Supply Chain Network Design Explained

Supply Chain Network Design Explained

  • Key objectives of a global supply chain design are to optimize inventory, working capital and logistics costs
  • Failure to consider network design can often cost the enterprise dearly in the longer term
  • Optimization of supply chains reduces overall costs, enhances service, speed-to-market, flexibility and risk mitigation
June 14, 2022 | Supply Chain Strategy Blogs

The supply chain network design is defined as a working model that delineates the overall framework of a supply chain to assess the time and costs required to bring goods to the market.

This model helps a business spot inefficiencies and potential risks in the supply chain. The model also helps analyze "what if" scenarios to optimize operations to reduce costs, improve service and increase responsiveness.

What is the goal of a Global Supply Chain Network Design?

The key objectives of a global supply chain design are to optimize inventory, working capital and logistics costs. It also increases visibility, identifies opportunities for cost savings and reduces potential risks.

Supply network design reinforces the supply chain by mapping and modeling processes and optimizing them to ensure that products or services are delivered on time and in a cost-effective manner.

What is the Importance of Supply Chain Network Design?

Analysts in a GEP white paper on the importance of supply chain network design said that 80% of supply chain costs are determined at the designing phase of the product and supply chain network. Thus, failure to consider network design can cost the enterprise dearly and be counterproductive in the longer term.

Simply mapping a global supply chain network, its flows, timelines, current costs and revenues generated can generate a bunch of troubling yet important questions, such as:

  • Why are the enterprises’ only suppliers based overseas?
  • Why are there so many warehouses, and why in those locations?
  • Why is there so much dead stock? Why has more inventory been ordered?
  • Why are freight and trucking costs so high?
  • Is the current network design efficient?
  • Is the supply chain design aligned with the enterprises' sustainability goals?

What Are the Benefits of Supply Network Design?

Supply chain network design or SCM network design helps enterprises simulate and visualize their supply chains to optimize them. Optimization of supply chains reduces overall costs and enhances service, speed-to-market, flexibility and risk mitigation.

Here are the key benefits:

  • Discerning parts for streamlining and potential cost savings
  • Reduction in purchase costs and inventory
  • Working capital reduction
  • Reduction in freight costs
  • Route optimization for reducing transit time and fuel costs
  • Reduction in network fixed costs (facilities, equipment) and supply chain variable costs (labor, handling, 3PL costs)
  • Optimization of service levels and delivery dates for customer satisfaction
  • Process and cost visibility across the supply chain network
  • Providing performance visibility of the complete supply chain network by comparing its capabilities/costs against set benchmarks

What Factors Are Considered While Designing a Supply Chain Network Model?

To start with, enterprises must establish a benchmark, and to do so, the following components must be considered:

  • Define the objectives as aligned with the enterprises' objectives and the supply chain design model parameters, such as capacity issues, inventory replenishment lead times, customer needs, location of facilities and sources and so on.
  • Collate the required data, such as forecasts and future trends.
  • Use network optimization tools and necessary data for building a “living” model, incorporating the defined parameters and data collected.
  • Validate the model with historical "what if" scenarios and compare the outcome with known results.
  • Finalize the supply chain network design and implement it.

How Many Types of Supply Chain Network Design Are There?

Enterprises deciding to assess their supply chain network design must zero in on the type of SCM network design to be adopted.

The three types of supply chain network design are:

Strategic Network Design:

Here, the designing of the network — location of the facilities and sources, production and warehouse capacities, market strategies — must be aligned with the objectives of the business.

Tactical Network Design:

Here, different ways to optimize the existing network are explored for implementing short-term planning decisions.

Identifying Risks and Their Mitigation:

Here, risks are identified by asking “what if” questions. A plan of action (PoA) for managing each identified risk is then made.

Also Read: Complete Supply Chain Management Guide

Should Supply Network Design Be Considered a Core Process?

A supply network design is a dynamic process due to the ever-changing conditions of the environment, markets, customers, suppliers and raw materials, including weather. Thus, a supply chain model designed earlier will no longer be valid today.

It is an iterative process that continues to refine the model and ensures a more consistent output. Regularly updating the supply chain model with the current realities and parameters will provide accurate results over time.

Many top global companies consider supply chain design a critical function and a core process, regularly rationalizing their models as required.

Ways to Make Supply Chain Design as a Core Business Process

  • Ensure a permanent network design center operated by a cross-functional team with the necessary skill sets and experience.
  • Plan the frequency and the critical issues that should flag the remodeling of the supply chain design and establish these rules.
  • Appoint a trusted consultant having in-depth knowledge and vast experience in supply chain network design.
  • Reach out for help when needed — approach other professionals or supply chain design forums for help when needed.

Conclusion

Supply chain review and design have gained traction of late and are acknowledged to effectively cope with the rapid changes and challenges faced by enterprises globally. Unfortunately, many businesses are yet to regard supply chain design as a core process and instead treat it as a one-of-a-kind case or tweak it on a project-to-person basis.

Examples of a supply chain network design model include spotting bottlenecks in a supply chain and looking to enhance the processes across the supply chain, which is vital in today’s scenario. Tech-savvy enterprises can thus leverage a dynamic supply chain model to ensure that their supply chains deliver and exceed business expectations long into the future.

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