Louis’s Learnings – The Labor Factor in Supply Chain Design

The Labor Factor in Supply Chain Design

In a perfect world, when conducting a Supply Chain Design (SCD or alternatively called Network Design and Network Optimization) project to determine the optimal location for your Distribution Centers (DCs), it would be advantageous to incorporate all aspects of the decision in the mathematical model.

Here I’m thinking beyond the usual suspects of transportation, warehousing and inventory cost to include variables such as:

  • The “cost” of delivery lead times – longer delivery times can lead to lost sales
  • Inbound shipment sizes and mode – more DCs can potentially lead to smaller shipments
  • Inventory repositioning – fewer DCs would typically lead to fewer stock transfers
  • Risk – a single DC shutting down in a network of 4 is less catastrophic than if the only DC in a network shuts down

Unfortunately, these factors are difficult to quantify and most often remain a post-optimization consideration. I think this is an acceptable state of affairs; one wouldn’t want to fall in the trap of analysis paralysis. It would however behoove the modeler to discuss the topics with the project’s decision-makers and potentially run sensitivity analysis around the more important factors.

Labor Force

Another example of these “subjective” SCD factors is labor force. More thorough SCD models (I call these investment grade models) will include labor costs, but I have yet to see a model that includes considerations for labor availability and quality. 

Again, this is understandable considering it is difficult to put an accurate scaled value on these factors.

To alleviate this gap, JBF Consulting is collaborating with CBRE and their Labor Analytics team to provide their GeoSkills reports with its Supply Chain Design projects. These reports provide a more in-depth analysis of the labor force in a region thus allowing JBF clients to make more informed decisions when comparing alternative results of their SCD project.

While not an equivalent substitute to modeling labor costs (see my blog post on the caveat of simplified SCD models), these GeoSkills reports can also serve to quickly compare regions from a labor cost perspective if this factor was not included in the SCD model.

Do you have the right footprint for your network? 

Are you looking to reduce costs? We are offering a virtual Supply Chain Optimization Workshop for you to understand where the biggest opportunities lie within your supply chain operations, review the current state of your SCM applications, and create a roadmap to more efficient and automated systems and processes. Please reach out to me at louis.bourassa@jbf-consulting for more information.

Louis Bourassa is the Analytics & Optimization Practice Head at JBF Consulting. He provides analytical and optimization support to JBF clients. Louis has a diverse background with a mix of industry, consulting and software roles that allowed him to develop a strong business acumen and expert knowledge of supply chain analysis and design.

Founded in 2003, JBF Consulting is a supply chain execution strategy and systems integrator to logistics-intensive companies of every size and any industry. Our background and deep experience in the field of packaged logistics technology implementation positions us as industry leaders whose craftsmanship exceeds our client expectations. We expedite the transformation of supply chains through logistics & technology strategy, packaged & bespoke software implementation, and analytics & optimization. For more information, visit us at www.jbf-consulting.com

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