Transforming the Supply Chain

10 steps to successful supply chain redesign


Step 7: Prepare Scenario Generation Data. Key to the success of a strategic supply chain design study is the rapid generation and solution of a wide range of scenarios. Real learning takes place as the team works its way through a well-structured series of "what if" questions, many of which will suggest themselves only after the modeling results start coming in. This is greatly facilitated by a rich selection of options, including (1) facility mission specification, (2) data scaling, (3) facility and process "lock in/lock out" features, (4) customer service limits, and so on. Both study team and management will rapidly lose patience if there is a substantial delay between posing a "what if" and obtaining an answer.

Step 8: Run Optimization Exercises. Each scenario defined in step 7 is done in conjunction with running a solver engine, a computer-based algorithm that takes a given set of data and finds the best (optimal) network configuration. It is generally acknowledged that the engine of choice for strategic supply chain design studies is mixed integer linear programming (details are beyond the scope of this article). The goal may be (1) cost minimization, (2) profit maximization (requires the introduction of selling prices so as to maximize margin) or (3) a weighted combination of cost and service.

Optimization exercises run the gamut from the very conservative (rationalization of network flows without any facility open/close decisions) to wide-open "green field" studies. The issues list above suggest the possible breadth of the analysis.

Step 9: Analyze Solver Results. Contemporary supply chain design packages come with an extensive repertoire of results interpretation/presentation aids, including maps, business graphics, canned reports, and links to MS Office. The latter is perhaps the most important because it enables the user to easily customize analysis and presentations consistent with management preferences.

Step 10: Develop the Plan of Action. The desired result of a supply chain design study should be a plan of action, not simply a recommendation for more study. Relevant issues here may include (1) requests for capital; (2) site selection assistance; (3) facility design (outside & inside); (4) negotiation of leases; (5) negotiation of contracts for outsourcing of raw material procurement and/or manufacturing; (6) selection of third-party providers of distribution center, transportation, freight payment, etc., services; (7) negotiating new carrier contracts in light of a redesigned network; (8) acquisition of software such as transportation management systems (TMS) and warehouse management systems (WMS).

Conclusions

Contemporary strategic supply chain design tools provide the means by which management can analyze the entire supply chain with a degree of rigor and accuracy that was heretofore essentially impossible. They can serve as the organizational catalyst for implementing supply chain concepts and can suggest strategies that establish genuine competitive advantage.

One last point: There is an unfortunate belief among some that supply chain strategy in general, and network design in particular, should be revisited only periodically, say once every five years or so (perhaps in conjunction with capital approval cycles or lease expirations). Nothing could be farther from the truth…or potentially more damaging to the firm. Contemporary supply chains exist in an environment so dynamic that leading-edge firms use supply chain design tools on a continuous basis and revisit major strategic questions at least annually. The benefits derived typically far exceed the modest marginal investment.

About the Author: Dr. Jeffrey Karrenbauer is president and a founding director of INSIGHT, a provider of decision support systems for supply chain professionals. His latest work includes a focus on hardening supply chains and reducing their vulnerability to acts of nature, or those of an intelligent adversary, as well as merging supply chain design with inventory optimization and transportation procurement. More information at www.insight-mss.com.

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