In good times or bad, companies can find value in taking a close look at where they are siting manufacturing plants and distribution centers. Mike Jones, president of St. Onge, offers some tips on how to derive maximum value from that effort.
A company might want to engage in distribution network re-optimization for a variety of reasons. In fact, the exercise is a popular one in both good times and bad, says Jones, a supply-chain engineering and consulting firm. During periods of strong growth, there's a need for figuring out where to place additional facilities. And when the economy takes a dive, managers ares looking for areas where they can cut costs and streamline the supply chain without having a negative impact on customer service.
Often a large organization will consist of multiple divisions, operating with a high degree of autonomy. Top management will issue an edict to find synergies across those functions. Mergers and acquisitions are another trigger for optimizing a widespread distribution network, Jones says. That scenario "represents 30 to 40 percent of the studies we do." Typically, a company that has made an acquisition will be looking to eliminate redundancies throughout the newly merged organization.
They'll face a number of challenges in carrying out that effort. Chief among them is the data component. Optimization studies tend to be highly data-intensive, says Jones. A company will want to examine one to two years' worth of shipment and inventory history. Managers will need to profile their transportation cost and facility sizes, as well as quantify inventory requirements. In addition, the functions of a merged operation might have different ways of describing the same products and customers. "With two organizations coming together," he says, "you've got totally different data sets."
The process must be examined on a strategic level as well. Top managers need to determine just how fast the combined company's orders will grow. And they'll have to pay close attention to cultural issues. Many mergers bring together former competitors with sharply different philosophies on key aspects of doing business.
Basic overhead is another major driver of network optimization efforts. While many companies have already forgotten the big increases in fuel prices of last year - "people have very short-term memory," Jones notes - there's a general realization that transportation costs aren't going down anytime soon. Driver availability, tolls and new regulations on hours of service are just a few of the factors to keep in mind. Says Jones: "A lot of things are pushing transportation up, disproportionate to other supply-chain costs." To view this video interview in its entirety, Click Here
