Today’s constantly changing business needs have dynamic implications in supply chain management, for product and services focused supply chains. One of today’s more important challenges relates to what companies can do to ensure that changes across supply chain networks are integrated to operations plans and strategies.
Professor Yossi Sheffi, founder of the MIT Center for Transportation and Logistics (CTL), recently noted in a commentary featured on Supply Chain MIT and LinkedIn the following: “An area where (supply chain) agility is sorely needed is distribution. Logistics networks are constantly being reconfigured in line with changing market conditions.” Professor Sheffi goes on to indicate that the pace at which networks are reconfigured will continue to increase as new innovations emerge, particularly as supply chains support combined discrete product and service package needs.
To further explore this challenge, Supply Chain Matters recently interviewed two executives at supply chain consulting firm Chainalytics. Vice President Steve Ellet leads the Supply Chain Design Practice focusing on applying large-scale optimization and simulation models to strategic and tactical supply chain network planning. Vice President Irv Grossman leads the Supply Chain Operations Practice where he is responsible for the delivery of services related to service supply chains, encompassing reverse logistics, after-sales service, and service-centric networks.
The following is a summarization of our discussion.
Q: How often should an organization be reviewing the supply chain network design plan?
Our conversation noted that supply chain network design is no longer a one-time exercise. There is a constant need to keep the supply chain network model refreshed to reflect current supply chain process activities. Strategy changes are occurring all of the time. Merger and acquisition, addition of new customers or required changes to customer fulfillment needs all can impact the network. Organizations need to have the model up and ready to be able to assess the implications of such changes.
Indeed, supply chain network design is no longer an annual or periodic exercise, but rather an active tool for strategic, tactical and operational assessment. Supply chain network design technology has become more and more mainstream for many teams. However, such models do require ongoing expertise and continuous refresh. Teams need to know what they are doing, and that is where a specialist comes into play.
In the specific area of B2C and retail focused supply chains, further consideration are the rapidly changing implications on Multi-Channel or Omni-Channel commerce where for instance, retail stores have become customer fulfillment centers or DCs service both cross-dock distribution, online fulfillment or direct ship needs. Retailers trying to manage two separate networks, one for brick and mortar and one for online, may well be sub-optimizing supply chain network capabilities. Retailers for the most part are just beginning to internalize such implications and these are important changes that need to be reflected in supply chain network design and fulfillment strategies.
Q: What should teams specifically be reviewing? Should supply chain network design be utilized as a means to evaluate different alternative business scenarios?
Noted in our discussion is that this is an area where Chainalytics consultants help all the time. Some supply chain decisions are constant, some are periodic and others ad-hoc. Teams need to be up-to-date with current data regarding the network. Transportation or fuel costs are changing constantly, coupled with changing key customers and suppliers. Each should be incorporated in the network model on a timely basis.
Certain tactical decisions that are easy to implement or do not require expensive capital can be continually evaluated with a vibrant supply chain network model. Examples may be moving a fulfillment site for supporting a key customer, adding a new production line, altering distribution patterns to reflect an expected product demand spike. Decisions focused on entering a new market, closing or adding a new facility are less frequent, but have considerable implications financially and otherwise. Models therefore can be configured so that data that is constantly changing is reviewed on an ongoing basis while other, more strategically focused network needs are reviewed periodically based on a particular business need. A decision as to whether to acquire another business or enter a new market can be quantifiably assessed as to impact on the current supply chain network.
The important tenet is that the network model provides a singular information reference point to depict profiles and changes, and is continually being refreshed.
Outside consultants add value when firms lack the knowledge for knowing what specific metrics to assess and how to represent them in a foundational network design. At what point does current supply chain performance imply an analysis of the current network to uncover bottlenecks in capacity, significant cost or service degradation? An experienced analytics team can help assess when it is time to evaluate or recommend needed changes.
Q: What best practices does Chainalytics recommend for clients to assure continuous supply chain network design processes are integrated into existing planning and operations proceeses?
Both Steve and Irv pointed out that performing a one-time large-scale network design consulting engagement is becoming less common in favor of ongoing assessments that make network modeling a continuous process that is part of the fabric of decision-making support tools. This makes it easier to assess network changes when constant business change becomes the norm.
Further brought out in our discussion is that change management competencies have become much more important for the network analytics team. Who is involved, who is brought in to assess various network scenarios, and how senior management becomes comfortable with recommendations from network design teams becomes integral to ongoing business planning and are now aspects of this change management component. While the analytics team has confidence in the results of network optimization, transference of that confidence to the broader business team to support such recommendations is often a stumbling area that is implied in change management. Chainalytics has advised clients on implementing a model value assurance scorecard process to assist in these efforts.
Q; Are there special considerations for service focused supply chains?
Service-focused supply chains are somewhat unique in that demand patterns are different, driven more from location of equipment, service facilities, or customer installations. There tends to be a lack of understanding on the overall elements and cost structures of the end-to-end value-chain network. Supply network changes constantly impact services businesses and, according to Ellet and Grossman, such supply chains can indeed benefit from use of supply chain network modeling to add more intelligence and context to decision-making. Consider that sometime in the not too distant future, parts or components can be produced by 3D printers located within key physical areas of the value chain.
While this segment has admittedly been slower than product-focused supply chains in the adoption curve, there are proven benefits. As an example, Chainalytics consultants have conducted previous network design and operations projects for an automobile parts distributor, a natural gas utility modeling the placement of service crews and parts, and a beverages supplier needing a model for network dispensing equipment with periodic maintenance and other needs.
In summary, today’s more dynamic clock speed of business change warrants consideration for continuous use of supply chain network design modeling, integrated with operational decision-making. We would like to thank both Steve Ellet and Irv Grossman for speaking with Supply Chain Matters on these important capabilities.
Disclosure: Chainalytics is a client of the Ferrari Consulting and Research Group LLC.