Transforming the Supply Chain

By Jeffrey J. Karrenbauer

For the better part of 35 years, truly leading-edge firms have made supply chain design/redesign an integral part of their overall corporate strategy. The focus has gradually evolved from a myopic consideration of the number and location of warehouses to a comprehensive examination of the entire supply chain, from sources of raw materials to the customer. To accomplish this analysis they employ tools known as strategic supply chain design computer-based mathematical models. The purpose of this article is to give the reader some notion of what it takes to use these tools.

A brief word about each step in the supply chain redesign process:

Step 1: Establish Project Scope. "But of course," you say, "don't all well-conceived projects begin here?" Well, yes. However, in this instance the process is a bit more complex. Consider, for example, a representative list of issues that may be addressed by a supply chain design tool (see Figure 1).

It is clear that the breadth of these issues is a far cry from the old "warehouse locations models." But the definition of scope does not end with issue selection. Rather, it is tightly coupled with the consideration of the supply chain scope to be included in the analysis as well:

• Geographic: United States, North America, Western Hemisphere, Europe, Pacific Basin, entire world
• Commodity: finished product categories, inclusion/exclusion of raw materials and intermediate products
• Manufacturing Detail: simple variable costs, fixed + variable costs, breakdown by process (production line), inclusion/exclusion of capacities
• Procurement Detail (if raw materials included): simple variable costs, fixed + variable costs, inclusion/exclusion of capacities
• Facility: ownership options, mission alternatives (eligibility of a given commodity at a given location), candidate sites
• Transportation: mode choices, policy alternatives

Step 2: Describe the Network. Network description is a straightforward process but it is not without pitfalls. Essentially it consists of developing lists for each of the fundamental model components, as applicable (see Figure 2).