By applying our unique “process of understanding”, Profit Point has used many Supply Chain Network Design (SCND) software tools to deliver exceptional value in strategic and tactical network planning. Our methods extend beyond the simple use of technology to model and design complex supply chains. In this article, we examine four of the most overlooked opportunities in Supply Chain Network Design (SCND).
In today’s increasingly variable supply chain landscape, it is critical to examine all aspects of your supply chain network closely. A sub optimized supply chain network design may be performing well in one area like transportation costs, but neglecting another, like service level.
SUPPLY CHAIN NETWORK DESIGN: WHAT IS IT?
Most people think of SCND as a map with many colorful lines and icons. At its core, SCND is the design of an optimized transportation network plan. More sophisticated models include an integrated manufacturing and distribution plan with production volumes by production line/plant and warehouse utilization over time.
According to the Chartered Institute of Procurement & Supply (CIPS), “Supply Chain Network Design (SCND), also known as ‘strategic supply chain planning’, is the process for building and modeling the supply chain to understand the costs and time to bring goods and services to market within an organization’s available resources.”
1. Single Sourcing: sounds simple, but isn’t
What happens when you have a product that can be made in multiple locations, but a customer can only receive it from a single location? What if that location shifts or changes monthly or annually? It sounds simple, but many times this can get overlooked in modeling.
Consider a canning or bottling operation. Every can and bottle manufacturer makes their product marginally different. So it makes sense for a bottler to only source cans from one plant so that they have the same specs and they’re able to maximize the utilization of their machines.
Often, suppliers do not have a good way of expressing parameters like these, creating a rule for them, and optimizing all the potential scenarios.
2. Production Line Changeovers: Know the Real Cost
Production line changeovers are often not accounted for explicitly in most supply chain network design software. Many times, they are modeled through efficiency factors or available production time, but that can be insufficient. Changing over a line to run a different product can take a lot of time and effort, so it can be important to model it explicitly. This allows you to capture the lost production and additional costs.
Understanding these tradeoffs allows your team to weigh options and plan better.
3. Arriving Inventory and Work in Process Inventory: How’s your visibility?
In general, supply chains should hold minimum levels of inventory—including for raw materials, finished goods, in-transit product, and work in process (WIP)—while maintaining the service levels your customers expect. In many cases, inventory is only calculated and accounted for at the finished good level. However, manufacturers must make sure they have enough product in future months to be able to make finished goods.
It’s easy to model starting and ending inventory in a SCND. However, what happens when you have inventory that is arriving later because it is in-transit? What if a finished good product relies on other products you produce and you need to account for the work in process (WIP) inventory?
Including arriving and WIP inventory enables you to have better visibility into your pipeline. That way you’ll know how much product you can build or when you need to buy or make new materials. Capturing the data and accounting for it in your model results in a more accurate forecast and, ultimately, network design.
4. Detailed Bill of Material: Basics Often Overlooked
How do you handle when a finished product needs to consume numerous raw materials? How do you make sure to produce or supply enough raw materials to be able to make a product? All these things can be handled and accounted for by modeling a comprehensive bill of material (BOM) and the production requirements for each product.
In essence, the BOM informs the model how and when a product will consume materials during production. Most software tools tend to fall short when it comes to ingesting and modeling based on a detailed BOM. For example, in the chemicals industry, we often see BOMs change over time. It is difficult for most supply chain network design software or simplistic SCND models to capture that.
With a detailed BOM and production requirements, supply chain planners have a firm understanding of when they need to source product and how much to buy. The potential gains of implementing process improvements include lower inventory and working capital, higher output efficiency and lower total delivered cost. Additionally, the enhanced visibility can lead to better customer service and better acceptance of decisions by stakeholders across your organization.
The Time for a New View is Now
Today, supply chain is a key competitive differentiator.
Improvements aren’t always ground up. These four examples show additions that can be made to supply chain models for continuous improvement.
With these four easily overlooked aspects, we’ve only presented the tip of the iceberg when it comes to common problems with SCND studies.
If you are struggling with any of these or other unique constraints, reach out to our team. We’d be happy to share how we integrate unique business needs into our SCND engagements.