Supply chains have become more complex due to continued growth in global markets, increasing customer expectations, rising costs, and more intense and diverse competitive pressures. Therefore, supply chains offer increased opportunities to impact the bottom line and shareholder value, through improved performance. There are three critical elements to achieving and maintaining a world-class supply-chain network.
Strategy Before Network
With complex and competing business goals, such as minimizing capital, improving operating margins, lowering the carbon footprint, and enhancing the customer experience, a clear and concise supply-chain strategy must be fully aligned with the business strategy. Surprisingly, many companies begin reducing the network costs before they define how the network can be fully leveraged to support the business strategy.
Focus on Total Profit Optimization
Today, an increasing number of companies are asking the question, “How can my supply chain be used to maximize profits?” This is a much different objective than traditional network optimization projects that define the objective as reducing costs and maintaining customer service levels. Now, a combination of operating scenarios are required that drive alternative network models.
Project vs. Ongoing Process
World-class supply-chain networks evolve as sourcing adapts to market changes, product line performance varies, and companies integrating. A world-class network incorporates an ongoing process to exercise the inherent flexibility of the supply chain. This ensures that objectives are met consistently and over a range of market conditions, while enhancing the key drivers of shareholder value.
Some of the considerations to be incorporated in a supply-chain design include but are not limited to: space utilization, layout and equipment, current operating procedures and performance, staffing levels, facility constraint on shipping and receiving, annual operating costs, transportation costs by mode, and the need for access to shipping hubs and inventory (defined by safety stock and cycle stock).
Current market share must be a consideration when planning for the baseline. An organization’s current state and where the organization is moving in a progressive manner must be understood. It must understand how to take advantage of multi-echelon networks and how to use this as a competitive advantage for the organization.
It is important to remember that a supply-chain network plan relies on a defined set of requirements. It should not be composed simply of ideas, thoughts or possibilities that have not been researched and validated. Traditionally, the planning horizon is stated in a five-year plan, but this no longer works. We must evaluate on an as-needed basis as changes are taking place daily in any given organization. The maximum span between designs should be no more than two to three years.
As network design evolves, each effort should set forth specific actions needed to meet business requirements. A detailed written executive summary and report accompanying the recommended actions needs to describe and illustrate how the network design will evolve. The network design should show what strategies are best for the business, maximizing profits to the stakeholders. Most importantly, is your network design evolving with the digital age?
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