Two of the biggest and often overlooked challenges facing enterprises today are knowing where to set up shop and how to best leverage enterprise assets across the supply chain network. In the globalized economy, most supply chains are complex and geographically dispersed, serving multiple markets. However, even the small business owner – who markets “farm-to-table” products – faces similar supply chain decision points, albeit fewer in number. Deciding where to locate a hub, where to source from, what to sell and in what market are just a few of the network decisions that businesses must make, regardless of their size.
For most enterprises, the diversification of product portfolios and go-to-market strategies has compounded – if not confounded – the dilemma. Inventory has become the de facto band-aid to supply chain reliability; it is the buffer against unforeseen disruption and a luxury few can afford. Many retailers now face a choice between serving e-commerce and store replenishment, as most companies can’t afford to have separate distribution facilities to serve each channel. How this inventory problem is handled depends on a retailer’s technological prowess; some have facilities with high-speed sortation capabilities and a high level of automation while others are employing a more manual, block-and-tackle approach. Inventory challenges also stymie many manufacturers, as they face decisions about whether to source from offshore suppliers or local sources within their borders. Regardless of the channel or industry, a balanced, uninterrupted flow of inventory is a critical factor of optimal supply chain network design; otherwise, it ties up working capital and forces trade-offs.
It’s all about location, location, location!
Identifying the most ideal geographic location for supply chain nodes is a critical strategic decision. Get this wrong, and it will haunt the business for years as it sets the baseline for a sub-optimal ecosystem. Critical decisions about building new plants or expanding capacity of existing facilities demand financial investments; this justifies the use of sophisticated tools and technology, which can gather and analyze up-to-date information from a company’s worldwide operations, to support top-level, strategic decisions. Acquisition and investment decisions like these aren’t linear and instead have multiple variants – such as the cost of sourcing, cost of delivery, cost of failed service levels, price-to-market, as well as other intangibles like the benefits or costs to the community – that should be considered. Amazon’s decision to withdraw from building a headquarters in New York is a good example of the wide-ranging factors that can impact site selection.
Where are your “wheels” and “walls”?
Global visibility across geographically distributed operations enables an enterprise to consolidate its view of the whole network, instead of focusing on profit and loss (P&L) for each country or region. Additionally, this type of end-to-end visibility enables executives to make decisions based on the greater good of the company, not on the isolated profitability of one part of the business. In fact, this global view of cost to serve is now a key factor in strategic decision making and is challenging the siloed thinking of P&L owners.
Ever-changing tariffs, trade lanes and importation challenges underscore the growing need for supply chain agility. One way to evaluate the agility of a supply chain framework is the “Walls vs. Wheels” challenge. Where are the facilities, and where are they in relation to each other? How is the logistics of the organization set up in terms of inbound and outbound product movement, and what type of transportation is used? One of the goals of supply chain network design is to define the roles of the facilities to ensure they’re positioned to respond to upstream and downstream demand as efficiently as possible.
For instance, you can throw as many “wheels” at a problem as you can lay your hands on, but at some point, the logistics costs become prohibitive. Likewise, the locations of your “walls” – i.e., your manufacturing or production facilities, distribution hubs or suppliers – are key supply chain network constraints that can impact both speed and cost to market. Lifting and shifting your “walls” is not something that can happen overnight, as there are other factors such as the capital investment, lease agreement or impact on the labor force that need to be considered. Therefore, planning a supply chain network well – with full consideration of as many known variables as possible – is key to long-term supply chain efficiency and agility.
Unlocking the competitive advantage of your supply chain network
When using a combination of inventory, network and route optimization tools and applications, in concert with a well-considered and well-designed supply chain network, the opportunities to reduce costs, offer a best-priced product to market, and meet the customer’s expectation or agreed service level is achievable. The North American Free Trade Agreement is a good example of regulation that promoted off- and near-shoring motivated by tariff incentives and labor cost, however illogical it seemed when considering the overall carbon footprint or “miles moved.” However, the agreement was based on trade-offs between labor costs, transportation costs, and total costs associated with getting product to market. While nobody has a view into the future, it is certain that planning for short-term gains is short-sighted and will not be sustainable. Full consideration of the network demand and supply is necessary, along with consideration of macro factors.
Ideally, a supply chain network should be modeled during the planning stages of setting up a greenfield network. Of course, this is a Utopian approach, and not an option for most. Many enterprises today are a conglomerate of acquisitions of “perceived synergies,” and many supply chain practitioners find themselves managing supply and demand across networks that are less than optimal. Often, the location of the “walls” makes little sense, and the cost of the “wheels” used to move product between nodes far exceeds what is reasonable. Further, the increased focus on reducing carbon emissions and building green supply chains accentuates the need for more efficient and agile supply chain networks. The use of network modeling tools will enable supply chain professionals to suggest better site locations and make better strategic decisions when evaluating new capital investments. These tools also will help increase network flexibility by identifying how demand can be served using existing plants, while reducing transportation costs by better matching supply and demand, decisions that could save companies millions.
Changing consumer demands will continue to force markets to evolve. We expect to see greater pressure on shippers’ supply chains, as they combat a variety of disruptive factors, including the effects of tariffs and trade disputes, weather events, and the continued shortage of qualified truck drivers, which limits available capacity. It is critical that supply chain practitioners and business owners pay more attention to their supply chain network as a strategic factor and competitive advantage. A supply chain network designed for agility is a supply chain that will support sustained business growth.
ElMarie Hugo, Sr. Director Industry Strategy at JDA Software, is a supply chain professional with 17 years of experience in the 3PL and distribution space where she has worked extensively with companies in the automotive, retail and pharmaceutical markets defining and executing their go-to-market strategies in LATAM, Africa and EMEA.