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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Supply Chain Network Design — Everything About Supply Chain
Key take-aways
- Supply chain network design is the process of creating a model of the supply chain to understand resources, costs, and delivery time.
- Without considering supply chain network, a company can be counterproductive in the long run.
- Significant costs (80%) in the supply chain are identified during the design phase, making network design crucial.
Supply chain network design helps businesses to mitigate disruptions by configuring the supply chain. However, what is it?
In this article, we will define what supply chain network design is. We will discuss its importance and the areas you need to focus on in building a strong network design. Additionally, we will show you how to design your supply chain network.
Once you are done reading this article, you will be able to configure your supply chain effectively. Thus, avoiding future disruptions and risks that you can face in your supply chain.
Defining Supply Chain Network Design
Supply chain network design refers to creating and constructing a model of your supply chain to understand the resources required, costs involved, and time needed to deliver products and services to the market better.
This process allows you and other leaders to optimize the supply chain network given the available resources.
The model enables a company to identify any inefficiencies and potential risks that may exist within its supply chain.
Additionally, it allows for the analysis of hypothetical situations, enabling the optimization of operations to decrease costs, enhance service quality, and increase responsiveness.
The goal of supply chain network design is to create a network that minimizes costs, maximizes service levels, and improves overall efficiency.
This involves considering various factors such as demand variability, lead times, transportation costs, inventory holding costs, and other operational costs.
Whyis it Important?
Analysts in GEP said that 80% of supply chain costs are identified at the designing phase of the product and supply chain network. This is why failing to consider network design can cost the company a lot and be counterproductive in the long run.
By designing and modeling the supply chain network, businesses can gain a better understanding of the factors that affect the flow of goods and services, such as transportation costs, inventory holding costs, and lead times.
This allows businesses to identify inefficiencies and potential risks within the supply chain, which can then be addressed and resolved to improve overall performance. Furthermore, the ability to analyze “what if” scenarios through the supply chain network model enables businesses to test and optimize different strategies and configurations.
This allows for the identification of the most cost-effective and efficient supply chain network design, reducing costs, and enhancing service quality and responsiveness.
How to Design Your Own Supply Chain Network
If you want to design your own supply chain network, then take a look at our list below and use these steps to show you how!
1. Define clear objectives
When designing a supply chain network, logistics managers need to prioritize their objectives.
To do this, they may consider critical decisions such as determining customer service levels, balancing transportation modes, identifying warehouse locations and inventory levels, selecting manufacturing plants, optimizing routes, and exploring resource pooling opportunities.
By identifying the most important objectives and areas for improvement, logistics managers can make impactful changes to their network.
2. Collect supporting data
To make smart decisions, you need reliable data that can support those decisions. Gathering this data can be the most time-consuming part of the process, but it is good news that the data is usually available and can be used again.
Your new ERP or old system probably contains typical data elements like demand for each product and container, transport rates and lead times, fixed and variable warehousing costs, and inventory expenses.
If you want to determine the source of your products, you will also need data on manufacturing and raw material costs.
3. Model your supply chain
Technology today offers various tools for supply chain network optimization, which can help you make better decisions.
You have the option to either buy from suppliers or configure your own tool that suits your needs and is cost-efficient.
However, it is important to choose the right software that can fully address the decisions you need to make, and also represent your unique business and logistics network.
The software should include components such as capacity limitations, customer service requirements, lead times by mode, operating capabilities, and the cost of different options.
4. Assess your supply chain network
Making better decisions for your business with supply chain optimization tools requires analysis and expertise.
For instance, Profit Point’s Strategic Network Analysis Program (SNAPTM) is a tool you can use to analyze your supply chain. However, it is important to remember that technology alone cannot guarantee success.
You can rely on analysts who are knowledgeable about your business to increase the rate of your success. These analysts will work with business management to review various scenarios and finalize the design of the supply chain network.
5. Execute and calibrate
The process of analyzing and designing the supply chain network is not fixed. When successful changes are made, cost savings are achieved.
However, changes can occur such as the addition of a new customer or a change in demand.
Therefore, like any good planning process, the analysis and design of the supply chain network should be ongoing and reviewed regularly, such as quarterly or annually, and when significant changes occur within the business.
Areas of Focus While Creating a Strong Network Design
Here are some of the areas you should focus on planning while building a strong network design:
1. Transportation and logistics
Effective planning of transportation and logistics is a critical aspect of supply chain management, as it plays a key role in driving the overall flow of goods and ensuring smooth operational procedures.
Optimizing logistics through route planning allows for timely and efficient transportation of both raw materials and finished products.
2. Location of distribution centers and warehouses
The placement of supply chain nodes in strategic locations is an essential aspect of building a strong and efficient supply chain network.
This entails identifying the appropriate locations and determining the optimal number of facilities required.
The size of distribution centers and warehouses should also be based on the specific needs of the supply chain.
3. Inventory planning
One of the most challenging aspects of supply chain management is inventory planning and management.
It involves identifying the optimal level of inventory that needs to be stored and transported, as well as planning for fulfillment time and response time that must be maintained.
4. Procurement costs and processes
Procurement of materials and products requires effective supplier management in terms of cost, time, and location.
It is crucial to know the appropriate number and quality of manufacturers and suppliers to ensure a reliable supply chain.
Conclusion
This detailed article explores the concept of supply chain network design, providing insights into its definition, significance, and the key areas to focus on when building a robust network design.
It emphasizes the importance of understanding the resources, costs, and time required to deliver products and services to the market. The article also guides readers on how to design their own supply chain network effectively.
Frequentlyasked questions
What is supply chain network design?
It refers to the process of creating and constructing a model of your supply chain in order to gain a better understanding of the resources required, costs involved, and time needed to deliver products and services to the market.
Why is it important?
It is important because it ensures that a business is able to meet customer demand while keeping costs as low as possible.
What are some benefits of effective supply chain network design?
Effective supply chain network design can result in reduced costs, improved customer service, increased operational efficiency, enhanced agility and flexibility to respond to market changes, and improved collaboration with suppliers and customers.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
