used to assess and measure an organization’s operational capabilities to meet customer service level expectations. Once this current state is established, network design enables customers to evaluate the ability of the global supply chain to support long-term growth and service initiatives. The ultimate goal is to create an efficient retail supply chain network that balances supply chain cost and customer service, from the distribution center, to delivery of the product to the consumer.
Why is Supply Chain Network Design Important for Your Company?
The right supply chain network design targets three core areas of the supply chain – inventory, cost and customer service. Striking the right balance of these three pillars is what will set your supply chain network apart and give your organization a competitive advantage.
Balancing Cost and Customer Service
Customer service level expectations and order profiles are changing. Your global supply chain should be your organization’s competitive advantage, and a key way of achieving this is by enabling flexibility within your supply chain operations. With the constant flux in customer demands, it is critical that your supply chain network is able adapt quickly to meet new needs without damaging your bottom line or profitability.
Ultimately, regular assessments of your supply chain network design followed by network optimization are necessary to meet customer expectations and support growth and future initiatives three to five years out.
Balancing Operations and Customer Service
In addition to the global supply chain network, customer order profiles are changing on the retail side, as brick and mortar shopping is on the decline, and ecommerce is expected to increase to 25 percent of retail sales by 2024. This change in order fulfillment will impact warehouse and transportation operations, which are critical aspects of the product flow of any successful supply chain network. In order to mitigate risk in warehouse and transportation operations, supply chain leaders should focus on diversifying delivery providers, labor, and real estate, as part of creating long-term strategic objectives.
- Diversifying delivery providers – With pandemic-induced carrier capacity constraints, you don’t want to put all of your eggs in one basket. Diversifying carriers at a regional level will create more capacity assurance.
- Diversifying labor – With a shrinking labor pool, leveraging the right type of technology can alleviate labor constraints.
- Diversifying real estate – A supply chain strategy project can help ensure you are in the right location to meet customer needs as well as determine the proper size of your distribution capabilities in order to be flexible and reduce business risk.
How are Global Supply Chain Networks Designed?
Once you have defined what an optimized supply chain network should look like for your organization, the next step is to create a design process that will help you reach that future state. There are two keys to designing an optimal supply chain network unique to your organization – start with the customer and work backward, and then select the right partner to help you achieve your supply chain network optimization goals.
Start With the Customer
The customer should be at the center of your entire operation. While supply chain leaders will be tempted to start with the details of the supply chain or sourcing initiatives, it is much more efficient to start with the customer and your end-state network, then move through the supply chain and up to sourcing. Taking this approach helps identify inflection points and levers that are putting pressure on the supply chain, therefore allowing you to mitigate future risk.
It is also important to generate synergies from a distribution perspective, especially concerning inventory management. One way to do this is by optimizing inventory levels to meet specific demand signals in different locations, which will in turn lessen the number of transfers involved in your supply chain.
A key step in creating your design process is moving from a strategic approach to a tactical approach, which will define concrete tasks to execute in order to reach your supply chain network’s final state. Laying out key tactics that will help accomplish your supply chain strategy will set you up for the most success in designing a strong supply chain network.
How to Select the Best Partner for Your Supply Chain Network Design
Designing an optimized supply chain network is not something that an organization should perform alone. It is worthwhile to invest in a partner that will walk with you through the process of running supply chain network analyses and creating a plan. This partner should also stick around during implementation to make sure everything runs smoothly. Some key characteristics that every organization should seek in a supply chain network design partner are:
- Years of experience completing distribution network design and the expertise to translate network modeling from the strategic to the tactical
- Capable of future-state, strategic thinking around global trade
- Knowledgeable of key technology and simulation tools – this is not a spreadsheet exercise
- A one-stop-shop partner that can execute on all ends of the network to improve chances of success in a cost-effective and speedy manner
- Ability to think ahead and execute contingency planning, so your company can stay on track no matter what challenges arise