Guest Commentary: Transportation Network Design: Are You Optimizing an Inefficient Supply Chain?

Many supply chains are the product of history, put together over time as a company grows with expanding product lines and emerging markets. In larger successful companies, supply chains can grow to enormous complexity, encompassing billions of dollars in assets and deeply ingrained processes. If an organization continues to gain market share, acquires other companies and strengthens its brands, you might assume that its supply chain and transportation network are functioning pretty well, right?

But what if it’s not a great supply chain? What if it’s simply an optimized version of an inefficient supply chain? It’s true that the company’s TMS makes sure that transportation is on-time and costs are under control, and the WMS enables optimal picking and placement of the products, but that doesn’t change the fact that the end-to-end supply chain operation may at best be sub-optimal or at worst be broken altogether.

It is the “design” of a transportation network that can unleash its true potential. So how do you design a full-potential transportation network?

For most transportation and logistics professionals, this is a challenging question to answer because it requires visibility into the full supply chain network and the balancing of numerous performance metrics, including service, cost, complexity, sustainability and risk. The answer is being able to isolate your legacy infrastructure and model the data with a ‘what if’ freedom. Transportation network design is a rapidly-growing analysis approach that enables companies to create digital “models” of their end-to-end supply chains to evaluate new strategies and identify breakthrough performance improvements. By integrating transportation route optimization with network optimization and simulation, you are able to:

  • Simulate near-term cost and service improvements to existing transportation operations
  • Identify longer-term strategic improvements to the global transportation network
  • Run continuous what-if analysis of new strategies, disruptions, constraints and business challenges

Here’s a real-life example of how transportation network design can help balance DCs and transportation:

Business issue: Companies with extensive distribution networks struggle to determine the correct number and placement of distribution centers for optimal outbound distribution. This involves finding the proper balance between transportation costs, which are lower with more distribution centers, and facility fixed costs, which are lower with fewer distribution centers.

Supply chain design approach: Using existing store locations and demand as the primary input, network optimization and transportation optimization engines can solve for the lowest cost distribution network quickly and easily. Network optimization performs an analysis to determine the number of geographically optimal distribution centers, as well as determining the optimal location. The transportation optimization program develops multi-stop routes for inbound or outbound transportation. It considers multiple variables to form cost effective transportation routes.

Example and benefits: A U.S.-based retailer with approximately 600 stores in the eastern half of the U.S. wished to evaluate the fixed distribution center operating cost and transportation route cost by varying the number of distribution centers from one to eight.

With a single distribution center, the facility operating cost is at minimum. As distribution centers are added into the network, the outbound “last mile” transportation costs decrease – the lowest outbound transportation cost occurs with the most DCs because they are closest to the end customers. In network optimization, each DC network is its own scenario, allowing maps and summary statistics to be viewed side-by-side.

Here are a few other ways companies can leverage transportation network design:

  • Carriers and dedicated and private fleets can haul more freight per mile with greater asset utilization, consolidating loads and creating continuous moves for higher operating efficiency. They can also understand their cost-to-serve.
  • Shippers and retailers can determine the ideal mode and flow path for each product or business unit, using predictive analysis to determine inventory position, timing and needed capacity.
  • 3PLs and Intermediaries can identify and test stand-alone or collaborative best practices for their customer base and demonstrate proficiency in design as well as management.

Summing It All Up
Supply chains are built over time; it’s a trap for a company, even a successful one, to assume that what got them this far will get them where they need to be. The technology to design the optimal transportation network is readily available. Companies that deploy this technology can quickly identify alternative transportation networks that can continue to maximize service and profits in the face of a changing environment.

Sara Curtis is the Director of Transportation Products at LLamasoft. She manages the Transportation Guru business unit, focused on delivering high quality transportation optimization solutions that are fully integrated with LLamasoft’s network optimization and simulation capabilities. Sara has a bachelor’s degree in industrial engineering from Purdue University and a master’s degree in engineering systems management from Texas A&M University. She has more than 20 years of experience in software development and supply chain design, including time at Exxon, i2 Technologies and Staples. Ms. Curtis has worked with companies across diverse industries, through mentoring, teaching and consulting, to further their efforts and build their expertise in supply chain and transportation network design.

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