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A product may go through many warehouses, manufacturing plants, and shipping centers prior to reaching the customer. The manner in which the various locations are connected will impact the amount of time that a product is being shipped, operational expenses, and the overall satisfaction of customers. Supply chain network design assists organizations in determining what location(s) to establish as their business operations and how items are going to be transported from one location to another.
A properly designed network will minimize the loss of resources, provide better customer service, and enable a company to expand.
Start with the Right Questions
Businesses must first determine what they will require from a warehouse location and/or route for transportation before selecting either.
Key questions include:
- Where are customers located?
- How much stock does each market need?
- Which suppliers can deliver on time?
- What are the costs of storage and transport?
- How quickly must orders reach customers?
The answers help shape a network that fits the company’s goals and budget.
The Four Building Blocks of Network Design
Facility Location
The choice of location for factories, warehouses and distribution centers can be very important. If you choose to locate close to your customers, you might find that you can deliver products more quickly. On the other hand, if you choose to locate close to your suppliers, you may find that you can save money on transportation of raw materials or other goods from them to your facility.
Inventory Planning
Businesses need to determine how much inventory they want to keep on hand and where to put that inventory. If you have too many items in stock, your cash flow will be affected. If you don’t have enough, you may lose potential customers or delay orders.
Transport Routes
A good network has appropriate routing and shipping methods. Road, rail, air, and sea transportation have varying prices and times for delivery.
Supplier Connections
Businesses can rely on reliable suppliers to ensure that their products are delivered in a timely manner and that they maintain their production schedules. Additionally, businesses may wish to identify alternative suppliers as a way of reducing the possibility of product shortages.
How Data Improves Supply Chain Network Design
Businesses need reliable data to make good decisions. Reliable data includes sales records, where customers are located, transportation costs, and how much product will be needed (demand). Businesses can then compare these items with other networks they may consider using.
Planning software enables organizations to create scenarios for different types of changes (e.g., adding a new distribution center, transferring products from one geographic area to another). Creating these scenarios allows groups to assess what they believe will be the financial impact of their investment decisions.
Plan for Change, Not Just Today
Demand from customers can change. The cost of fuel can increase. A supplier can experience delays. Rather than using just a single fixed plan, supply chain network designs should be developed to allow for the potential for these types of changes.
A flexible network could have added capacity, alternative routes, and multiple sources for critical materials. To allow for continuous adaptation as business environments evolve, regular reviews are necessary.
A Network That Supports Growth
The best network will connect all parts of the business – suppliers, facilities, and customers – to find the optimal balance among cost, speed and reliability. By using data and preparing for possible disruptions, businesses will be able to build a stronger supply chain and give their customers more confidence.
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