For many years, supply chain design was viewed as a component of strategic planning, primarily aimed at reducing costs. More recently, it has emerged as a discipline, rising in prominence from its legacy of back office, single-person projects to encompass a broad range of internal competencies. More and more companies are realizing the value of designing, controlling, and governing their supply chains in an analytical fashion, which helps add value on a repeatable, sustainable basis.
Supply chain design is important
When a company creates a supply chain, it’s making big decisions on infrastructure: how many facilities it needs and where to locate them; how much capacity should be placed at those facilities; how products and inventory should flow through its network; how to schedule raw materials shipments; how to make more informed infrastructure, capability, and policy decisions.
Ultimately, the company will lock in about 80% of the performance of that supply chain in its design. So, if the supply chain underperforms, or if the company’s needs change, it has limited ability to make improvements through planning and execution. That’s why it’s so important to design a flexible supply chain, which is responsive and can be modified quickly.
When I began my career, many companies made strategic decisions over a horizon of up to 10 years. Today, that’s far too long. Aside from a handful of companies, most businesses haven’t invested hundreds of millions of dollars in factories and other capital projects.
Companies now estimate what they’ll need from the supply chain over the next one to two years. Some of the nimbler thinkers are looking at a sixto ten-month timeframe. With the right data and software tools, it’s possible to analyze and respond to changes in just a matter days or weeks depending on the nature of the potential change.
A living, breathing digital model of your supply chain can deliver immense value.
It takes some investment in technology and skilled employees, but having a living, breathing digital model of your supply chain can deliver immense value. It can’t help you predict the future, but it will help you adapt more quickly when things don’t go according to plan.
The keys to excellent supply chain design
Great supply chain designers understand that they need to balance multiple objectives, which may vary across a given company that is segmented by business units, channels, or geographies. The balance may include financial considerations—are we managing costs or maximizing profits—customer service levels, risk management, and sustainability initiatives. It takes discipline to focus on short-term operational needs without losing sight of strategic long-term goals.
Companies now estimate what they’ll need from the supply chain over the next one-to-two years. Some of the nimbler thinkers are looking at a six- to ten-month timeframe.
Attributes of great supply chain designers
First, they’re analytical people. They need a strong understanding of the modeling and analytics required to ask and answer the right questions.
Second, they need the ability to transfer the reality of the physical supply chain into a digital model. This requires an understanding of the capabilities of the modeling technology and structuring a model design appropriate for the questions being asked of it.
Third, they need solid domain expertise to complement their understanding of supply chain principles. They’re typically multi-disciplinary. They understand the interdependencies and inner workings between manufacturing and distribution, inventory and transportation—how they work and how they trade off.
And finally, they are strategic, forward-looking thinkers. They understand the underlying business—how it executes the work—day in and day out. They understand how the supply chain performs and acts, but they can also provide higher-level insights.
Over time, as these employees build their competencies, they often form Centers of Excellence (CoE) inside the organization, enabling workers elsewhere to focus more on their own areas of expertise. CoEs offer supply chain designers a channel to contribute to the bigger picture—to the strategic goals of the organization. They support executives in answering what-if questions and arm them with accurate information to make big, forward-thinking business decisions or even small tweaks that have a large impact on the business.
Some companies are leading in supply chain design
Companies with the maturity and sophistication to embrace and elevate supply chain design tend to be larger in size and immersed in more dynamic markets. It’s also a function of how much and how fast their world is changing—whether that’s on the customer side, their supply chain needs, or the macro-economic climate.
More complex businesses have large, complex supply chains. Those can’t just be managed on a spreadsheet, and they include many uncertainties. These businesses need to focus not just on how to operate the supply chain they have, but also to understand how to modify and morph it into the supply chain they need.
The speed, the frequency, and the magnitude of change is accelerating in many industries. New technologies and game-changing ideas are going to keep coming.
Businesses in industries that have not yet been disrupted by technology may find themselves more complacent with their legacy systems. But we’ve seen evidence that the speed, the frequency, and the magnitude of change is accelerating in many industries. New technologies and game-changing ideas are going to keep coming. Proper design can help ensure that the supply chain is meeting the needs of customers and the financial goals of the organization, despite all that change.
Getting there is a journey. Companies have to commit to an ongoing process, not just a one-time project. We have to continually monitor, refresh, review, and ask: is that design we put in place still the right one? The result is an analytical environment that lets organizations place smarter bets on the short-term horizon but also respond to change. And that helps companies innovate and stay competitive, no matter what the future brings.