Schneider Electric has been working to simplify its supply chain over the last few years. This French public multinational was selected as having the best global supply chain by a leading analyst firm. Corporate Knights also ranked the company the most sustainable company in its peer group and the 7th most sustainable company overall. Schneider Electric’s supply chain operation is of great interest to other practitioners. One essential tool used by the supply chain team is supply chain design.
Schneider Electric provides energy management and industrial and building automation products and services. Energy management solutions are products that energy utilities use to produce power and data centers use to consume power. They also produce industrial automation solutions that allow factories to monitor and control production. Building automation is similar to industrial automation, except that instead of controlling a factory, the systems control a building’s entry, power consumption, and lighting.
The company has a complex global supply chain. Schneider Electric employs 150,000 people and generated 35.9 billion Euros in revenues in fiscal 2023. Schneider Electric produces roughly 300,000 finished goods. The supply chain has about 190 factories and 100 distribution centers. These facilities produce and ship 150,000 order lines per day.
Schneider Electric’s Journey with Network Design
Lee Botham is the global director of modeling and network design at Schneider Electric. Like many companies, the French multinational produces a significant amount of its products in low-cost nations. “But since COVID,” Mr. Botham explained, “there’s been a big drive to increase resilience. So, we’ve seen more of a push to simplify our supply chain and make things closer to the region that demands it. We don’t want to be as reliant on long supply chains that can easily be broken.” One key tool they use to accomplish this is a supply chain design solution from Coupa.
In 2012 and 2013, they began using external consultants to model their Asian supply chain. By 2014, the company had purchased the Coupa solution, developed an internal modeling team, and created data extraction and cleansing routines. This is when the firm hired Mr. Botham. There are currently seven analysts on the team, although they will hire external consultants to supplement the team for specific projects.
For the first few years, the company created regional models to determine how to maintain or improve customer service levels at lower cost. Initially, regions generating lower revenue were modeled. As the modelers gained skill and projects delivered savings, the firm modeled its most important regions—Europe and North America.
As Schneider Electric matured with the network design tool, they also found they could drive savings through shipment consolidation. Rather than shipping directly from a factory or a distribution center to a different region, they shipped to a port hub where shipments from a region could be consolidated, allowing them to build fuller ocean containers and ship fewer loads.
Collaboration is a Critical Skill for Network Design
Mr. Botham pointed out that not all projects generate results. For example, at one point, they modeled Brazil and factored tariffs and tax considerations into the total landed costs analysis. However, based on the political climate in Brazil, those tariffs could easily change within a few years, so they decided not to proceed with the recommendations.
To avoid generating an analysis that is not implemented, “we try and get the regions on board up front so that they are involved in the modeling process,” Mr. Botham said. If the team just delivers something to regional executives and they’ve had no input, they question the results. “We started as purely modelers, did the study, and handed it off. That’s not what we’re doing anymore.”
Mr. Botham wants to ensure that whatever savings they promise can be actualized. “I would never want someone to trust 100% that what comes out of the model can be put into action.” They only promise at most 50% of the savings shown by the analysis. So, if the model shows that by shutting down some warehouses and moving others, $10 million can be saved, the team will only promise $5 million.
Business case creation involves top logistics, finance, or business unit executives. However, the projects involve a good deal of collaboration. The projects include local finance, warehousing, and transportation managers who help to pull the data surrounding rents, transportation costs, customs, and other marginal costs together.
Resilience and Sustainability Have Increased in Importance
Finance is still a key stakeholder. However, achieving cost savings while maintaining service levels is no “longer the driver it used to be. Now we look at resilience, we look at CO2, we look at simplification,” Mr. Botham explained. This involves the creation of global models.
In terms of resilience, the goal is to reduce lead times and increase service levels. As Schneider Electric moves factories closer to the point of consumption, carbon emissions are reduced. While it increases costs, increasing the number of locations where safety stock is held has also improved resilience. Interestingly, the inventory analysis often shows that for slow-moving products, centralizing those SKUs in a central storage location increases reliability despite the increase in lead times.
Supply chain design can be a valuable tool for driving sustainability. Carbon reduction and transportation savings tend to go “hand in hand” unless we are shipping by air. Mr. Botham pointed out that they are tackling reverse logistics and circular economy projects, particularly in Europe and China. “There’s a lot of legislation in Europe; we can’t just wash our hands of products as soon as they’re sold. We need to be involved in the end of life.”
