The Significance of Optimizing Your Supply Chain Network Design

The past three years have undoubtedly highlighted the necessity for companies to persistently assess their network design in light of capacity considerations, agility, and resilience, all while maintaining economic viability. Supply chain network design serves as the strategic compass guiding companies on how to transport goods from source to customer in the most efficient and effective manner, benefiting both parties involved.

While this concept may appear straightforward in theory, the intricate challenges arising from perpetual demand and supply imbalances, geopolitical uncertainties, unforeseen pandemics, ongoing labor shortages, and escalating inflation are rendering it increasingly challenging to pinpoint optimal solutions that accommodate these dynamic variables.

Furthermore, customer demand patterns and their expectations are in a constant state of change, spanning across physical retail, omni-channel, and traditional e-commerce. The reality of what needs to be constructed will likely look vastly different five years from now and undergo dramatic transformations over the course of a decade.

So, how should supply chain leaders look to optimize their supply chains?

In today’s supply chain landscape, the reality is undeniably global, marked by an intricate web of dependencies spanning both upstream and downstream functions. Rather than exclusively fixating on the optimization of network designs, a supply chain leader must shift their focus toward building agility, resilience, and necessary redundancies within their respective supply chains.

Agility is an essential quality, enabling the adaptation to volatile customer demand patterns. Resilience, as underscored by the lessons learned from the pandemic, is vital to navigate the inevitable setbacks within various segments of our supply chain. Moreover, redundancy plays a critical role, as heightened customer expectations mean that any network downtime can very easily erode customer trust and lead to fluctuations in retention and churn rates, especially in light of the abundance of alternative options available to them.

What are some specific ways to do this?

Companies should initiate their strategic planning by clearly defining goals with direct ties to quantifiable output metrics. These objectives should be both tangible and measurable, allowing for a transparent link to the core facets of the company’s internal operations.

To illustrate, consider a scenario in which a company aims to elevate its same-day delivery penetration from 10% to 30% within a one-year period. The driving force behind this objective is to generate an 8% surge in purchase frequency, ultimately resulting in a substantial $10 million revenue increase. This goal stands out for its distinct clarity, ensuring that every stakeholder understands its implications for customer experience and the company’s financial dynamics, and enabling a direct correlation with internal operations.

In addition, companies should embrace a forward-looking approach when defining their demand targets. For instance, establishing demand objectives spanning 5 to 7 years equips the supply chain organization with a panoramic view. It offers insight into pivotal decisions, such as the timing of planning for specific labor capacity versus immediate actions, like investing in a highly automated facility with substantial capital expenditure requirements and an 18-month lead time for its launch.

Simultaneously, a comprehensive evaluation of the company’s inventory flow and placement strategy is imperative. This strategy should be directly linked to in-stock targets, holding costs, and inventory turnover ratios. The nature of the inventory, be it ambient or perishable, may necessitate a more detailed, holistic inventory strategy.

Companies must maintain an ongoing scrutiny of their physical network footprint. This entails an examination of whether they have the optimal number of facilities planned for the next several years. Additionally, the size of these facilities and the capabilities of their mechanical handling equipment should be further scrutinized. The readiness to expand or contract the network, while retaining the flexibility to explore alternatives such as third-party logistics (3PL) or hybrid solutions, remains core to building agility into the network.

Finally, in addressing labor-related concerns, companies should move away from outdated models and venture into the development of versatile labor strategies. This involves the deployment of hybrid models that combine in-house associates with on-demand, dependable backup labor pools. Labor-related shortages represent a fundamental cause of operational downtime for companies, and while automation continues to advance, the reliance on human labor will continue to persist for a long time to come. Notably, a growing number of startups now offer flexible labor pools that operate across different companies, providing surge capacity when needed and granting associates the autonomy to choose when and where they work. This approach injects adaptability and resilience into the company’s labor force, effectively mitigating disruptions caused by workforce shortages.

About the author:

Charan Lalwani is one of the prominent experts in the supply chain industry, specializing in the analysis of cutting-edge trends and technologies within the realm of last-mile delivery. He frequently offers thought leadership on enhancing logistics efficiency and elevating the customer experience. For inquiries or to connect with Charan, please reach out to him at [email protected].

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