There can be many reasons to optimize your supply chain network design: expansion of your business to new markets or countries, launching a new product line, or a change of suppliers.
Sometimes supply chain networks grow into Rube Goldberg Machines. Warehouses, routes, and processes are added. The whole system still works, but it’s far from optimal. A periodic review of the effectiveness of your supply chain network can increase its efficiency and save companies time and money.
So how to go about optimizing your supply chain design?
Step 1: Why to Change Your Supply Chain Network Design
The most important thing is aligning your supply chain strategy and your supply chain design.
Companies with a focus on customer intimacy will design their networks so that they can deliver a very high service level to their customers. This could mean a multitude of smaller warehouses close to the customers or relatively high stock levels of products to ensure availability.
Companies with a focus on operations excellence will design their networks so that they can serve their customers in the most efficient and cost-effective way. Lead times may be a bit longer, but the supply chain is lean, with one or just a few warehousing locations and stock levels at a bare minimum.
An operations excellence strategy means the lowest cost and a relatively low service level, compared to the customer intimacy strategy at the other end of the spectrum, with the highest service level and the highest cost. Companies can choose their position along this spectrum of trade-offs between cost and service level.
There can be a chicken and egg situation at this step because your chosen strategy impacts your design and your chosen design impacts your strategy. On both sides of the equation, choices need to be made.
Step 2: How to Change Your Supply Chain Network Design
To understand the impact of changes on your supply chain network, it is essential first to get a clear picture of the current state of your supply chain. When that picture is clear, you can start making changes to your supply chain and see the effects in terms of cost and service levels. Because you don’t want to analyze the impact of changes to your supply chain design in a real live environment, you simulate the changes and analyze the results.
At Ahlers, we create a digital twin of your supply chain. A digital twin is created by taking your supply chain data and building a digital copy of your supply chain. We can add external data like weather patterns, traffic data, or other external data to analyze the impacts of changes to your network. We then create different scenarios and use your digital twin to run these scenarios and analyze the results.
Some of the scenarios that you could run are:
- What if we switch to a model with a centralized warehouse?
- What if we change to a model with de-centralized warehouses?
- What if demand doubles?
- What if we introduce a new product?
- What if demand drops by fifty percent?
- What if a client moves?
- What if a specific customer wants a focus on sustainability?
Every scenario has so many outcomes that it is impossible to analyze the results of these scenarios without technology and advanced data analytics capabilities. Through complex algorithms, artificial intelligence, and optimization methods, scenarios are run, and the optimal outcome of each scenario is determined. You can choose the right supply chain network design for your supply chain scenario by running different scenarios.
Step 3: How to Continuously Improve Your Supply Chain Network Design
Once your new supply chain design is chosen, it is possible to further optimize your network by looking at inventory, procurement, transportation, risk management, etc. Because you optimize using your digital twin, you can see the result of every tweak you make in inventory levels or transportation routes and how it impacts your supply chain. The model will show you the impact on cost and service level to make the right decision based on your chosen strategy. You can analyze new scenarios and continuously improve your supply chain using your digital twin.
Whatever strategy you choose, we typically see improvements of around 10% for supply chains optimized for the first time with our advanced digital tooling.
If you want more information on supply chain network design and how Ahlers can support you in saving costs, increasing your service levels, and optimizing your supply chain, contact one of our specialists. They are happy to answer your questions and see how we can support you with optimizing your supply chain.