3 Best Practices to Tackle Inflation in Supply Chain Network Design

Since 2022, global economies have been facing record inflation. The rate of inflation in 37 of the 44 advanced economies has doubled over the past two years, according to Pew Research Center.

Three key factors are driving up the cost of making and providing goods and services:

• Fuel and food shortages because of the Russia-Ukraine war
• Increased liquidity in the markets following the stimulus offered by different countries during the Covid-19 pandemic
• Supply chain snarls that created supply-demand imbalances

Hence, it becomes important to holistically re-evaluate the supply chain network to identify areas of improvements. This exercise can help organizations become more efficient and manage the current crisis by reducing the need to pass on rising input costs to consumers and hence improve customer loyalty.

How Does Network Design Help Control Costs?

Network design tools can develop a digital twin of the existing supply chain network for an organization. This, coupled with scenario planning and visualization capabilities, can help businesses identify optimization opportunities and propose optimized models from the current state of their supply chain networks.

Here are three best practices that can be incorporated into network design tools to build a more efficient and robust supply chain even in an inflationary environment:

1. Re-Evaluate Product Portfolio Based on Changing Market Sentiment to Optimize Material Flows

Research indicates that inflation modifies customer sentiment and their purchasing patterns. It is important to re-evaluate the portfolio of products offered and estimate demand fluctuations and its impact on each segment. As such, sentiment shifts can entirely reshape demand markets. This information can help organizations re-adjust production or warehousing capacities and optimize material flows.

2. Logistics and Delivery Schedule Optimizations

Inflation has a direct impact on day-to-day operations as costs for logistics increase with rising fuel costs and labor shortages. Optimizing transport modes and routes to deliver the good across the supply chain at the lowest cost is key to maintaining or gaining competitive advantage in an inflationary environment. Research has shown that route optimizations can reduce fuel costs by up to 20%. Optimizing delivery schedules in a way to maximize the load transported. It can also help improve vehicle utilization and hence reduce costs.

3. Near Shoring or Re-Shoring Considerations

An organization can re-evaluate the total cost of ownership of having the product manufactured within the country it is based in as against a low-cost manufacturing location.

In an inflationary environment with rising labor and fuel costs in emerging economies, local automated solutions can turn out to be more affordable. It is important to evaluate near-shoring or re-shoring options to identify the potential wins.

Learn more about how you can optimize your supply chain network design. 

Authors: Mohansaikiran P, Sairaj Hemachandran and Yogesh Khadke