How often does your organization perform supply chain network strategy analyses? Organizations that put off designing a new network or making improvements to an existing one due to perceived complexities or complications are actually putting their competitive advantage at risk. Agile processes and accurate network modeling can yield improved customer service levels, lowered transportation and operations costs, and reduced inventory to enable a resilient and optimized supply chain.
A network is a living organism that lives, breathes, moves, shifts and changes. It changes drastically from one year to the next. Because of the ever-evolving nature of a network, it is important to constantly monitor your network as opposed to it being a one-off project. A network should be continuously and frequently analyzed.
By analyzing frequently, you could react and pivot to make changes and adjustments, so you are responding to changes in your market conditions such as changes within your suppliers, the emergence of new ports, tariffs, etc., which all happen in real-time. If we react only every three years, we miss out on a competitive advantage — making it important to be agile and make adjustments in real-time when needed.
A Look at Traditional Supply Chain Network Strategy Process
In the past, supply chain network strategies were completed without data but rather a vision of creating a company. Many decisions were routing and last mile based. These traditional network strategy projects can take anywhere from 10 to 14 weeks, requiring herculean efforts and an extensive number of resources across the organization and external resources in some cases. The typical level of effort by step is as follows:
Understanding Ongoing Supply Chain Network Strategy as a Process
Today, many businesses have realized the benefits of treating supply chain network strategy as an ongoing process that is reviewed and refreshed frequently. There are three steps to get started:
- Data collection – Obtain and organize past data throughout the organization’s entire supply chain
- Discovery – Understand our customers’ businesses, including its competitors and end customers
- Data and network analysis – Identify inbound cost, outbound cost, fixed variable cost, and capacity limits
These first three steps can be very time-consuming, taking about seven to eight weeks (approximately a third of the entire project). However, by building this baseline model to refer back to, you are able to cut out and drastically reduce efforts over time.
The whole purpose of a supply chain network strategy is to create several scenarios that you compare to others. This strategy comes out within five percent. We do not expect it to be exact, but what we expect it to do is validate a model, create scenarios and evaluate them against each other. This data enables you to analyze inventory, capacity and sensitivity to put together a recommendation.
Once you have a valid baseline model, then you can take that model and build upon it, creating additional updates with it. Because the baseline model is already validated, data network analysis is very minimal, so most time is spent on network scenarios – the level of effort goes down from 100 percent to 40 percent, creating time-saving benefits beyond the cost. When considering the cost spent with an outside group, the internal costs of resources will decline as well:
In addition to time and cost savings, there are a variety of supply chain benefits to managing your network as a process rather than a project, including the ability to:
- Quickly react to changing network conditions
- Stay ahead of your competition
- Plan ahead and perform “what if” analysis
There are a few organizational barriers to performing supply chain network analysis as a process. While a best practice, it does produce its own initial challenges, and it is important that every member of the team is on board. This can be accomplished by working closely with executive teams to discuss benefits, as well as educating the organization about supply chains. To understand the benefits of supply chain network strategy as a process, it is critical to understand your current network and pivot based on changing demands of the world and the way people buy and consume products.
Supply chain costs are dynamic, and staying on top of them and understanding cost changes will help better maintain cost competitiveness. Sources of supply are constantly changing and outside variables, such as tariffs, affect the entire supply chain operation. It is important to understand cost implications and how to deal with them, whether it is sourcing from alternative locations. More and more companies are starting to think of supply chain network strategy as a process to remain competitive and flexible.
Learn more about supply chain network strategy – get a third-party perspective by contacting enVista today.