What is Supply Chain Network Design?
The success of any supply chain network will depend on the plants, suppliers, warehouses and how the product flows from each of the origins to the final customer. For any successful supply chain, the number of facilities and their locations are a critical factor. In fact, 80 percent of the operational costs of the supply chain network depend on where the facilities are located and the product flows between them. To cut the costs, you need a more systematic engineering approach so that you can plan and design the network efficiently. That is why Supply Chain Network Design is so important.
Supply Chain Network Design is a systematic approach to determining the best location and optimal size of the facilities to be included in the supply chain, and to ensure an optimal flow of products using advanced mathematical modelling.
Role of Network Design in Supply Chain
The supply chain network structure of any company will determine how efficient its processes are and whether it is able to provide its customers with a great experience. Designing the most efficient supply chain network structure requires the network to satisfy the strategic objectives of the company over an extended period of time.
The role of network design in supply chain involves the following:
- Defining the business objectives
- Defining the project scope
- Determining the analyses to be performed
- Determining the tools to be utilized
- Completion of the project in accordance with the design.
The Supply Chain Network Design determines the path ahead for the business. If the supply chain network is completed in accordance with the design, the business can expect to gain in a substantial way.
Global Supply Chain Network Design Models
The first step in any supply chain network design is to collect the data specific to the business, construct a basic model based on that and validate the same.
The supply chain network design models include outputs such as the total costs, which are the same as those in real world operations. First the basic model is validated and then depending on the results an alternative design is created or the existed one modified for cutting costs further and increasing profits.
The construction of the supply chain network design models is handled by highly skilled consultants who collect high quality data, validate the model and propose alternative solutions.
Factors That Influence Supply Chain Network Design Decisions
Here’s a look at the critical Supply Chain Network Design Factors.
1. Location and Distance
Distance between the different locations of the supply chain and the locations themselves are important factors to be considered. The location of the supply chain network includes customers, suppliers manufacturing abilities, airports, ports and so on.
2. Current and Future Demand
The current and future demands of the company are taken into account as well and should be grouped appropriately.
3. Service Requirements
The maximum allowable transit time and distance are used to determine the location of the warehouses to be added to the supply chain.
4. Size and Frequency of Shipment
Size and frequency of the shipment are essential factors for determining the costs – higher the frequency, the greater the cost; smaller the shipment, higher the cost.
5. Warehousing and Labour Costs
Warehousing costs are fixed costs and are factored into the decision making process. The labour costs are not fixed, and they play a role as well.
6. Trucking Costs
The cost and type of the trucking are of a considerable importance.
7. Mode of Transportation
Which mode of transportation is used in the running of the supply chain matters as well.
Designing Global Supply Chain Networks
Businesses are no longer just local in the days of globalization and supply chains have to be global in the way they operate as well. In addition to the factors discussed above, Global Supply Chain Networks include other factors such as the difference in culture, language and currencies. Transportation, software compatibility and the cost of fuel or oil are also considered.
Supply Chain Network Analysis
The purpose of Supply Chain Network Analysis is to design an optimal supply chain and to improve the ability of the organization to make more tactical and more strategic decisions. The supply chain management courses online and logistics management courses, are covered in the mba supply chain management and supply chain management diploma programs, where students learn to design and analyze supply chain networks.
Supply Chain Network Analysis makes use of a Big Picture Thinking approach to the supply chain network design from the conceptualization to the implementation. The analysis is focused on determining the distribution nodes based on factors such as demand concentration, customer locations, and service requirements.