Not too long ago, companies considered supply chain design as a project to conduct once every three to five years—if at all. It was also uncommon for companies to do such analysis themselves, often hiring third-party firms to do one-off studies.
Today, there is a strong and ever-increasing trend of companies making supply chain design a core business function, and using this competency as a competitive weapon for their business. They are using modeling technology to continuously optimize their end-to-end supply chain to improve service levels, identify major cost savings, reduce risk and stay ahead of other companies in their market.
Project vs. Process
What has changed? Why is supply chain design now becoming a core process and business function? Three factors have converged to trigger this switch: technology, business practice and volatility.
Technology: Major breakthroughs in supply chain design technology have enabled modeling to be relevant to many more business functions and at a much more detailed level of analysis. This means that supply chain modelers can now answer questions related to sourcing, production, inventory, transportation, taxes, replenishment, cost-to-serve, etc.
Business Practice: The pace of change within business is at an all-time high. New products are being introduced at a rapid pace. New markets are being entered. New partnerships are being formed. All this change requires continuous modeling and optimization to keep costs and service in order.
Volatility: Change is not just happening within companies. Disruptive changes are occurring all over the globe that can drastically affect corporate supply chains. Increases in labor costs throughout “low-cost” countries, wild swings in fuel costs or adjustments in commodity pricing must all be factored. Weather-based disruptions can quickly wipe out profits if not addressed.
Implementing a Supply Chain Design Center of Excellence
Not every company has a supply chain design center of excellence established with the appropriate mission statements, reporting structures and budgets. Building this supply chain design center of excellence within a business often follows a progression that begins with a small group finding tactical quick wins and leveraging those results to justify the business function.
Here are a few key recommendations for the successful implementation of a supply chain design center of excellence:
Quick Wins: Even though supply chain design can identify major breakthroughs in cost savings or service, the recommendations can often be very disruptive and time-consuming to implement (close two factories, open four new DCs, rationalize 200 products, etc.). In order to establish early credibility, many companies will identify quick-win projects that are much easier to implement and still deliver significant cost benefits (product flow-path, inventory right-sizing, DC-customer assignments). Quick multi-million dollar wins can gain executive attention and establish early credibility for the supply chain designers, and are often used to justify further investment in staff and technology.
Shared Service Center: Supply chain design should be able to see across the entire business to optimize the true end-to-end supply chain and not just a specific business unit or business function. Shared service centers can pool talent and technology to provide analysis capabilities to the entire organization. This organizational structure can help avoid the pitfalls of local bias or politics and remain focused on data-driven business solutions.
Parallel Focus on Game-Changers: While one part of the team is focused on tactical wins, another effort should be trying to break down historical legacies to explore what is truly possible. When encouraged, supply chain designers can remove preconceived business constraints and design new green-field supply chain operations that could lead to game-changing new business practices and key competitive advantage.
As enterprises elevate supply chain design to a key continuous function within the business, the technology and staff will pay for themselves time and time again and create a true competitive advantage by more rapidly adapting to volatile and ever-changing market conditions.
Toby Brzoznowski is the Executive Vice President of LLamasoft, Inc. Toby has over 20 years of experience in building and growing businesses, focused on process improvement and analysis technologies. His expertise has been applied to bringing new and advanced technologies into mainstream use at global Fortune 500 businesses. In the last decade, Toby has been involved in the start-up of three Michigan-based technology companies. He is a graduate of the University of Michigan and a frequent presenter at supply chain and strategic sourcing events.