A supply chain network design is one of the most powerful tools available to operations and supply chain leaders, yet many companies fail to use it or treat it as an occasional exercise rather than an ongoing practice. To manage costs and maintain agility, customer service and long-term resilience, an ongoing practice of supply chain network design is critical.
What is a Supply Chain Network Design?
Supply chain network design is the strategic process of evaluating, modelling and optimising the physical movement of goods and flow of data across your supply chain. It helps leaders understand where products should be sourced, stored and transported, and at what costs and service levels.
A network design will encompass all aspects of a company’s supply chain, including manufacturers, vendors, ports, distribution centres (DC), stores and customers. It uses advanced modelling, data analysis and digital twins to visualise scenarios, quantify tradeoffs, reduce risk and guide long-term planning.
The goal of a supply chain network design is to analyse all aspects of the supply chain and develop a strategy to align cost and customer service levels with the organisation’s strategic and operational goals.
When to Complete a Network Design
You should complete a network design whenever a major business change occurs, or at least every two to three years. Shifts in freight rates, consumer expectations, product mix and sourcing practices all impact your network’s performance.
Many supply chain leaders only consider a network design when their network is reaching capacity and they need a new DC. This approach leaves a lot of value left untapped. Many supply chain leaders are surprised to learn how many areas of the business a network design could optimise for significant cost savings and increased efficiency.
Regular network design ensures your supply chain remains aligned, cost-effective and ready to scale. The following 13 benefits reveal why network design is no longer optional, but a competitive necessity.
1. Improved Intra-Organisation Alignment
Supply chain strategy and implementation alignment can provide a net cost benefit across the organisation by putting input from all key functions into the model.
Many companies, unintentionally and often unknowingly, operate in silos with limited interaction between departments. Network design provides a unified view of operations, enabling supply chain, finance, IT and leadership teams to align around shared goals and performance metrics. This level of visibility helps determine the total impact of key decisions such as adding SKUs, customers, acquisitions or changing distribution channels.
When combatting silos, a coordinated approach for both strategy and implementation may initially increase costs in one or two areas of the business but create a much larger net benefit for the organisation. For example, switching to store-ready pallets improves service levels and reduces more in-store labour than it adds to the DC. Depending on the size of the original silos, organisations can leave millions of dollars in savings on the table if they don’t adopt a holistic approach.
2. Execution of Resources and Strategy
Modelling quantifies what resources are required for your strategy, ensuring execution is grounded in data and organisational capacity. For example, improved visibility across the business can reduce your gap between expected and actual costs to two percent.
Given your existing network, rates and business strategy, a network analysis will measure how efficiently your team executes. Top-performing operators are usually within two percent of expected costs. However, many supply chains are operating with larger gaps that highlight opportunities for improvement, such as increasing customer service levels.
3. Lead Time Visibility and Improvement
Lead time is a huge hidden cost in both dollars and service levels. A good network project exposes bottlenecks and delays, helping teams identify lead time improvements and quantify the benefits of cycle time reduction.
A customer has only one lead time: from the time they place their order to when they receive the product. As the provider, you have multiple lead times, including product forecast, procurement, inbound delivery, DC operations and outbound transportation. Generally, the provider’s teams can estimate each lead time separately, but when combined, the overall lead time is typically at least one to two days longer than the team expects. A well-designed supply chain network can reduce lead times across multiple areas, increasing speed to delivery.
4. Inventory Positioning and Service Level Improvement
Split orders, which can more than triple transportation cost per shipment, can be nearly eliminated with intentional inventory placement. By right-sizing inventory across nodes as part of multi-echelon inventory optimisation, companies can reduce stockouts, improve service levels and lower carrying costs.
Determining the locations and quantities of inventory across your network is complex and requires strong analytics. Ideally, a customer ordering multiple products receives a single box shipped from the closest facility. However, if the closest distribution centre doesn’t have all the items to fulfil an order, most systems split it. Multiple DCs fulfil the same order, and the farther DCs ship packages Express or Overnight to match delivery time of the closer ones. This process can more than triple transportation cost per shipment.
5. Inventory Rebalancing
Unbalanced inventory levels can increase your on-hand inventory investment by at least 10 percent. Network design identifies surplus and shortage locations and helps ensure optimal inventory balance across the network. This helps reduce waste, improve turnover and prevent over- or under-stocks.
Few companies regularly assort their SKUs to evaluate important inventory purchasing decisions. As a network design strategises the best placement of inventory to increase sales and reduce working capital, it’s often revealed that inventory needs to be rebalanced. Rebalancing your inventory can reduce your on-hand requirements, improve your service levels and sales to customers and lower network operating expenses.
6. Reduced Operational Cost
You could save 10 to 20 percent of your DC operational costs by focusing on key functions and ensuring all your distribution centres operate within effective capacity. Such cost savings are often discovered by leaders when they evaluate their facility footprints, flow paths and transportation routes.
As distribution centres fill up, processes become less efficient and require more touches. Many facility leaders think they’re saving money by avoiding off-site storage costs, which can range from $20 thousand to over $1 million. However, duplicate movements in a facility can cost a similar amount in variable labour. When a DC exceeds the 85 percent recommended utilisation level, operational costs increase significantly.
7. Transportation Spend Visibility
Increasing transportation spend visibility can optimise end-to-end costs across buyers, DC operations, stores and executives. Network design uses cost-to-serve modelling and helps managers break down spend by lane, mode and customer, enabling more accurate budgeting and rate negotiation.
Because these expenses cross over multiple modes, seasons, departments, etc., the transportation lead is typically the only one familiar with the organisation’s total spend and top carriers. A network analysis can reveal these visibility gaps and overlooked costs and provide insight into spending across your end-to-end supply chain.
Improved insight into transportation also helps improve resilience and sustainability. For many organisations, sustainable supply chains are a significant priority.
8. Inbound and Returns Optimisation
Top operators can cut their inbound transportation spend by more than half with intentional design that minimises waste, reduces freight costs and prevents unnecessary touches.
Supply chain leaders often overlook the costs associated with inbound shipments and returns, assuming they are fixed and unchangeable. However, when intentionally designed, optimised inbound shipments and returns can greatly reduce your transportation spend.
Leveraging a network design to identify vendors and reverse logistics opportunities can help you take advantage of existing routes to lower costs. We’ve seen top operators leverage domestic vendors and existing routes to cut their inbound spend by more than half.
9. Reducing Ocean Freight Costs
Lack of port flexibility could be draining your transportation budget and compromising your lead times. Network design evaluates port choices, routing container mix and consolidation strategies to reduce ocean freight exposure and costs.
As ocean freight rates have fluctuated widely over the last five years, organisations have come to expect longer lead times and higher costs. Being locked into a single port results in larger swings in rates and lead times.
This unpredictability leads to higher transportation expenses and decreases service levels unless you also invest in additional inventory. An often underrecognized benefit of supply chain network design is the ability to add flexibility to switch ports based on business needs, which can lead to more regular reviews and better negotiations of container contracts.
10. Third-Party Logistics (3PL) vs. Insourcing
Your network should have the right blend of fixed vs. variable capacity and cost based on seasonality and other needs. Scenario modelling clarifies when outsourcing is cost-effective and when insourcing provides greater control, flexibility or savings. This approach can help you focus your 3PL partnership to maximise value and ROI.
A network design can analyse your network and third-party logistics partnership and help you determine the right balance of fixed vs. variable capacity to provide you the most value and ROI.
11. Data Quality
Inaccurate and ineffective data across the supply chain leaves money on the table and hinders decision making. The modelling process of network design exposes inaccuracies in SKU, supplier or transportation data, highlighting opportunities to improve data integrity across the organisation.
Businesses undergo many changes as they develop and grow. New systems are added, SKUs are adjusted and acquisitions occur. Often, over time, data systems have been stitched together by many people using different methods.
A key benefit of a network design is that it typically reveals disorganised and inaccurate data and begins the path toward data integrity across the entire organisation. This can enable supply chain leaders to operate with a future-focused approach and to make sound, data-driven business decisions.
12. Facility Utilisation
You may not be getting an accurate picture of your facility utilisation. DC capacity reports very rarely tell the full story of how well-utilised the facility operates. Without clear visibility into utilisation, labour becomes less efficient and more offsite space is needed.
Network design assesses how efficiently warehouse space is used and identifies opportunities to redesign, consolidate or expand. This analysis can recommend improvements, such as denser storage or improved slotting. In some cases, you may determine that a new distribution centre would be a wise investment. Having ample data about facility utilisation helps inform that decision.
13. Impact of a Modern DC
Your storage density and processes could be draining efficiency in your facility. A modern distribution centre can transform speed, accuracy and labour efficiency. Network design clarifies where automation creates the biggest ROI.
A new DC can use industry best practices and will often operate more efficiently than a poorly laid-out, legacy distribution centre, providing a significant source of future cost savings. Supply chain leaders are frequently surprised by how a newer, purpose-built facility can add storage density and speed up product movement. For example, moving from an 18-foot clear height to a 30+-foot ceiling can double storage in your facility.
enVista’s Network Design Boosts Profitability and Customer Satisfaction
enVista’s supply chain network design services help organisations reduce costs, improve performance and build long-term resilience. Our team leverages advanced analytics, digital twins and decades of operational experience to deliver sustainable results.
In the end, supply chain leaders are always surprised by the opportunities they can capture with a supply chain network design — both in their current operations and with added capacity. Taking the time to understand how your supply chain operates can help develop your strategy for ongoing success.
enVista’s experienced supply chain network strategy team designs your network using your data and rates, transforming it into a tactical advantage, not just a cost center. Once we determine your top improvement opportunities, our collaboration with your operations team ensures that you can implement the transition plan.
Ready to start capturing efficiency and cost savings with a network design? Contact our supply chain strategy experts today.
