Supply Chain Network Design: Optimization Advantages

The Optimization Advantages of a Redesigned Supply Chain Network

Cost optimization is one of the most popular supply chain initiatives. When operating in an endless array of high-impact disruptions, global economic fluctuations, and sustainability concerns, focusing on costs alone will not save your supply chain.

According to the Gartner Guide to Use Cases for Network Optimization Capabilities, your company should dig deeper into four areas of your supply chain network design – distribution network optimization, omnichannel fulfillment, manufacturing capacity optimization, and global footprint strategy.

Each area may require different degrees of change ranging from a specific business unit, region, or product line to wholesale trade-offs or end-to-end optimization for cost, speed, and service levels across a large market. But the overall experience offers a better understanding of how to reshuffle, re-contract, redo, and reposition them collectively to drive a supply network no longer constrained by current challenges and future risks.

Distribution network optimization

Most network design projects begin with a classic distribution flow and footprint optimization project and are rarely touched again for another three years, on average. Yet, annually refreshed models can be more supportive of yearly contracting processes and decision-making around in-sourcing and outsourcing logistics services.

Gartner suggests that distribution networks can be better optimized when considering topics related to capacity and flow, for example:

  • Inventory positioning and policies
  • Warehousing capacity analysis
  • Mode selection and fleet sizing
  • Logistics contract bidding
  • Last-mile multistep modeling

For example, you can explore inventory positioning and allocation of demand to specific warehouses across tactical time horizons. In addition, a detailed selection of transport modes – especially in last-mile modeling – can help maximize performance across inbound and outbound networks.

Omnichannel fulfillment

Although traditionally considered a strategy for distribution network optimization, omnichannel fulfillment has grown to a level of popularity that’s challenging companies to create direct-to-customer (DTC) models in networks initially set up for wholesale channels.

Based on Gartner’s research, you can overcome this obstacle by reconsidering your existing DTC distribution model in the context of:

  • Inventory placement and complexity
  • Pop-up capacity, inventory, and labor needs
  • Multi-stop modeling
  • Returns or reverse logistics modeling
  • Demand sensitivity modeling
  • Balance of cost, speed, population reach, and growth

With this approach, demand planning processes can leverage forecast sensitivity analysis to better understand breaking points in your supply network. You can also determine the best service levels based on market expectations and existing inter-distribution channel processing times. Furthermore, various models can be assessed by building a list of decision options when costs, speed, and customer reach requirements seem unclear.

Manufacturing capacity optimization

While manufacturing functions tend to shape themselves against plant- or line-level capacity, the inclusion of additional activities and analyses as part of the overall model can expand decision-making support within existing stakeholders.

Gartner names seven specific considerations that should be entertained when optimizing manufacturing capacity:

  • Sourcing optimization
  • Asset utilization
  • Dynamic “what-if” modeling
  • Make versus buy trade-offs
  • Product qualification versus flexibility
  • New product introduction
  • Capital expenditure planning

Throughout this process, you can uncover hidden costs of unused or under-utilized manufacturing capacity and weigh scenarios against their total costs to serve in production, inventory, and distribution. Plus, more tactical models supporting sales and operations planning time horizons can factor in product launches or sunsets, inventory policies, and demand-supply balance.

Global footprint strategy

Strategic scenario planning can become critical in ensuring your business operates at peak performance today – and tomorrow. It allows you to revisit your business’s long-term footprint strategy and realign it with emerging, externally motivated events that may pose new opportunities and risks.

The scope and scale of your organization may differ from others in the same company. But, as reported by Gartner, the strategic view of the exercise can help you see the relevance of your model and which changes can make an impact across six use cases:

  • Low-cost sourcing versus nearshoring
  • Tax or tariff minimization
  • “What-if” scenario modeling
  • Designing new product networks
  • Merger, acquisition, or divestiture analysis

Unconstrained and “blue sky” in nature, these scenarios empower your organization to imagine the possibilities of your supply network without being restricted by current practices, industry challenges, and operational gaps. For instance, “what-if” modeling helps visualize your supply network on maps so you can align key decision-makers or quantify trigger points for decision-making. As a result, you can build and redefine an end-to-end model – no matter the complexity – by using two or more of the six use cases to answer broader questions.

Going beyond cost to find your true supply chain value

Looking beyond cost reduction is a critical first step toward creating a truly optimized supply chain network design. It opens the door to a world where your supply network can respond to a steady stream of network disruptions and opportunities faster than your competitors – driving a trajectory of ongoing business growth.

With Logility’s network optimization solution, you can make complex decisions faster and drive actions that achieve a rapid time to value. The solution empowers you to optimize all areas of your supply chain network design with analysis that can be democratized and distributed across your entire business.

For example, you can model your supply chain’s current and future states within hours while asking “what-if” questions about complex scenarios and exploring alternatives to simplify them. In addition, the impact of your decisions – such as costs and service performance – can be presented in an interactive environment, allowing your stakeholders to collaborate and gain consensus on the way forward.

Ready to evolve your network design? Explore Logility’s network optimization solution.