Every supply chain has a central purpose, regardless of size or industry: getting materials from their point of origin to the place they’re needed as quickly and inexpensively as possible. Designing a supply chain to accomplish that task isn’t as straightforward as it seems, especially when technology is involved.
A smart company pays attention to the way their supply chain operates, and that means working with a proactive design over a reactive one. Do you know for sure which way your current supply chain design sways?
The right setup makes all the difference when your supply chain encounters a roadblock. Simply put, the difference between proactive and reactive supply chain designs comes down to one thing: timing.
If existing scenarios and events have triggered an assessment of your supply chain flow, you’re operating with a reactive design. If on the other hand, you’re considering events that aren’t in the process of happening right now, you’re proactive instead.
For the sake of longevity and efficiency, the latter is the best design choice because it eliminates the effort and financial costs of reactive uncertainty. When a company only performs self-checks during milestone events––expansions, acquisitions, restructures, and so on––they miss a great deal of opportunities to eliminate waste and drive down costs.
Times Have Changed For Supply Chains
Factors like global trade and a customization trend in manufacturing have altered the “straight shot” supply chain forever. No longer a simple line drawn from supplier to customer, the modern supply chain more closely resembles a web of intersections. While this interconnectedness means that the chain is less susceptible to disruption, it also means hidden costs are lurking behind familiar processes.
This is an especially common trap for legacy companies with many years in business; the larger the company, the slower change progresses within it, and the greater the reluctance to embrace change.
Thankfully, digitization of inventory and technology like real-time shipment tracking from 3PLs are taking the pinch out of switching for these companies. With a computer doing most of the difficult legwork, the only buy-in necessary from a company is the initial technology and the determination to implement it in their supply chain.
In the era of pencil and paper, reactive supply chain design was something of a necessity: supply chain managers were busy running the chain itself.
With such widespread advances in digital help both inside and outside the warehouse, the modern supply chain should naturally gravitate toward proactive design. If it doesn’t, competition stands to bypass the companies that stay rooted in their analog pasts.
Where We Start With Supply Chain Design
Figuring out if your supply chain is ready to handle a crisis is simply a matter of taking a long look at its foundation. Is there a point where multiple supply channels pass through a single location in your chain? What would happen if something catastrophic happened to that node? Could you recover quickly enough to prevent a disruption of product flow?
Remember: these are important questions that apply not only to international business operations but domestic ones too.
While civil unrest could slow down production or shipments in a foreign country, natural disasters can accomplish just as much shipping disruption in North America. Even Canada, a country that’s not exactly famous for shipping disasters, was virtually cut in half by a single unexpected bridge collapse in 2016.
Planning for unexpected issues like these is a major part of a proactive approach; make sure you always have a well-documented “Plan B” for your supply chain. Include any approximate cost differences in your plan to aid your crisis decision-making.
Once you have addressed these major concerns, consider the current path that each of your incoming shipments takes to reach your distribution center, and answer these 3 questions:
- How many “hands” have touched the shipment between its origin point and your facility? The more agents a product or material passes through, the higher its end cost.
- How far away is this shipment traveling? As gas prices creep upwards, those extra miles turn into a financial liability that harms your business growth.
- Am I paying fair market value or less for this shipment? Don’t forget to factor in cost savings from volume orders, combined orders from distributors, and so on.
By answering these questions before you need to, your company is more likely to spot lucrative opportunities to reduce, combine, and streamline supply chain processes.
If on the other hand, you only jump to “stop the bleeding” once a design problem manifests itself, you’ll be cleaning up a larger mess than you need to.
Knowing the Difference in Field Approach
The same brush cannot be applied to all aspects of redesign and improvement; there are two distinct pathways, and you’ll need to approach each one differently.
A Greenfield optimization focuses on what new additions should be made to your network to improve customer responsiveness going forward using only customer demand. While the Greenfield optimization approach doesn’t consider aspects like building capacities, inbound costs, transportation, or sourcing policies, it does offer a smart recommendation for the optimal amount and placement of your distribution centers.
Conversely, network optimization approaches look only at your existing supply chain design, using this data to form a baseline for future improvements.
Network optimization is also more intrinsically complex, encompassing a number of vital optimization subcategories. These include 6 basic segments:
- Product flow optimization, which takes a close look at the efficiency of a product’s path from creation to the customer.
- Product optimization, which determines how to create a product at a lowest cost / highest quality level balance.
- Inventory age optimization, which pinpoints the risks of products aging out, perishing, or becoming otherwise unsalable through stagnation.
- Sustainability optimization, which focuses on the impact that the supply chain makes on the environment: greenhouse gases, waste, and so on.
- Safety stock optimization, which safeguards against out-of-stock scenarios by finding the optimal amount of overstock to keep on hand.
- Cost-to-Serve optimization, which gives insight at the granular level to root out unprofitable products or customer focuses.
A proactive design approach should take all of these factors into account at some level; each one is an important part of a top-down focus and a component to lasting positive results.
Optimizing Supply Chain Design
Optimization is a very delicate art because it depends so heavily on understanding moving parts. While companies are eager to spearhead their own optimization efforts, too often, they may use data-free “intuition.” This leads the charge down unoptimized paths.
True optimization needs to gather and rely on data to achieve lasting, reliable results. This is why it’s essential to rely on a holistic 3PL for expert advice and guidance.
You may already have a numerical goal in mind: for example, meeting a certain percentage of demand needs within a certain radius of a distribution center. Your 3PL partner, for example, can recommend where your distribution centers should be placed to meet that goal, and adjust those recommendations later if your needs change.
To Sum It All Up
For additional insights on this topic, download our guide to Supply Chain Network Design and get started on making your supply chain the best, most proactive version of itself possible, leading your company to efficiency and success.
Eric Robinson is a Senior Project Engineers at Kenco Group. He is a Six Sigma Green Belt specializing in process layouts and equipment implementation. He has four years of project management experience with time study analysis and organizational planning background.