Supply Chain Design
Supply chain design is considered both an art and a science. A science, because the results of different choices can be quantified with an extreme degree of accuracy. And an art-form, because the future is uncertain, and hence so is the market that you cater to. Designing a supply chain is a necessity for all businesses that manufacture products. And there are several instrumental sections of the same that need to be perfected.
We can break every effective Supply Chain into four core elements. The Physical Flow of goods, The Financial Flow of working capital throughout the supply chain, the flow of Information, and finally the Design of the organization as a whole.
Designing Physical Flows –
➤ Designing Physical Flows involves the flow of materials through the supply chain. It includes modeling problems that the Supply Chain might face (transportation and transshipment problems, problems in location of storage facility, and Supply Chain Network Design Problems.)
➤ The next step is to find the solutions to these problems by finding the integral balance between cost and level of service and optimizing mixed integer linear programs.
➤ Once the solutions to preexisting flaws are found, the next step is to interpret and implement the solution into the supply chain.
➤ Integrating and implementing the solution delves deeper into the supply chain, to test the scope of the solution by conducting a sensitivity analysis of the same.
Optimization is used as a tool to support decision making, and real world network design projects are employed.
➤ A perfectly designed Physical flow allows for smooth flow of product from the manufacturer to the customer.
Designing of Financial Flows –
➤ Designing financial flows in a supply chain involves segregation of inventory levels by type. Raw materials, Work In Progress and finished goods. It is, however, not confined to this. Investment in Labor, Equipment, Software and Hardware systems, all go into this. Outsourcing and Insourcing of critical processes also go into this list.
➤ A well designed one deals with translating all this data into the language of the Chief Financial Officer. Translating the raw data, into profit and loss income statements, asset and liabilities balance sheets, and cash flows. Three main tools are used to design a robust supply chain at this point. Activity based costing, Working Capital and Discounted Cash Flow Analysis.
Design of Information Flows –
A Well designed information flow, is worth more than two in the bush. Creating and managing one however, is the tricky part.
Involving data about everything from Sourcing, to Manufacturing to Delivery. It is a process that starts with suppliers and ends with the customer. Optimal Procurement strategies, risk sharing and supply contracts. The challenges and obstacles your organization might face every step of the way.
The customer plays a major role in this. With effects like the bullwhip effect telling the inefficiencies of a supply chain. In the end it is the consumer who decides whether or not to consume, the decisive factor that can make or break your supply chain.
Design of the Organization –
The most key part of the four steps that goes into designing a successful Supply Chain, is designing the processes that build the organization.
Which is where we come in!
By refurbishing your existing business strategies and Organizational Structure.
A job that has us take apart all your Business and Supply Chain Processes and Performance Metric Systems, by defining how your supply chain function should be organized.
Welcome to Chools! Visit us at www.chools.in to know how you can take a fresh look at your Supply Chain Design.
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Supply Chain Design - Case Study
A telecom company that was a major player in the industry, needed a Supply Chain Design tailor-made for its requirements. The project was initiated by the company to account for the wastage of space in their warehouses, as the warehouse capacity utilization was only 25%, due to inefficient use of space and overstretched transportation routes.
An optimal supply chain design was the need of the hour. One that could take into account future demand forecasts and meet inventory optimization targets.
All operational sites and points of sale also needed a high level of logistics service.
Some of the several questions that needed to be answered were –
➤ The costs and effects of implementing inventory optimization in a supply chain that was already optimized.
➤ The capacity and locations of the warehouses that the company would need for all its inventory, considering future demand and inventory optimization targets.
➤ The optimal supply chain transformation plan, including relocation of inventory and timelines for warehouse closings.
An answer was arrived upon by integrating simulation technology and network optimization analytics. This saved both time and effort and was more efficient.
A baseline model was built and calibrated depending on the company’s logistics network.
The data gave 99% accuracy, gaining approval from key stakeholders.
Several supply chain structures and inventory policies were arrived upon, adequately calculating cost, service and implementation risks. Optimizations on every one of these structures, finally gave the optimal state of the supply chain that was swiftly implemented across the organization.
The project was the reason for significant increase in logistical efficiency –
➤ 9% reduction in Total Logistical costs.
➤ The number of warehouses were reduced by 28%.
➤ The cost of transportation was reduced by 5%.
➤ Inventory turnover increased by 26% while total inventory level reduced by 18%.
➤ A supply chain dashboard was also provided so that the company could experiment and evaluate improvement scenarios by themselves.
A multinational FMCG company with 160 years of expertise in their field, is looking for a solution to their supply chain problem. They put special emphasis on their operations in South East Asia, and have seen it to be a consistent contributor to their continued growth. However, their Supply Chain Design was not in tune with the market demand. Their product portfolio was spread across the region, and the Supply Chain and inventory policy was deemed inefficient for this purpose.
They sought answers for this problem.
A fundamental redesign of their Supply Chain was found to be the obvious one.
This involved a thorough review of their logistics network. Where the supply chain could be improved. Supply Chain Optimization was the answer they were looking for.
A baseline model was developed, taking advantage of large scale network simulations.
The metrics used to develop an efficient baseline model were.
➤ Estimated Lead Time (defined by products and orders)
➤ The Number of vehicles used for transportation.
➤ Rates of Vehicle utilization.
➤ The level of Inventory per DC.
The end result was an average inventory drop by 35% and a decrease in total costs by 20%.
The advised design received positive feedback, and was swiftly implemented.
Supply Chain Design – Template 1
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