Supply chain network design requires more than just a smart tool

The need to evaluate supply chain design is increasing due to geopolitical conflicts, rising trade tariffs and climate change. But how should it be done? What competences do you need? And what are the prerequisites for success? During Webinar Wednesday, Aimms explained how to tackle supply chain network design. ‘If you are able to put together the right team with the right competences yourself, you should definitely not outsource.’

By Marcel te Lindert

Supply chain network design can help solve a variety of issues, from cost reduction to sustainability, and from inventory optimization to investment decisions. ‘One very interesting application concerns nearshoring. Many companies are considering manufacturing closer to their markets,’ says Aditya Bansal, Supply Chain Consultant at Aimms. ‘But also consider potential disasters, such as floods and wars. Which plants will be affected by these? And how can the negative impacts be mitigated?’

Therefore, supply chain network design is no longer just about minimizing costs and freeing up working capital. Bansal: ‘It is about finding the right balance between costs, service levels, risks and environmental impact. Companies want to reduce not only costs, but also emissions. They are also looking for solutions to increase their supply chain resilience.’

Spreadsheets: yes or no?

In reality, every company is involved in some kind of supply chain network design, even if they don’t use sophisticated tools like the ones Aimms offers. ‘Everyone who makes decisions about supply chain configuration is doing supply chain network design,’ says Emily Schutze, Supply Chain Consultant at Aimms. ‘Sometimes they do so based on management’s gut feeling, and sometimes based on spreadsheets. Others choose to outsource to a consulting firm or logistics service provider. Or they use a module in their ERP system.’

In practice, Schutze sees many companies relying on Excel. ‘Everyone already has that application and knows how to use it. But if you want to do it right, using Excel requires a lot of effort. You have to build a complete model of your supply chain from scratch without any help. If you want to test a different setup, you have to completely modify that model in a copy of the Excel file. Maybe that still works for a small and not too complex supply chain. But if you have a vast and dynamic supply chain, you will definitely miss improvement options.’

Six steps

Bansal explains a six-step approach to supply chain network design. He calls the first step the analysis phase: decide what issue you want to address. This is followed by collecting and preparing the necessary data, and then by building a model. ‘In effect, that’s when you build a digital twin of your supply chain. Then comes the step in which you can analyse different scenarios. Once that is over, it is a matter of evaluating the results with all stakeholders. That leads to decisions on supply chain adaptation, which need to be shared with the internal organization and then implemented.’

Many companies struggle with the second step: collecting and preparing data. Bansal: ‘Our advice is to keep it simple. Supply chain network design is usually used to find answers to strategic questions. So there is no need to use all the market demand data down to the product level. It is fine to use data at a higher aggregation level. And if there are some data gaps, it’s no problem to make assumptions.’

Team composition

Another crucial step is scenario analysis. What is the impact on the supply chain if market demand suddenly doubles? What is the impact if you set up a new production line or warehouse? Which modes of transport can be used without exceeding CO₂ targets? ‘For a good result, you need to run many different scenarios and compare their outcomes. Then it’s a matter of implementing the best scenario in practice,’ says Bansal.

The success of supply chain network design depends largely on the composition of the team. ‘At the very least, you need a project leader who sets the direction, allocates the workload and liaises with all stakeholders. That person should have thorough knowledge of the business and a vision for changing it,’ Schutze states. ‘In addition, you definitely need a modeller and a data analyst. It is impossible to find one person with all those competences. That’s why you have to set up a team.’

In-house vs outsourcing

If a company is able to put together the right team, Schutze recommends doing supply chain network design entirely in-house. ‘That offers huge advantages. If necessary due to changes in the market or in the supply chain, that team can immediately run new scenarios and analyse the impact of the changes. If you don’t have all the competences in-house, there are several options. You can outsource the whole process, or hire a consulting firm for the first project and train the team at the same time. It is also an option to only outsource the data preparation and model building, and then to do the scenario analysis yourself.’

A good result requires more than just a network design team. Additionally, Bansal says that an implementation manager is needed to put the recommendations into practice, and also operational experts who know all the ins and outs, and what works and what doesn’t in practice. ‘They are also the people who can validate the built model and indicate which scenarios are interesting,’ explains the Aimms consultant. ‘Besides that, support from the leadership team is needed. That will ensure that the network design team gets the right people and resources, and the project is given the priority it deserves.’

Centralized or decentralized

The final question is which is better: a centralized or decentralized set-up? A large centralized network design team usually results in deeper expertise on supply chain modelling, but is often somewhat further removed from day-to-day operations. A decentralized structure results in teams with more real-world knowledge, but usually lacks the flexibility to tackle multiple issues simultaneously. Bansal: ‘Both options can work. Ultimately, the best option varies from company to company.’