Reasons to Build the Business Case
As companies continue to develop internal supply chain modeling expertise, the requirements to understand the costs, impacts, timing and benefits of each key business decision is crucial to approval of the execution of the analysis. Many Fortune 1000 companies maintain supply chain modeling teams to maintain a supply chain model and run scenarios. However, few companies execute upon the results of the model because they lack a compelling business case to convince leadership to make substantial changes to their network. Companies are looking to their teams to provide a complete ROI analysis to execute upon strategic roadmap. In addition, companies understand the intricacies each piece of the operation has on each other and how changes in one department will impact another.
As companies continue to develop internal supply chain modeling capabilities focused on replicating their supply chain’s inbound and outbound shipments and transportation costs, many lack the expertise to take a holistic view of their supply chain. Modeling costs of shipment and fixed and variable costs of manufacturing and distribution facilities is a good first step, but it takes experience to review the business operations and match that to a long-range plan to generate a business case for making strategic changes to a supply chain. This is why we find that many of our customers that own supply chain modeling tools, run several scenarios to get answers but rarely ever make substantial changes to their supply chain network based on the outputs of the tool.
In addition to modeling the optimal network, the company must then begin making critical business decisions, such as determining whether a new distribution center (DC) and transportation should be insourced or outsourced. Should the company maintain a private fleet or dedicated fleet and should they outsource all distribution, some of their distribution or maintain all operations in-house? These decisions have significant impacts on supply chain strategy and cost structures for companies. Unfortunately, many companies don’t understand the impacts, cost and benefits of each.
When to Build the Business Case
Each time the company needs to make a major business decision, a business case should be required. Moving distribution centers, implementing automation and determining whether to insource or outsource distribution and transportation are all major decisions that have large impacts on a company. These decisions not only affect the operation but also impact numerous areas of the company. Each implication must be quantitatively and qualitatively understood to determine the value of the decision.
Thinking through each step-timing, benefits and cost creates the business case for the decisions that must be made.
How to Build the Business Case
As scenarios are run for each potential supply chain network, there are four steps to build the business case for the future state network. Each must be measured quantitatively and qualitatively to properly determine the total benefit or drawback of the changes:
- Benefits
The first step is understanding the benefits of the new network. Determining the improvement in SLAs, reduction in labor expense (rate and/or quantity), reduction in transportation, reduced inventory, ease of management, added synergies between departments, etc. are all quantities that must be quantitatively or qualitatively captured to understand the full benefit of the network. - Risk/Sensitivity Analysis
Determining the risk of the changes is also key to ensuring the benefits are worth the potential downfall. Starting up a new distribution center, insourced or outsourced, has risks. Ensuring there is enough sustainable labor in the new market is a crucial risk that must be considered. In addition to labor, if outsourced, the trust that is necessary in the third-party logistics company is a key component to consider.
There is also a need to conduct a sensitivity analysis. Understanding how different business changes – adjustments in labor rates and availability, taxes, changes in product lines and economic – are all quantitative adjustments that must be considered in a network model to determine the potential impacts and value of the new network. A complete sensitivity analysis will also allow the company to determine changes that need to be made depending on changes in demand, inventory, market economics, etc. - Investment
The price of network changes must also be considered, as well as the cost of the transition. If there is a distribution center relocation involved, the company must understand its true shutdown and startup costs. This includes developing a transition plan for fulfilling inventory between the shutdowns, having both DCs running instead of finding an alternative means of fulfillment, etc. They must also consider the means to move inventory as well as any racking and automation. These are often overlooked and not considered in the total cost of a model. - Timing and Responsibility
The final step in developing the supply chain business plan is understanding the sequence of events of the transition from the current state network to the future state. Developing a logical and practical step-by-step methodology to deliver an efficient transition to the new network is the only way to successfully and smoothly migrate to the future state.
Once the stepwise plan is developed, the next step is understanding who is responsible for each portion and how everyone will work together to achieve the future state network. Individuals must know their responsibilities as well as how their role impacts everyone’s ability to get work done promptly.
Maximizing Results
Developing a holistic supply chain network analysis business plan is key to maximizing buy-in, ROI and making better business decisions. Understanding individual roles and intricacies creates a sense of community toward a common goal. It also creates accountability for each person. Creating this sense of community also helps maximize ROI. Forcing everyone to consider the impacts on each department as well as ensuring the outputs are done in a timely manner allows the benefits to be realized rapidly.
In addition, it allows teams to make better business decisions. Thinking through a more complete cost-benefit analysis allows for better business decisions. This is due to a more complete understanding of the business and how each adjustment to the network will impact total cost, SLAs, inventory levels, capacity and transportation operations.
How enVista Can Help
The ability to optimize your supply chain to service your customers is critical in today’s competitive market. enVista’s supply chain network analysis team is led by supply chain practitioners with an operations background. This background allows the team to provide practical and holistic solutions that will be executed upon. The team works side-by-side with the modeling team to ensure each necessary scenario is run. Then, the project teams develop a complete implementation timeline and RACI matrix to ensure implementation and maximal buy-in.
In addition to supply chain network analyses and developing business cases, enVista’s complimentary services put the team in a unique situation that allows for maximum ROI. enVista has expertise in labor management, transportation consulting, supply chain systems and DC design and automation allows for real-time rates in each area. These live rates are put into the model to allow for better understanding of tradeoffs between cost and service levels.
Contact us today to learn more about how we can help you achieve your supply chain goals. Let’s have a conversation.®
Guest Author: Mike Krabbe, Vice President, Sales at enVista