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The Supply Chain Design Movement and How It’s Driving Measurable Improvements for Large Businesses

Supply Chain Network Design | By •

tc-bakerWhy Is Supply Chain Design Important?

There’s been a fundamental change in the way global manufacturers and distributers operate. The modern supply chain is an increasingly complex and volatile network making the impacts of change harder to determine and increasing the risks involved with being unprepared. The supply chain is a huge opportunity for competitive advantage—and risk. Supply chain design is now a must-have capability for businesses to keep up with the pace of change and to sustain a competitive advantage by significantly improving in the areas of cost, service and risk. Industry leaders have created centers of excellence and put in place integrated supply chain design platforms and business processes to rapidly and accurately answer tough supply chain what-if questions and generate effective and clear recommendations for decision support.

Supply Chain Design Drives Measurable Cost Savings

Supply chain design has enabled businesses around the world to uncover significant supply chain cost savings.

  • According to a recent customer survey, supply chain modeling has helped over 70 percent of companies that have centers of excellence identify savings of at least 10 million dollars along with significant improvements in both time and cost efficiency (1).
  • On average, responding companies saved: nine percent on inventory costs, seven percent on sourcing, six percent on handling, 11 percent on production costs, 11 percent transportation costs, 10 percent on fixed costs and 12 percent on total supply chain variable costs (1).

llamasoft-savings

Supply Chain Design Centers of Excellence (COE) Drive Increased Benefits with End-to-End Perspective

In order to use supply chain design as a competitive weapon and see significant savings, supply chain design should see across the entire business to optimize the true end-to-end supply chain. Supply chain design COEs can pool talent and technology to provide analysis capabilities to the entire organization. There are a number of important practices that can help businesses nurture COE growth and effectiveness and keep modeling processes and deliverables consistent. Here are a few examples:

Establish a Consistent Method for Identifying and Prioritizing Design Initiatives
An excellent exercise for any business considering a move toward a supply chain design COE is prioritization of modeling initiatives. Executive sponsor(s) as well as representative department heads and analysts should participate. This process is an extremely effective way of promoting valuable interaction and focused discussion among the team (2).

Go After Quick Wins
In order to establish early credibility for an emerging COE, identify quick-win projects that are much easier to implement and still deliver significant cost benefits (product flow-path, inventory right-sizing, DC-to-customer assignments). Quick multi-million dollar wins can gain executive attention and establish early credibility for the supply chain designers.

Get Out In Front of the Predicted Supply Chain Talent Shortage
Many companies assume once they have supply chain modeling software in place the savings will begin rolling in; however, technology is only part of the equation. Industry experts say an understanding of technology and an ability to work in a global environment are increasingly important in the supply chain, forcing managers to look for people with a rare mix of specialized skills. As the supply chain sector grows, the demand for talent is rapidly increasing. On average COEs with staff that have industry experience were over 25 percent more efficient with time and cost savings measures (2).

Pursue Design Mastery
Once you have a team be sure to invest in their growth and development. In addition to giving them powerful and easy-to-learn design technology, build a roadmap for supply chain design mastery for each analyst. Identify the milestones and requirements—and benefits—for each step in their progression from new hire to program leader.

Align COE Goals with Business Strategy
It’s never easy to get everyone on-board, especially executive stakeholders. Business leaders may not be fully immersed in the day-to-day details of the supply chain, and they need information quickly in easily-digestible formats. It’s paramount to work with and win over business leaders on the necessity of supply chain design as an enabler of overall business strategy.

TC Baker is the Vice President of Solution Design for LLamasoft. His team of Solution Designers supports new sales opportunities by mapping prospective client requirements to LLamasoft capabilities. With over 25 years in the advanced planning and optimization arena, TC has held leadership roles in software development, field implementation and project consulting, product management, and sales. He has extensive experience in the integration of best–of–breed planning systems with ERP systems as well as integrated business planning in the process industries. Prior to joining LLamasoft he served as director of sales at Quintiq and has also held roles at WAM Systems, Aspen Technology and Chesapeake Decision Sciences. He is a regular contributor and thought leader on trends and challenges within the supply chain industry. He holds a BS in Computer & Information Science from the University of Massachusetts-Amherst and an MBA from Rutgers University with a focus on Operations Research.

 

1 (LLamasoft Benefit Benchmarking Survey, 2015-2016)

2 (University of Michigan Ross School of Business, 2015)

Guest Commentary: Do You Have a Supply Chain Design Center of Excellence? Your Competitors Do.

Guest Commentary | By •

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.

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