Supply chain network design is all about creating a model of your existing supply chain network and then adding in alternative possibilities to evaluate them analytically. This gives business leaders a relatively easy, fact-based way to look at how effective their current supply chain is and compare alternative configurations.
When done effectively, smart supply chain network design can translate into millions of dollars of opportunity, whether that’s net-new profitability or cost savings from more efficient supply chain operations. Modern supply chain technology solutions are only making this easier. With the ability to input network design optimization models in the cloud, this process becomes democratized and scalable.
Before embarking on a supply chain network design or optimization project, don’t forget to establish clear objectives before the initiative is underway. Aligning business and operations goals is essential to success, and it will help establish a clear benchmark of before and after performance. You’ll then be able to get a good indication of where our actual costs are higher, or lower, than you initially anticipated, for example.
Once you’ve created a model of your supply chain network design, follow these three steps to optimize your competitive advantage:
Step #1. Apply options with enough detail to make a realistic comparison.
You need specificity in your data in order to extract reasonable cost and capacity assumptions.
Step #2. Evaluate opportunities based on accelerated time to value.
Establish clear data in terms of cost savings and ease of execution to determine probability of success.
Step #3. Conduct regular analytics of your supply chain performance data.
Take a regular assessment of what you’ve accomplished, in addition to what ‘next’ opportunities, to meet your time-value threshold.
Putting Supply Chain Network Design Into Practice
At one of my previous employers, I was able to participate in a supply chain network design project that looked at the vast majority of a $7B company’s global plant and warehouse network to see if there were any opportunities for improvement. Amazingly, we were able to identify $250-300M in annual savings by moving production around to different plants! This was an incredible opportunity, but also a double-edged sword. That million-dollar number also represented how far away from optimal we were.
At Profit Point, our standard approach to supply chain network design is to create a model of your existing network of plants and warehouses and validate the results of the model versus actual past performance. This gives us a way to validate the data we are using while also building confidence in the model’s predictive accuracy in evaluating future operational alternatives. Those alternatives need to be described at a level of detail comparable to the actual past performance that we are validating against in terms of at least cost and capacity.
After evaluating the set of alternatives, we work with our clients to help them pursue the alternatives that provide the most opportunity for savings while also weighing the probability of successful implementation. After implementation, it is important to re-evaluate the alternative to confirm that the expected results have actually been achieved and then generate a new set of alternatives to consider based on updated opportunities.
To learn more about our approach, take a look at our SNAP Strategic Network Analysis Process.