What are the Benefits When Completing a Supply Chain Network Study?

It does not matter if a company is business-to-consumer (B2C), business-to-business (B2B) or direct-to-consumer (DTC), if the company distributes goods, then the supply chain will play a vital role. That being said, it is important for companies to be active when reviewing their supply chain network to ensure that it is set up optimally to support the business. We find that supply chain costs usually account for over 6-10% of sales, which can add up to a lot of money for large companies. Likewise, it is just as important for smaller companies to prioritize their supply chain strategy, as they may quickly and consistently outgrow or shift their current supply chain networks.

One of the best ways to review the current supply chain strategy and determine how it can be improved is by doing a supply chain network study (aka supply chain network design or supply chain network optimization), which consists of loading data into a supply chain modeling software to test out different scenarios against the current supply chain (baseline). There are a lot of benefits that can come from doing a supply chain network study and some are more obvious than others.

Data Analysis

Every supply chain network study starts with lots and lots of data. This data will be used in more than one way throughout the study. In addition to being what drives the model, there are loads of analysis that take place in the beginning portion to understand the business and see what sort of inventory and distribution strategies make sense. We find that most of the time our clients do not have the time or resources to complete detailed analysis on a consistent basis so usually a lot is learned before the network modelling even starts. This can pinpoint areas for the company to focus on outside of the supply chain network study and lead to the development of different supply chain strategies that were not thought of previously.

The Baseline

Creating a digital replica of the current supply chain network costs, known as the baseline, is another major portion of the supply chain network study. This will show the current nodes or locations involved in the supply chain and all of the supply chain related costs. This information will give a good indication of where the highest costs are and be the starting point for comparing alternatives. In addition to costs, the baseline will also give a look into the current service levels being achieved, a visual representation of ship patterns, and a look at volumes vs capacity to see what areas of the supply chain might be strained.

Center of Gravity

The center of gravity analysis uses demand data to determine the optimal location or locations for a specified number of DCs. It can be a quick and simple way to answer questions about location and number of locations and will help make decisions when determining what scenarios to run later in the study.

Scenario Comparison

The ability to compare different scenarios without making any physical changes is probably the most significant deliverable when doing a supply chain network study. Once the baseline is created, different distribution strategies and node locations can be modeled to see their impact on costs, service levels, ship patterns and volumes against the baseline. Most scenarios tested should be based on the data analysis that was done, but there is a lot of freedom. If you have ever wondered what would happen if you moved your operation across the country or sourced products from the one country instead of another, a network study can tell you what that would look like.

The Final Deliverables

Supply chain network studies generate a lot of deliverables. The results/answers will be based on what is important to the business. Some companies might prioritize 2-day shipping where others want to minimize costs and improve bottom line. Regardless of the main goal, the supply chain network study offers insight into a variety of considerations, such as sourcing, distribution and inventory strategy including number of distribution centers, distribution center location(s), ship patterns and what to store where. This information can help make key strategic decisions for the supply chain and the business as a whole.