What is Supply Chain Network Design?

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 ensuring an optimal flow of products using advanced mathematical modeling. The success of any supply chain network depends 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 is a critical factor. In fact, 80 percent of the operational costs of the supply chain design on where the facilities are located and the product flows between them. To cut costs, you need a more systematic engineering approach so that you can plan and design the network efficiently. That is why the network design in the supply chain is so important.

Importance of Supply Chain Design:

Supply chain design involves identifying the value proposition of your business, the demand and supply that you need to meet, and how you can best leverage the existing assets that you have to achieve these goals. By doing this, you can maximize the efficiency and profitability of your supply chain.

  • The process of designing involves several key tasks, including identifying the suppliers who can supply the materials and components that are required.
  • It also involves ensuring that all of these suppliers can work together effectively and deliver quality products on time.
  • The end goal is to develop a reliable, efficient, and cost-effective supply chain network.

A well-designed supply chain design can help reduce costs, increase efficiency and improve customer satisfaction. By working closely with suppliers, manufacturers can ensure that they get the materials they need at competitive prices, leading to reduced production costs. In addition to this, suppliers can be relied upon to deliver products on time as well as within budget. As a result, there is improved customer satisfaction and increased brand loyalty.

In general, there are following three main areas that you should focus on when designing your supply chain network:


This is the process of optimizing your current supply chain network to make it more efficient while also taking into account factors such as distribution costs and lead time.


This is the process of reducing inventory by finding ways to reduce losses in transit or in storage. For example, purchasing smaller vials or using smarter packaging could both be effective ways to reduce shrinkage.


This is the process of expanding your existing supply chain to meet new demand while also taking into account factors such as lead time and transportation costs.

This lecture is a part of supply chain courses, which are designed for the certification and diploma in supply chain management programs.

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 operations 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 network design in supply chain 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.

Globalization in Supply Chain Design:

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 Models:

  • The first step for network design in the supply chain 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 existing one is 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.
supply chain network design

Factors That Influence Supply Chain Design Decisions:

Here’s a look at the critical factors for network design in the supply chain.

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:

The size and frequency of the shipment are essential factors for determining the costs – the higher the frequency, the greater the cost; the smaller the shipment, the higher the cost.

5. Warehousing and Labour Costs:

Warehousing costs are fixed costs and are factored into the decision-making process. The labor costs are not fixed, and they play a role as well.

6. Trucking Costs:

The cost and type of trucking are of considerable importance.

7. Mode of Transportation:

Which mode of transportation is used in the running of the supply chain matters as well.

What is a Supply Chain Network Design Software?

Supply Chain Network Design software is an essential tool for managing the entire supply chain. Here are some of the key features of the software:

  • The software can be used to design and analyze a supply chain design, from initial planning to production and shipment.
  • The software can also be used to track inventory levels, monitor delivery progress, and optimize logistics.
  • By integrating data from multiple sources, it’s possible to better understand how products are moving through the supply chain and identify opportunities for optimization.
  • It can also help companies avoid bottlenecks, which can lead to delays in shipments and increased costs.

How to Analyze a Supply Chain Network Design?

The purpose of Network Analysis is to design an optimal supply chain and to improve the ability of the organization to make more tactical and strategic decisions. Supply chain analytics tools make use of a Big Picture Thinking approach to the 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.