Supply Chain Network Optimization – How to Do it Right

The time is right to re-align your Supply Chain Strategy, for many reasons including:

• Logistics and fulfillment are the new storefronts and sales tools

• The explosion of direct-to-consumer business forces all companies to have an omnichannel strategy.

• The sourcing landscape is rapidly changing with more near-sourcing and risk minimizing.

• Sustainability awareness is increasingly unavoidable - and transportation is a big piece.

The traditional approach very often leads to more of an endless data crunch and, in best case, a mathematical answer that minimizes the theoretical logistics costs but does little to create an implementable supply chain strategy.

But you don’t do a network optimization to relive the linear programming classes from college and show your mathematical acumen. Well, some of us may. For the rest of you, here are some crucial hard-earned learning points from many network optimization projects:

1. Avoid Spending Time and Money Feeding the Monster with Data

Nobody has perfect data. A proper strategy for cleaning and curate the data will be one key to the success of the project.

The important thing is to know what data really matters and how to curate the imperfections into a usable dataset.  The most critical data for the outcome is the shipment data and it is often the hardest data to get. If you don’t have access to this data internally, the carriers do have it. They are not always keen on sharing it, but they are still the best source. The order data is usually readily available and can be used to recreate shipments though the dim/weight can complicate things. This is an area where data-enrichment from firms specializing on this can work and also item profiling to reduce the complexity to where it matters.

Most advanced models require much more data to run, but the impact of other data is less critical and can in many cases be handled with benchmarks to get a starting point and sensitivity analysis where you rerun the model with the critical datapoint varied until you find the breaking point where the recommendation changes. It is much easier to make a call when you see where it really matters and have clear choices.

2. The model will not give you a strategy. It will only tell you which alternative is mathematically the best.

Before you run the model; use the data that has been collected to profile your supply chain. This will enable you to evaluate relevant solutions.         

• Customer profiles and requirements: Delivering to the big retailers demands a different solution than direct to consumer deliveries. Two separate networks?

• Inventory profile: Certain products may have demand patterns very tilted geographically or being critical from a supply perspective. Slow-movers vs best sellers. Examples of facts that would determine the eligible alternative network structures to optimize such as Central DC, Regional DCs, Satellites, Forward Stocking Locations, etc.

• Order profile, supply profile, product profile are other examples of facts that are important to analyze pre-modelling.

3. Sensitivity Analysis

Instead of trying to create the perfect dataset. Use the model to find out with what value on critical but uncertain data that the recommendation changes. This saves a lot of time and makes the decisions relevant.

4. Use the Right Software Tool for your Challenge

The most advanced optimization tools are expensive and require a lot of effort to configure. You’ve spent a lot of time and money before you are ready to run the model. This is totally worth the investment if your supply chain is very complex and you intend to, once configured, use the model frequently. Those software tools are sophisticated and awesome with all their possible add-ons.

Most companies have a more straightforward supply chain or can optimize the network in North America, or Europe, Asia, etc. separately and then piece them together. If this is the case, the most complex tools are complicating things without the added value. Spend the time and money you save on an adequate optimizing tool to focus on strategy development instead.

Supply Chain Management Post-Covid-19 – Regional Supply Chains

Regional supply chains, near-shoring manufacturing, inventory management, warehousing as a market tool: oldies but goodies are making comebacks in the new, post Covid-19 world.

Life has changed drastically the last few months since this novel coronavirus disrupted the world as we knew it. Supply Chain Management is making a comeback on what is trending after its last visit on the charts back in the last century.

The trend from global to regional supply chains has been going on for a while. One reason is of course President Trump’s trade war with China. Interestingly, this has demonstrated more of the difficulties to relocate complicated supply chains from the dominating supplier clusters in China. There are so many components only available there that it is not only cost-prohibitive to moving technologically complicated production to North America or Europe. China is very deliberately undergoing a Japanization, in the sense that it used to be the place where all the cheap, low quality stuff was made and now it is becoming the high-tech hub. The tariffs and trade frictions have anyway started a motion towards more regional supply chains.

It has also demonstrated how developed the regional supply chains in east Asia are. China’s Silk Road project will undoubtedly exacerbate the growth of the Greater China supply chains. The main market may well be in Asia.

The tariffs and the COVID-19 crisis have brought the forgotten artform of scenario planning and risk mitigation back into the supply chain management world. Check in with the Site Selection Guru Bob Hess at Newmark for details on how to do this.

One answer to the risk mitigation is “near shoring” – regional supply chain in the own country or a safe region i.e. within EU or within the USMCA block. Establishing safe and resilient, regional supply chains for medical equipment is on top of many procurement specialists’ agenda.

We know from our clients with assembly/production in North America that a lot of companies are trying to find or develop suppliers of critical components within the USMCA. This is a process that takes time and the result will not be visible short-term but certainly over time. Most likely is that this will materialize in the form of regional clusters like you see for furniture in Western Michigan, cars in the Midwest or pharmaceuticals around Boston and Raleigh.

A third area for regional supply chains is products that can be made by robots or other forms of automated production. This is driven by the increasing salaries in China and the decreasing costs for robots combined with the ever-increasing capabilities and versatility they have. We see more and more very successful and growing companies built on automated production in both Europe and North America. It is not far-fetched that they will help form the foundation for regional supply chains.

The most important factor driving the growth of regional supply chains is psychological and materializes in attitude. Where offshoring to low-cost China was a default in the 1990s and 2000s, it is now mainstream to think sustainability, resilience and creativity. Enter regional or even local supply chains. Farm-to-Table or Made-in-your-County.

Supply Chain in COVID-19: The Option of Nearshoring

Our CEO, Håkan Andersson, was recently featured on a podcast with industry expert, Bob Hess, about the potential for #nearshoring as a result of the pandemic.

Listen here: https://nkf.re/3dhqU0