Supply chain design was once seen as an activity to be endured every few years — a strategic exercise that wasn’t tied to operations. Now, however, competitive companies are realizing that every decision they make should be used as an opportunity to improve the configuration and use of their networks. That means having a model of the network that lives and grows with the organization.

The theory that supply chain design should be done only intermittently was based on a slower business environment and the limitations of older technologies. In this day and age, business decisions are moving faster, and the blending of strategic decisions and execution are merging.

The pandemic, acceleration of e-commerce and impact of shortages all seem new and transitory. But change and disruption are both endemic and good. Leaders in supply chain never feel like they’re finished — that their network is ever good and stable. They see it as a living and changing organism that’s subject to change even under the best of conditions. Positive change is that which is planned and intentional.

Enter the new world of supply chain design. Getting ahead of change means creating a plan for what doesn’t exist, and figuring out what should. For businesses today, not having a supply chain design is like making an addition to a building without a blueprint.

The importance of supply chain design and analytics was recognized early in business history. One can guess that Ramses II had a special abacus designed to optimize the inbound movement of his rocks. Henry Ford applied hundreds of “computers” — in those days, the term referred to an underpaid engineer with a slide rule — to design the River Rouge plant.

One consistent trend is the acceleration of the rate at which supply chains change, and the reduced time in which supply chain designs need to be executed. Ramses could make decisions that would stand for centuries. Henry Ford could look out decades. But in the 1980s and 1990s, the age of corporate mergers shrank the horizon to a matter of years. 

That era was in fact a golden age of network design tools, propelled by accessible computing power, breakthroughs in linear programing and a driving need to design faster — every two to five years. Companies that were able to design well outperformed those that didn’t. Studies and practical experience show that:

• The structure of a network locks in 80% of logistics costs, including distances to suppliers and customers, number of facilities, rough inventory levels, labor markets and lease markets.
• An optimally designed network is consistently 5% to 15% lower in cost than one that develops organically. That number has been proved consistently by consulting firms.

Even today, we’re chasing these numbers. The 21^st century has brought faster change, along with new business and technology enablers that provide supply chain leaders with assets and options that make them faster and more flexible. They include:

On-demand resources. On-demand warehousing and freight are making it easier to change the number and placement of physical locations. Supply chain leaders can move away from five- to 10-year leases and find sites that can do fulfillment on a seasonal basis. The same driver goes for freight options.

Last-mile services. Advances in last-mile delivery and more small-parcel options are making it possible for e-commerce sellers to deliver smaller shipments more frequently.  This provides more building blocks for getting products to customers and prioritizing segments.

Dynamic supplier partnerships. Companies are getting increasingly creative with supplier-buyer-consumer relationships. Where Henry Ford designed everything to be vertically integrated, the supply chain leader today can engage in relationships with shorter lifecycles and more “optionality” built in.

All this means that the components of today’s supply chain design are smaller and more flexible, creating a strong business case for designing more frequently. This opportunity is coupled with multiple enablers in the technology world, including:

Digital twins and data stores. Analytical applications for supply chain design are starved for comprehensive and normalized data. It’s arguably their weak point.  Enterprise platforms have evolved to become repositories of such data, and can be accessed in meaningful ways. Multi-enterprise platforms offer a wide spectrum of operational data.

Serverless computing. The desktop of the 1990s cannot compare with the ability of newer serverless applications when it comes to performing frequent and massive calculations in the cloud. Serverless also opens up integration opportunities and ways to pull more services into the design process.

New-generation databases. Relational databases are slow and limiting. But non-SQL and graph databases have reached market maturity, and are excellent ways to structure supply chain data and access them in memory. The result: no more “round-trip” time to pull data from a conventional database.

Much as sales and operations planning (S&OP) was enabled by need and technology to be a monthly process, supply chain design has evolved from a project undertaken every few years to a process that can be performed on demand. The enabling drivers have made it a competitive advantage to design faster and more often, and the technical drivers have made it possible.

A world-class supply chain today will have design as a key component, allowing for decisions large and small to be modeled and rated in terms of cost, service and optionality. Most importantly, the supply chain can be built and evolved along a path that maximizes both current and future performance.

Steve Johanson is president of Starboard Corp.