Logistics network modeling leverages software simulation tools to help make strategic decisions that result in reduction of overall supply chain costs. Most available simulation products utilize algorithms that will optimize your order profile and help solidify tactical decision-making, such as where to build a new distribution center and what modes of transportation should be implemented. These tools also help you make profit-related decisions, such as what types of products to sell and which market(s) to enter.
Larger retailers use network modeling for strategic design of their massive supply chain networks. Utilizing demand forecasts, store sales and capacities of distribution centers, modeling allows your company to make strategic decisions on inventory levels, labor planning and capital investments needed to meet peak seasonal demand.
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This type of planning can also help determine the size and timing of additional distribution centers, as well as whether to consolidate warehouses, plants or production lines.
The quantitative impact to a typical supply chain network can include:
- Reduced operating costs including warehouse operations and transportation
- Decreased safety-stock and in-transit inventory
- Fewer in-transit customer service days
- Realized ROI of any capital investments
Network modeling is not limited to making infrastructure planning decisions; these tools also have the capability to help make tactical transportation decisions, such as actual DC to customer alignments and DC capacities based on customer or store demand.
Licensing network modeling tools, however, is usually very expensive. Therefore, many small to mid-sized companies can benefit from third party services and subsequently realize a 10-20% reduction in their overall supply chain costs.
Let me know if you’ve used network modeling and what types of results you attained. Or, let me know if you have any questions. Either way, use the comment box below.