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Supply Chain Network Design - Introduction


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Supply Chain Network Design is one of the most critical disciplines of supply chain management. It would not be an exaggeration to say that two of the planet's most successful companies - Amazon and Walmart built their businesses around supply chain network design.

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Supply Chain Network Design - Introduction

  1. 1. Introduction to Supply Chain Network Design Baidhurya Mani
  2. 2. What is a Supply Chain? A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Every company wants to achieve the supply chain objective: How does a company achieve supply chain objectives? Distribution is the process of moving products from supplier stage to consumption stage. Distribution is a critical function of supply chain management and helps a company achieve this objective. Supplier warehouses, manufacturing plants, warehouses, retailers, customers, transportation etc., all are part of the supply chain distribution network. UNDERSTANDING SUPPLY CHAIN Right Product Right Place Right Quantity Right Time Supplier Warehouse Supplier Warehouse Supplier Warehouse Plant Distribution Center Distribution Center Customer Warehouse Customer Warehouse Customer Warehouse A Typical Supply Chain Network Visit SCA Academy Website
  4. 4. What is Supply Chain Network Design? The supply chain discipline used to determine the optimal location, number and size of facilities and the flow through the facilities is called supply chain network design. Putting it simply, supply chain network design is the science and art of making decisions related to distribution network. It is also referred to as network design or supply chain design. Network Modeling is a subset of supply chain network design in which mathematical models of the supply chain network are created. These models are then solved using various techniques like optimization and facilitate optimal decision making. UNDERSTANDING SUPPLY CHAIN NETWORK DESIGN Visit SCA Academy Website
  5. 5. NATURE OF SUPPLY CHAIN NETWORK DESIGN DECISIONS Supply Chain Network Design projects are strategic in nature. Supply Chain design decisions can be broadly categorized into three categories: Supply Chain Network Design Facility Location Capacity Allocation Supply & Demand Allocation • What should be the role of a facility? • Where should the facilities be located? • How many facilities should be setup? • What should be the size of a particular facility? • How much capacity should be allocated to a region? • Which plant should ship to which Distribution Center? • Which Distribution Center should ship to which customers? Visit SCA Academy Website
  6. 6. WHY IS SUPPLY CHAIN NETWORK DESIGN SO IMPORTANT Why is Supply Chain Network Design so Important? In today's competitive business environment, supply chain no longer remains just a medium to distribute one's products but supply chain has now become an important driver for achieving your business goals. Additionally, distribution is important for impacting customer service and thus product sales and has become an important tool for gaining competitive advantage. According to different experts, 80% of the supply chain costs are because of network related decisions. A good supply chain design initiative can help achieve as much as 10-15% supply chain savings. For most companies, this equates to millions in costs savings The Starbucks CEO, Howard Schultz, spoke at a supply chain event recently and mentioned two things about supply chain network design: First, you won’t be able to scale your business unless your supply chain can handle it. The key point here is that you need to design your supply chain to handle your growth and to scale. Second, the internet has killed distance. You need to make sure your supply chain is designed to handle customer expectations of fast deliveries for online orders. Visit SCA Academy Website
  7. 7. Example #2 Whirlpool acquired Maytag in 2005 and the overall goal for the acquisition was to gain competitive advantage. Management’s main objective was to create a stronger, leaner company from the two units. There was obvious duplication in the distribution network of the two companies. They had the same basic distribution configuration—each had manufacturing operations that shipped from factory distribution centers to regional DCs, then on to local DCs. Streamlining these operations and eliminating redundancy could offer the kind of savings that made the merger very attractive. Out of the total $400 million in savings committed to the senior management from 2006 to 2008, $40 millions was expected to come from Network Design EXAMPLES TO ILLUSTRATE IMPORTANCE OF SUPPLY CHAIN NETWORK DESIGN Example #1 Walmart’s business strategy revolves around providing lowest costs to its customers . It has been able to provide lowest costs to its customers partly because of the scale it has achieved and partly because of supply chain efficiency. Walmart implemented various innovative and effective strategies to lower distribution costs. For example, Walmart came up with Cross Docking strategy - its DCs acted as Cross Docking centers products are directly transferred from inbound trucks to outbound trucks for distribution to customers. This helps save storage costs and reduces transportation time. As a result of effective network design strategy, Walmart has consistently kept its distribution costs 2-3% lower than its competitors. In an industry where average margin is in the range of 3-5%, a difference of 2% resulted in a major competitive advantage for Walmart and has proved to be an important factor for its success. Visit SCA Academy Website
  8. 8. WHEN DOES NEED FOR SUPPLY CHAIN NETWORK DESIGN ARISE? • A new company is being setup • A company enters a new business altogether • A company enters a new geography altogether Designing a New Network • When one company acquires another company • Demand patterns have changed substantially since last network redesign • Company has added new categories to its business • Planning for future growth and expansion Redesigning a Network Visit SCA Academy Website
  9. 9. Thank You Visit SCA Academy Website