Sunday, February 9, 2014
Supply Chain Network Design
Supply chain network design is a “powerful modeling approach proven to deliver significant reduction in supply chain costs and improvements in service levels by better aligning supply chain strategies” (Industry Week)
A mathematical model of the supply chain network is built and solved using optimization techniques. Then, solutions are analyzed to pick the best solution. Examples where supply chain network design is valuable:
Companies believe that they can deliver the same or more products to the market at an overall lower cost. For companies producing and shipping many products, the cost savings come from merging the two supply chains by closing redundant plant and warehouse locations, opening new plants and warehouses, or deciding to use existing facilities to make or distribute different mixes of product. Firms claimed to save between $40 million to $350 million over a 2-year period. To make these savings happen, it is important to design the supply chain network.
2- Supply chain is no longer serving the business needs
In this case, a firm must transform its supply chain completely by closing many facilities, opening many new ones, and using facilities in a completely different way. As an example, a retailer may redesign their supply chain to better serve their stores and online customers in a more optimized way. If the design was done right, it will reduce logistics and inventory costs, better respond to different competitive landscapes, and increase sales and profitability.
3- Disruption in Supply chain
A global chemical company had to close its plants in Egypt due to political unrest while the company was going through supply chain network design. This was an opportunity for this company to develop short-term and long-term contingency plans in case of disruption.