Supply Chain Network Design

Supply Chain Network Design- Key Driver For Profitability And Sustainability

Supply chain network design is a process that determines the best mix of suppliers, locations, logistics and production facilities for optimizing product manufacture and distribution. The network design addresses industry solution like where to source raw materials, how to transport products, what’s the optimal location for production lines, product storage warehousing, and the best methods for delivering goods to customers. It uses methodological approach to determine the best location and optimal size of the facilities to be included in the supply chain, and to ensure an optimal flow of products using advanced statistical and analytical modelling.


Plants, suppliers, and warehouses are foremost entities which are part of supply chain network. For any successful supply chain, the number of facilities and their locations are a critical factor and how the product flows from each of the origins to the final customer is primary engagement. 80% of the operational costs of the supply chain network depend on where the facilities are located and the product flows between them. In order to cut the cost, systematic engineering approach tandem with analytical solution is need of the hour for planning and designing network efficiently.

An effective supply chain design has numerous advantages:-

Reducing overall supply chain costs and improve efficiency :  By optimizing the supply chain network from initial phase of bringing material (from supplier) to delivering the product from plant to an end customer. It basically improves the efficiency at each level of process in the supply chain.

Performing contingency planning : By analysing multitudinous unexpected factors/ events and their exact impact on costs, service levels, revenue and profits – which allow us to interactively develop and evaluate alternative plans to mitigate overall risk.

Improving customer service :  By streamlining the entire supply chain process and optimizing the shipping and warehousing costs. Additionally, mitigating lead time by implication increases the service level and will lead to improved product delivery times. This will not only increase the ability to respond to customer pressures and competitive threats and but will also serve as a key to revenue growth

Inventory optimization : A sound Supply Chain Network Design plays a pivotal role in optimizing inventory. What should be an appropriate level of inventory to maintain, where should be the preferable location of supplier, how the inventory to be maintained in a warehouse are few of the questions which a good model of Network Design addresses and helps to mitigate the overall risk.

Elements to be determined while designing a supply chain network:-

Supply chain network design is to meet targets to accomplish long‐term strategic objectives. Designing an optimal supply chain network means the network must be able to meet the long‐term strategic objectives of the company. 

Service Level: The service level can define as the probability of being able to service the customers’ demand ever facing any back-order or lost sale, the services level marks a trade-off between opportunity costs and operation costs. Optimizing the service levels to maximize the returns for the company is usually complex and domain specific.

Type of industry: Industry type determines the type of supply chain it to be used. The efficient or Responsive supply chain. Efficient supply chain reaches to the customer in low cost whereas responsive supply chain reaches customer quickly. Low margin products industry, stable demand products like to be more efficient whereas high demand variation, High margins prefer responsive supply chain such that market share doesn’t get impacted.

Customer base :  Customer base determines where should be the best location of Distribution centre to serve the maximum customer and at the optimum price and by not hampering the service level.

Govt Policy:  Many policies work in favour of the industry or the against. In recent times GST has played a major role which enables companies to have unified Taxation. Undoubtedly, GST will have an impact on supply chain network design. It will ring about changes in the way manufac­turing, warehousing & distributions are carried out in India. Organiza­tions have to restructure their supply chain strategy to overlook tax boundaries & will be able to position their warehouses & distribution network by focusing on cost & time. However, we need to keep in mind that these decisions can’t be taken based on GST itself & the other forces will continue to impact these decisions.

Geographical/society/Environmental Restrictions :  Any restriction related to environment , society or geographical.

Demand : The growth of product demand also plays a major element while designing the network for an organization. If the demand is unstable or company is targeting the new market it is needed to go closer to the customer and high service level is required

Cost Of Service :   The cost to carry, store the product plays the major role where the Distribution Centre

Supplier base : In the same way, as keeping in close proxim­ity to customer, closeness to sup­plier is also an important force which affects the supply chain network designing. Building a warehouse near to supplier base can help in management of lean inventory and thus lead to lower inventory cost.

Logistics network :The availabil­ity of logistics network i.e. road, rail­ways, airways will continue to be one of the most important factor while designing the supply chain strategy.


Challenges Faced in Network Designing:-

In the current global scenario designing a supply chain Network of an organisation is a strategic decision and all the factors to outsource the material from multiple suppliers to the manufacturing plant and delivering the material to the end customers plays a major role.

Below are the main challenges a company faces in network design: –

Prediction to forecast the demand on economic downturn : In the current economic era, network design don’t consider the major factor of the future demand of the customer and inventory used to manufacture materials during slowdown, especially for the perishable product and any changes in the demand pattern will have severe impact on the cost and customer service.

Difficult to balance Omnichannel offering demand : The demand of the customer in the multichannel has diverged in the current scenarios , while ecommerce and modern trade growth has doubled and general trade growth is stagnant, this imbalance in the demand has leads to a lot of contingency in the pattern of supply and organisation logistics spend on per piece is usually high in general trade w.r.t modern trade and ecommerce channel.

Technology and innovation Scalability: With growing technology in automation and artificial intelligence, it is very essential to fill the gap of technology know how at the bottom of the organisation pyramid and implement the process till the end customer.

Infrastructure Cost and availability of resources:  In the global scenarios, Cost of infrastructure has increased and has leads to increase in the per piece storage cost and transport the same to the end customer. High warehouse cost and resources cost plays a key role to place the strategic warehouse location to serve the customer.

Most leading companies perform supply chain network design analysis to define the structure of their supply chain as well as the key operations that will be performed at each location in the resulting network. Supply chain network design have become a modern business decision making processes at leading edge companies. They are used to rigorously analyse and make the best decision in response to both short-term events such as weather disruptions, spot sales opportunities, capacity outages and long-term strategy, such as capacity expansion or mergers and acquisitions. These analytical approaches and technologies have recently been extended to enable businesses to analyse not just their own operations, but the sum of multiple supply chains in the competitive marketplace. It is exciting work and adding additional millions of dollars to bottom line profit each year.

Supply chain Network Design can be key driver to profitability based on following points:

  • Reducing supply chain costs and improving profitability
  • Improving existing customer fulfillment and service levels
  • Minimizing supply chain impact of opening / moving / closing manufacturing & distribution facilities
  • Optimize the overall logistics network from reduce cost to serve customer
  • Maximizing the profitability of acquisitions and divestitures through a supply chain impact analysis 

 

Supply chain Network Design Resolves below challenges to make a sustainable Organization:

To understand the impact of making consumer goods, companies must determine how natural and human resources are used at every step of the production process, whether in the supply chain or in direct operations. Companies must also consider a wide range of environmental, social, and economic issues. The tremendous variety of consumer products means that these issues can differ significantly from one product to another.

Once companies know where their supply-chain issues are, they can set goals for lessening the resulting impact. The purchasing power held by consumer companies and retailers gives them significant influence over their suppliers’ business practices. Relatively few companies in the consumer and other sectors use that influence to get their suppliers to reduce sustainability impact, though that is changing.

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