Supply Chain Network Optimization: Start with these 4 Questions for Successful Design

Supply chain network optimization and design initiatives require trading off many aspects of the supply chain: manufacturing, transportation, warehousing and distribution, inventory and customer service. Organizations need to make sense of internal and external data, collect input, reach alignment and coordinate a realistic but impactful roll out. It is a lot of work, and most supply chain leaders are eager to get started. While we love eagerness and appreciate urgency at Profit Point, we often see supply chain leaders jumping too far ahead in the “doing” of the supply chain network optimization projects, only to discover that there may not have been enough “thinking” before it started.

 

Supply Chain Network Optimization: Start off Right by Questioning Yourself

The success of your supply chain network optimization or design project is directly driven by your intended objectives, the scope of analysis and anticipation of competitive actions and reactions. When projects are started without considering these parameters, they often take longer than expected to complete, run over budget and deliver almost no value to the enterprise.

Getting your supply chain network optimization project properly oriented for success is easier than you think. At Profit Point, we start with a quick alignment survey, and then a readiness assessment. You can do this yourself: ask your team and yourself the following four questions to drive supply chain network design success.

 

Supply Chain Network Optimization Question 1: What are the objectives of the design project?

Establishing objectives for any project may seem obvious to most business leaders, but in a supply chain network optimization project, it is critical to differentiate between business and non-business objectives, be specific (enough) and know the stakeholders for each objective.

Many times, our clients start with an “objective” such as, “We want to put a new plant in Ohio.” To me, this is an outcome. Putting a new plant in Ohio is the answer to the question of “Where should we put a plant that optimizes our service level for customers I, II, and III and ensure we stay five steps ahead of competitor ABC?” If you already know the answer, your project is not a design or optimization project. It is a deployment project.

Supply chain network design objectives are specific, and naturally lead to analysis. There are objectives related to commercial stakeholders such as increasing the service level, increasing margin, and capturing new business. Differently, there are operational objectives such as reducing lead time, reducing distribution costs, and maximizing asset utilization.

You may think, “Well, all of these are our objectives?” And, yes, we would not want to blindly increase costs just to win a piece of business that may not generate enough upside. If all of these are your objectives, then rank them in order of importance to your team. This ranking guides the experts who will analyze your data on what to prioritize and optimize for.

Second, when you perform a network design analysis, it is imperative that the team understands the scope of analysis. There are two scopes: (a) business and (b) operations. The business scope guides the project team on what products and / or customers should be part of the design project, while the operations scope defines the levers that the team can pull during the analysis such as geography, plants, or vendors.

For example, your business scope could be about optimizing only the distribution side of your supply chain, or alternatively analyzing how manufacturing and distribution interact but not considering raw material supply. Operationally, it might be natural for certain product lines or customers to have geographical scopes that are excluded or vendors that cannot be excluded. Being clear about your geographic, distribution, manufacturing and sourcing scope sets you up for a pointed analysis with an answer that is realistic to execute.

 

Supply Chain Network Optimization Question 2: What data and at what level of detail is needed to fully analyze the scope?

Now that you have an understanding of your objectives and priorities, let us dive into how the analysis will be performed. To help make this critical step smooth, the team should define what data and how detailed the data should be collected at the start of the project.

For example, if your project scope is focused on distribution centers, you will need to collect demand forecasts by customer location, distribution center capacity and warehousing costs, but you may not need the bill of materials on every product nor manufacturing line capabilities.

Further, the level of detail of the to-be collected data is equally important to clarify. Let us take your demand forecast as an example. What time period details do you need; by month, week, or day? Do you need it broken down by customer if your project is about optimizing last-mile transportation costs?

Of course, the next step is to assess whether you have access to the data required and at the level of detail you need to perform the analysis. However, now that you have a data list, that task has become better defined and easier to deliver.

 

Supply Chain Network Optimization Question 3: What different scenarios would you like to explore with the analysis?

Building expected changes and modeling unexpected variation into your supply chain network design analysis is a must. Some scenarios like shifting vendors (and, therefore, material and transportation costs) are obvious, while others like unexpected demand surges at hard-to-reach locations may not be.

When planning your analysis, ask yourself what are the likely (and slightly unlikely) scenarios you would like to explore. Also, ask outside experts on what scenarios outside of your organization they would recommend. For example, there may be a range regulatory trends in both taxation and sustainability that experts would have more insights into than your enterprise.

Also ask various stakeholders, what kind of variability in the supply chain they want to be prepared to address. Sales, manufacturing logistics, and commercial business executives may each have a different perspective on this.

 

Supply Chain Network Optimization Question 4: How will your competition react to your supply chain adjustments?

Based on the business and operational scopes you have defined for your project; you must gain an understanding of how your competition may react.

For example, you may have three competitors in the product line you are analyzing, with you having the smallest market share. It may be very easy for your competitors to negate any gains you have made in growing your market share because they have a much larger distribution footprint than you. If so, how should the solution be deployed so that can be prevented? Or, is the solution of the analysis one worth investing in?

It important to analyze each competitor that could be impacted by your supply chain design shifts, and how they will try to mitigate your threat to them.

 

Supply Chain Network Optimization: Focus on the Outcome Success

I hope these questions can help you get started on thinking about how to organize and plan your supply chain design project. Remember, the focus is on a success and product outcome. Whether the solution is successful is firstly based on your defined objectives. How the outcomes can be achieved is based on the scope. How viable and successful a solution will be is evaluated based on both your objectives and competitor reaction.

To learn more about supply chain network optimization and how Profit Point approaches it, please read my other post, Designing Supply Chain Network: 5 Steps for Optimization.

About Eric Deahl

Educated as an Industrial Engineer, Eric has been providing planning and scheduling solutions throughout his career to numerous industries, with a particular focus on the value chains in manufacturing and distribution. He came to us from the optimization team at FICO, and prior to that was the leader of the Optimization and Supply Chain Solutions team in North America for IBM. Eric has a particular interest in understanding how organizations differentiate themselves in a marketplace and then applying technology to enhance that differentiation through operational effectiveness.

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