Supply chain design for everyone in the company

All the disruptions in recent years have made many companies realize that their existing supply chain is no longer adequate. Supply chain design is the discipline that allows them to create the supply chain they need. During Webinar Wednesday, Optilogic founder Don Hicks predicted that supply chain design will boom among businesses. ‘Anyone can use the models without having to become an expert first.’

By Marcel te Lindert

In these disruptive times, there are two activities that companies need to perform on an ongoing basis. The first is planning, which is necessary to get the most out of the supply chain. ‘Let’s face it: when we designed our current supply chains, we did not take disruption into account,’ says Hicks, founder of Optilogic. ‘For years we focused on cost reduction and efficiency which eliminated all redundancy. Those supply chains functioned well as long as everything ran smoothly. Now that disruptions are the order of the day, we make the best of what we have. For that, we need smart planning tools including artificial intelligence.’

Think ahead

The second activity is supply chain design. ‘We are stuck with that supply chain from the past, and there’s a big chance that it’s not the supply chain we need in the future. Therefore, we need to think ahead and investigate how we can adapt the current supply chain, taking into account the future changes. We cannot compensate for the shortcomings of a poorly designed supply chain by planning alone,’ Hicks argues.

To avoid misunderstandings, Hicks explains that the supply chain design discipline has evolved tremendously over the past decade. ‘Supply chain design used to be a part of supply chain planning. The focus was on optimizing the nodes and their interconnections, and optimizing the capital costs. Now that computing power has increased and huge advances have been made in both software and hardware, companies can extract data from different systems to build a virtual model of their current supply chain.’

Future supply chain

The possibilities of supply chain design extend beyond that, Hicks claims. ‘Supply chain design is about the future. Companies should use that virtual model to build the supply chain they will need later. They can build a model of their future supply chain and subject it to tests and simulations before actually changing anything. So supply chain design is about so much more than evaluating the current design of your network.’

The term ‘digital twin’ is often used in combination with supply chain design, but Hicks has a strong opinion on this. ‘Much of the talk about digital twins is marketing nonsense. You can of course create a virtual representation of your supply chain, but it never reflects the entire supply chain. A digital twin is not a copy of reality, but a simplification of it. Many software vendors say they can create a copy of the entire supply chain, but that is simply not true.’

‘What if’ scenarios

One key function of supply chain design is the ability to run ‘what if’ scenarios. What if we set up an additional production line here? What if we create additional inventory points? ‘We didn’t use to have that ability; we had to rely on our instincts and just try things out. But if you make the wrong choice in supply chain, trucks go to the wrong locations and production lines grind to a halt. Supply chain design enables you to test what works and what doesn’t without risks or extra costs.’

As an example, Hicks cites the growing number of US companies indicating they want to leave China. They see continuing to produce in China as too great a risk. ‘But how should you tackle such a withdrawal? What would it mean for your supply chain? Supply chain design lets you investigate how your supply chain needs to change over the next ten years to become less dependent on China.’

Puree from a blender

Another advancement is the ability to gain a detailed view of orders and shipments. ‘For a long time, the mathematical technique used in supply chain design always revolved around flow-based calculations; at each node, the inbound flow had to be the same size as the outbound flow. But this technique is not very realistic because it does not take into account the time factor and variation in orders and shipments. It’s like tossing all the orders and shipments into a blender, filling the puree into tubes and then squirting it from node to node. Nevertheless, this technique is still being promoted.’

According to Hicks, this dated technique is unsuitable for measuring the impact of adjustments on service levels, for example. ‘In that case, service levels are defined as the percentage of customers located within a two-day drive of your warehouse. But no company measures its service levels that way. The service level is the percentage of orders that arrive at the customer on time and in the agreed way. To measure that, you need simulation techniques, among other things.’

Infinite questions

Hicks was the founder of Llamasoft, the renowned supply chain design tool that was bought by Coupa Software. Now, under the name Optilogic, he has developed a new supply chain design platform. It runs in the cloud, so a lack of computing power no longer stands in the way of modelling complex scenarios. ‘Our customers don’t just use this platform once a year. They use it continuously, to answer infinite questions. And the breakthrough we have made with Optilogic is that we can open up the platform to all employees within a company. Without them having to be familiar with the software and become experts in supply chain design.’

One customer uses Optilogic’s platform every day for transport planning. Rather than transport planners having to struggle with models on a daily basis, they simply have to enter the shipments into Excel. Optilogic’s algorithms set to work in the background, and then convert the result back into Excel. ‘If you know your way around Excel, it’s a great solution. Planners don’t even know they are using a model,’ Hicks states. ‘As software vendors, we need to align with what users are used to rather than present them with complex user interfaces that require hours of training. That’s what I call the democratization of supply chain design.’