Tuesday, February 11, 2014

Global Supply chain network design applying optimization and analytics

“Supply chain management (SCM) is a rapidly growing area of study—and network design is one of the fastest growing areas within SCM”
—Bill Nickle, Principal, Nickle Consulting
As success of the supply chain is one of the most crucial factors of an organization’s success, supply chain network design is one of the important aspects of it. Strategic network design is about selecting the right number, location, and size of warehouse and production facilities. At the same time, firms will need to determine the territories of each facility, which product should be made where, and how product should flow through the supply chain.
Typically, network modeling may not produce a single correct answer. Instead, strategic network design planning requires constructing a logical mathematical model of the existing supply chain, using powerful optimization engines to sort through the seemingly countless possibilities to return the optimal solution, and then analyzing the results of many different scenarios to support a good operational decision. There are commercially available software takes care of the calculations.

For an example, LLamasoft has a good tool for supply chain network optimization. The below video can provide some insight:

Mobile supply chain modeling app - Supply chain Sharper where one can use own metrics for specific organizations cost structure. It automatically GeoCodes different sites all over the world and provide results immediately. LLamasoft has supply chain management suite which could be integrated with the mobile app and analyze data.

However, it is important that the decision maker/the modeler understands the functionalities of the optimization engine is doing in order to construct better models and deliver better results.

A typical network design analysis should be able to answer the below type of questions:
1.       How many warehouses can provide optimal capacity?
2.       How large the warehouse should be? What would be there Geographical locations?
3.       How many plants or manufacturing sites should we have, where should they be, how large should they be?
4.       How many production lines should be optimal?
5.       What products should be made and which warehouse they should be kept in?
6.    Which products should be outsourced?
7.    What is the impact of changes in demand, labor cost, transportation cost and commodity pricing on the network?
8.    How to ensure the proper capacity and flexibility within the network?
9.    How can we reduce the overall supply chain costs?
10.    If a certain area is affected by natural calamity, will our rest of the capacity can cover it and meet market demand?

How business Analytics is becoming critical to supply chain and helping business to shape up and function optimally:
IBM’s webinar on how analytics can manage change impacting supply chain:

A complete distribution & manufacturing case study of MARS( multiple products such as chocolates, vending machines – family owned business) :

The supply chain network design problem is just as much about geography as it is about business strategy. Along with Geographical factors, a good model should consider transportation cost, Service level, risk, local labor, skills, materials, utilities, taxes, carbon emissions. The nodes of the network would be Hub Warehouse or Central Warehouse, Distribution Center, Cross-Dock, Plant-Attached Warehouse, delivery points, receiving points, and service area/city/state and retail stores. Based on these factors and nodes the baseline model has to be built and then an optimize baseline model should be built which is a possible solution.

Profitpoint network design tool result for a small supply chain network:

There are three levels of challenges in a supply chain network remodeling:
  • ·         The first challenge is to get different teams such as Sales Team, Operations Team for Warehousing and Production, Finance Team, Logistics team in one room and align & aggregate their specific goals.
  • ·         The second challenge you have is collecting and validating data from all these different parts of the organization.
  • ·         The third and final challenge after the modeling is done and the decision has to be taken.

 The final step of actually implementing the results can be a major challenge in and of itself. People might resist to changes. It is not always easy to make everyone to see the big picture and the value these changes will bring. Proper involvement from all of the previously mentioned teams within an organization should be in place.

Other than cost, demand, time optimization, customer experience  what might lead an organization to remodel their supply chain?



  1. Great article. Role of Analytics is very important in supply chain management. It is true that in future businesses will need to sort out challenges in warehouse, logistics and supply chain. Hence, analytics will play an important role. By making use of supply chain consulting experts like Global4PL, businesses can streamline their distribution network to gain efficiencies, effectively analyze their supply chain strategies, improve customer service and better utilization of assets and capital.

  2. Great post. Finding ideas to write about is one of the hardest things about running a blog. Please visit http://goo.gl/40KGBl


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