How A Revamped Supply Chain Network Enhances Cost Optimization

Supply chain network reconfiguration can lead to significant cost optimization. Cost focus alone can’t salvage your network optimization supply chain amid continuous disruptions, economic turbulence, and growing environmental concerns. It’s time to dig deeper.

Exploring Supply Chain Network Design

According to Gartner’s Guide, four aspects of your supply chain network design deserve attention – distribution network optimization, omnichannel fulfillment, manufacturing capacity optimization, and global footprint strategy. The extent of alterations may vary across business units, regions, or product lines. But the goal is to create a resilient supply network that can weather current adversities and future uncertainties.

Optimizing Distribution Network

The starting point for most network design projects is the conventional distribution flow and footprint optimization. However, refreshing these models annually can better support yearly contracting processes and decisions about logistics services’ in-sourcing and outsourcing.

Gartner proposes several areas for consideration when optimizing distribution networks, such as inventory positioning, warehousing capacity analysis, mode selection, logistics contract bidding, and last-mile multistep modeling.

For instance, examining inventory positioning or assigning demand to specific warehouses can enhance performance across inbound and outbound networks.

Embracing Omnichannel Fulfillment

While traditionally seen as a distribution network optimization strategy, omnichannel fulfillment poses challenges due to its rising popularity. These challenges include creating direct-to-customer (DTC) models in networks initially designed for wholesale channels.

Gartner’s research suggests overcoming these hurdles by revisiting your existing DTC distribution model. Consider factors like

  • Inventory placement
  • Multi-stop modeling
  • Pop-up capacity needs
  • Balancing cost
  • speed
  • Returns logistics
  • Demand sensitivity modeling
  • Population reaches
  • Growth

Implementing this approach allows demand planning processes to use forecast sensitivity analysis that provides a clearer understanding of your supply network’s vulnerabilities. It also helps identify optimal service levels based on market expectations and inter-distribution channel processing times.

Refining Manufacturing Capacity

In manufacturing, operations are often tailored to fit the capacities of individual plants or production lines. However, integrating more activities and analyses into the overarching model makes it possible to extend the support for decision-making among stakeholders.

Gartner identifies critical elements that demand attention in the optimization of manufacturing capacity. These include fine-tuning sourcing strategies, maximizing asset utilization, applying dynamic “what-if” modeling, evaluating the pros and cons of in-house manufacturing versus outsourcing, balancing product qualification with flexibility, strategizing new product introductions, and planning capital expenditures.

This comprehensive approach lets you discover hidden costs tied to underused or idle manufacturing capacity. It enables you to compare different scenarios vis-a-vis their total costs encompassing production, inventory, and distribution.

Strategizing Global Footprint

Strategic scenario planning is a vital tool to ensure your business continues to operate at its best, both now and in the future. It provides a platform to reevaluate your business’s long-term footprint strategy and adjust it in response to emerging external events that may bring about new opportunities or risks.

While your organization’s scope and scale might differ from others, as Gartner points out, taking a strategic view of the exercise can help ascertain the relevance of your model. It can also identify which modifications can impact various scenarios. These are balancing low-cost sourcing with nearshoring, minimizing taxes or tariffs, applying “what-if” scenario modeling, designing networks for new products, and analyzing mergers, acquisitions, or divestitures.

These scenarios, unrestricted by current practices and open to the imagination (“blue sky”), empower your organization to envision the potential of your supply network. For example, “what-if” modeling can help depict your supply network on maps, aligning key decision-makers or identifying trigger points for decision-making. This way, you can create and reshape an end-to-end model, irrespective of its complexity, by employing two or more scenarios to address broader questions.