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Supply chain network design is a critical process for companies because it establishes cost and service tradeoffs that will impact operations and profitability for several years into the future, Ellet says.
Network design software does a very good job of modeling networks by weighing service demands against critical cost factors like freight, real estate and labor, he says. The trouble is that companies too often don’t trust the software’s recommendations and so they never are implemented. “The key to success is having a process that creates confidence in the model,” he says. “Otherwise, it just sits on a shelf.”
To build confidence, companies need to involve people across the organization in the process, Ellet says, but that often creates “lack of ownership” problems. Bringing in a consulting firm to do the modeling and present results can overcome the confidence issue and help build a business case for change, he says. “The company still owns the management process, and we bring the research and analytics. Together it is a powerful combination.”
This combination can also help ensure that the cost factors used in the model are reliable, he says. “Freight is the largest cost factor, representing north of 50 percent of supply chain costs in most models and we have a lot of expertise around freight. We manage the Freight Market Intelligence Consortium, which consists of 100-plus companies that provide detailed transaction history to us multiple times per year. We pull in all of that data and can predict transportation costs with great accuracy.”
On the important cost factors of labor and real estate, Chainalytics partners with CB Richard Ellis, a large industrial realty firm that has an entire team working on labor analytics in different markets. “Real estate, labor and freight costs represent 80 percent to 90 percent of all costs in the model and we have great access to these numbers, and that translates into a high confidence in results.”
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