Supply chain planning, management & optimization made its way into the spotlight of the logistics industry in accordance with the evolution of personal computers in the early 1980’s. Advances in computing technology, including graphical map-based user interfaces and the integration of large-scale flexible spreadsheet programming, laid the foundation for supply chain optimization as we know it.

Today’s most profitable and recognizable companies have built and sustained their success by making supply chain efficiency and responsiveness a competitive advantage. However, with the introduction of omni-channel fulfillment, global competition, economic uncertainty, transaction visibility and other complicating factors, the difficulty of maintaining an optimized supply chain structure has increased.

Whether a company has established supply chain optimization as a competitive advantage, is just starting to explore the possible benefits, or is in the process of developing its supply chain optimization competence, there are 5 main reasons why a company should do a study of their distribution network.

1. Capture and Understand Current State

For companies that are new to network analysis, the most important first step is to establish a baseline of the current state. During this baseline assessment the company will study the structure of their supply chain network, pinpoint the geographical location of its demand and supply centers, determine the product delivery routes and quantify the flow through each route. Through this analysis a company can develop a clear understanding of the material flow through the network and identify opportunities for improvement. Additionally, this baseline serves as a benchmark for comparing and evaluating the performance of future alternatives that may be considered.

2. Reduce supply chain related costs

If you are “in the business of making money”, reducing costs to increase profit is a key component of achieving that goal. Transportation, warehousing and inventory holding costs are the three main sources of cost in supply chain. Rising fuel costs combined with a competitive labor market have made the impact even more evident to executives and decision makers, increasing motivation to re-evaluate supply chain structures and strategies to improve the bottom line. A supply chain optimization exercise can help companies evaluate changes and mathematically determine which alternative results in the minimization of key cost components.

3. Improve customer service levels

The customer is still king, and the king wants to purchase goods through any channel at any time and have them delivered as soon as possible with the lowest possible cost (ideally free). This demand for improved product fulfillment speed and better service quality is not letting up any time soon, especially as big market leaders like Amazon continue to push competitors to match their order fulfillment capabilities or lose market share. This has pressured companies to evolve, which often implies changes to the supply chain structure and strategy so they can meet customer demands.

4. Expand capacity and/or to different regions

As companies grow, whether it be organically or through mergers/acquisitions, it is important to understand the implications from a supply chain perspective. Growth is typically associated with increased demand and market share, which often presents a challenge when the demand has outgrown available supply chain capacity. The most common response to this challenge is to add more capacity by either expanding current fulfillment centers or adding new ones. Determining the right choice is a complex decision influenced the geographical locations of demand sources, operating costs, transportation cost, the capital cost of adding capacity and many others.

5. Balance the supply chain network

In the business world if there is one thing you can count on it is change. It could be driven by disruptive technologies that modify the way we do business or customer behaviors that drive the introduction of new products and services. Regardless of the reason, companies must adapt to the ever-changing business landscape or risk losing business. This often causes companies to re-think the way they operate and how their supply chain is structured, which often leads to a rebalance of the network. Rebalancing a distribution network may involve shifting volume between facilities to increase service levels, consolidating facilities to reduce cost, or moving facilities to more favorable geographies that can provide a competitive advantage.

Regardless of the reason why a company may choose to optimize its supply chain, the benefits can be substantial and impactful at every tier of the network. Whether you are a Fortune 500 company or just starting out of the garage, maintaining a commitment of end-to-end supply chain efficiency (suppliers to customers) will only positively support the operational and financial success of the company. 

If you're curious about conducting a supply chain network study but aren't sure where to start, contact us. Our experienced consultants are happy to help. 

Author: Jose Bejarano, Michael Walters