Executive Briefings

Supply Chain Network Design: Architecting a Green Future

The focus on green network design allows companies to reach to the core of the green supply chain movement by optimizing resources and reducing waste.

Network design tools have been available in the industry for the last 10 years though they have been underutilized. Eighty percent of companies reassess their network at a frequency less than 2 times a year.  Aberdeen research finds that over 90 percent of companies leverage a spreadsheet-based application or a consulting-based approach rather than an application package for doing network design and hence are unable to make extensive trade-offs between constraints. This approach is not scalable to doing green network design.

There are five steps to leveraging the network design approach to carbon management: Model, Measure, Analyze, Optimize and Implement.

1. Model: This is the step by which the network for the enterprise is modeled using a network design tool, including such building blocks as sites, lanes, products with their demands, costs and constraints. These network design tools also have the ability to model different types of costs - transportation costs, inventory holding costs, manufacturing costs, etc., to identify total costs associated with managing the network based on projected demand.

2. Measure: A new challenge for companies is to figure out how to bring the carbon modeling into the equation-namely how to assign a cost to carbon emissions. This step measures carbon emissions in terms of the weight of CO2.

3. Analyze: The third step is to create a list of scenarios that need to be looked into for optimizing the carbon footprint.

4. Optimize: Once the scenarios have been identified, leverage the optimization tool to compute the costs and analyze the results. Allowing for different levels of emissions can make significant differences to the network design decisions. There may be the following benefits gained: improved general efficiency of supply chain, alternate sourcing strategies and managing risk, improved service levels and modal shifts.

5. Implement: The implementation of the suggested optimized network should be implemented in a pilot mode. Key green metrics and indicators should be measured along with the traditional supply-chain-centric metrics. The results should be monitored for a period of 12 to 18 months before making the conversion of the entire supply chain to "green."

Implementation will reveal aspects that were not considered during the modeling activity like-quality, organizational behavior, facility-related emissions and other unknown factors that may arise. Best-in-Class companies can gain a lot through this journey in this brave new world of green supply chain.

The Outlook

These are steps that organizations should take in 2009 in order to position themselves at a competitive advantage after the recession is over:

1. Engage the use of network design technology and services as part of your green supply chain initiative.  If you are not sure where to begin, engage with a network design solution provider to assist you with program selection and prioritization.

2. Use network design technology for more frequent strategic decision-making. Companies should increase the frequency of their network strategy assessment to at least once a year, and use this process for assessing business growth scenarios, supplier network design, etc.

3. Implement the strategic network design through an inventory optimization solution. It is not enough that the strategic network is designed based on optimizing around the carbon footprint. It needs to be implemented by respecting the constraints identified through the design process. This can be done by leveraging a demand planning and inventory optimization solution, which can help operationalize the network.

Network design tools have been available in the industry for the last 10 years though they have been underutilized. Eighty percent of companies reassess their network at a frequency less than 2 times a year.  Aberdeen research finds that over 90 percent of companies leverage a spreadsheet-based application or a consulting-based approach rather than an application package for doing network design and hence are unable to make extensive trade-offs between constraints. This approach is not scalable to doing green network design.

There are five steps to leveraging the network design approach to carbon management: Model, Measure, Analyze, Optimize and Implement.

1. Model: This is the step by which the network for the enterprise is modeled using a network design tool, including such building blocks as sites, lanes, products with their demands, costs and constraints. These network design tools also have the ability to model different types of costs - transportation costs, inventory holding costs, manufacturing costs, etc., to identify total costs associated with managing the network based on projected demand.

2. Measure: A new challenge for companies is to figure out how to bring the carbon modeling into the equation-namely how to assign a cost to carbon emissions. This step measures carbon emissions in terms of the weight of CO2.

3. Analyze: The third step is to create a list of scenarios that need to be looked into for optimizing the carbon footprint.

4. Optimize: Once the scenarios have been identified, leverage the optimization tool to compute the costs and analyze the results. Allowing for different levels of emissions can make significant differences to the network design decisions. There may be the following benefits gained: improved general efficiency of supply chain, alternate sourcing strategies and managing risk, improved service levels and modal shifts.

5. Implement: The implementation of the suggested optimized network should be implemented in a pilot mode. Key green metrics and indicators should be measured along with the traditional supply-chain-centric metrics. The results should be monitored for a period of 12 to 18 months before making the conversion of the entire supply chain to "green."

Implementation will reveal aspects that were not considered during the modeling activity like-quality, organizational behavior, facility-related emissions and other unknown factors that may arise. Best-in-Class companies can gain a lot through this journey in this brave new world of green supply chain.

The Outlook

These are steps that organizations should take in 2009 in order to position themselves at a competitive advantage after the recession is over:

1. Engage the use of network design technology and services as part of your green supply chain initiative.  If you are not sure where to begin, engage with a network design solution provider to assist you with program selection and prioritization.

2. Use network design technology for more frequent strategic decision-making. Companies should increase the frequency of their network strategy assessment to at least once a year, and use this process for assessing business growth scenarios, supplier network design, etc.

3. Implement the strategic network design through an inventory optimization solution. It is not enough that the strategic network is designed based on optimizing around the carbon footprint. It needs to be implemented by respecting the constraints identified through the design process. This can be done by leveraging a demand planning and inventory optimization solution, which can help operationalize the network.