Supply chain design, sometimes referred to as network design or network modeling, is a well-accepted decision support tool used by many companies to optimize the footprint of their operations. The purpose of this article is to provide a brief overview of the practice and will serve as a foundation for future articles that will tackle specific aspects in greater detail.
Broadly speaking, Supply Chain Design (SCD) is about determining the optimal quantity, location and capacity of plants, production lines, warehouses, distribution centers (DCs), cross-docks, pool points, etc. a company should have.
Common Applications of SCD
The most common application is optimizing distribution networks, i.e., determining the right quantity, location, and size of DCs. There are several other applications for SCD such as sales or fleet territory configuring and product flow optimization.
On the more esoteric side, I’ve worked on projects involved in the distribution of cash to ATMs and the US Marshals Service for the transportation of felons.
Companies that will see the most benefit are those with an extensive network conveying large quantities of bulky and heavy materials. Coca-Cola will see much more savings than say a jeweler like Tiffany’s. Best Buy has much more to gain than a Mom and Pop electronics shop.
It’s a Balancing Act
At its core, SCD is mostly about finding the right balance between minimizing costs and risk while maximizing customer service. The rule of thumb is that SCD will save 10% of a company’s transportation and warehousing costs. Of course, there is a tremendous amount of variability going from one industry and company to another.
Llamasoft, the developer of the popular Supply Chain Guru software for supply chain design, reported their customers saving anywhere from 1 to 40% in transportation costs and 1 to 25% savings in handling costs while seeing service improvements ranging from 1 to 30%.
Industry Leaders use supply chain design on a continual basis to respond to changes in their business due to growth, competition, duties, raw material costs, transportation market, mergers, acquisitions, etc. Many companies are building their own Center of Excellence or outsourcing the work to specialized firms in a managed service agreement.
The Art and Technique of SCD
SCD is a process that involves Big Data, data mining, business intelligence and optimization in the form of a Mixed Integer Programming (MIP). I’m not particularly fond of industry buzzwords, but I hope the reader will forgive me here as I am describing an actual use case.
There is both technique and art to the process.
Skill and experience are crucial components to achieving accurate and precise results; there is no “Easy” button. In this respect, my views may clash with some software vendors, but then again, we have competing interests.
Supply Chain Design is a well-recognized practice used to strategically optimize a supply chain. I encourage all companies with a supply chain to, at a minimum, investigate its use in their operations.
About JBF Consulting
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