Five Key Approaches to Apply When Determining the Best Supply Chain Network Locations

Without a doubt, 2021 continues to further challenge supply chain strength and resiliency reminding everyone about the crucial need to evaluate your supply chain network and identify any potential areas of weakness.

According to Supply Chain Network Design: Applying Optimization and Analytics to the Global Supply Chain, up to 80% of supply chain costs could be locked in by optimizing both facility locations and the level of product flow between them. On top of trying to create the best product flow, additional pressures include faster movement, increased accuracy, and meeting unique fulfillments to exceed customer expectations.

Therefore, network location design is the key to cost reduction, enhancing competitiveness, customer satisfaction, and risk management. But this then begs the question: how do you determine if your business is where it needs to be?

Supply chain network location design is complex and requires you to analyze many factors. It’s important to create comprehensive options, models and plans to meet business objectives. To guide you during this process, we’ve discovered five key areas and approaches that will help you best understand those factors:

Understanding Why Network Location Design Matters

The Chartered Institute of Procurement and Supply states that supply chain network design is based around a simple, key principle: “Building and modeling the supply chain to understand the costs and time to bring goods and services to market within an organization’s available resources.”

Network location design enhances almost every part of the supply chain, but ultimately those improvements benefit your business in three main ways: reducing costs in the supply chain, enhancing customer satisfaction, and reducing risks.

Network Optimization Analysis

Network optimization analysis, or NOA, is an analytical approach that helps you understand the most efficient and effective way to set up your logistics locations and operations. NOA matters because it helps you understand your existing network, where you want to get to, and how to get there.

Among NOA’s significant benefits to supply chain managers and businesses are:

• Deep insight into how your logistics network is performing right now, and how it could perform in the future.
• Comprehensive plans to minimize and mitigate risks and interruptions in the supply chain.
• Cost reduction initiatives that will substantially reduce operational expenses.
• Improvements to delivery speed and quality management.

“What‑If?” Analysis

Build out your supply chain with confidence using “What-If?” analysis, also known as WIA, which helps you to determine that you’ve taken account of disruptions, demand changes, supply issues, and more. WIA also allows you to model, forecast, and test future scenarios.

In addition, WIA ensures that your supply chain is fast, efficient, and resilient, despite the challenges and risks it needs to deal with. And that’s not all. WIA lets you build out your supply chain with confidence, knowing that you’ve taken account of disruptions, demand changes, supply issues, and more.

Cost and Service Analysis

It’s worth digging deeper into the two primary reasons for network location design: reducing costs and improving services. And while network optimization analysis and “What‑If?” analysis will improve supply chain performance across the board, it’s through cost and service analysis (CSA) that we understand just how changes to network locations and those improvements impact the bottom line and customer satisfaction.

From our own GEODIS survey analysis, we know that cost and service measurements are strongly represented in critical KPIs for supply chain managers. When surveyed, they rated the most popular KPIs for supply chain monitoring as follows:

• Daily performance: 40%.
• Cost reduction: 35%.
• Production service rate: 29%.
• Inventory turn: 28%.
• Production time: 27%.
• Lead time: 27%.
• Return rate: 25%.
• Return on Assets (ROA): 22%.

Sustainability Analysis

Taking into account how location design can reduce emissions and waste in the supply chain is the basis of sustainability analysis (SA). Sustainability itself is the final piece of the network location design puzzle and is becoming increasingly important to consumers and businesses.

A broad topic area, sustainability ranges from emissions and carbon footprints to ethical sourcing and reducing the use of natural resources. There are strong incentives for organizations to reduce their impact and ensure adherence to robust ESG (environmental, social, governance) principles throughout their supply chain. These incentives come from two main areas: government regulations and changing consumer behaviors.

In Summary

Network location design is the starting point for driving through cost savings, consumer satisfaction, risk management, and robust sustainability. We hope you’ve found this blog post as a helpful guide to get you started.

On our network location design website, we provide the full downloadable guide on this topic titled,  How Network Location Design Will Revolutionize Your Supply Chain. As you dig deeper into your network using this resource, you’ll gain the insight and confidence you need to initiate a network location design project.

We realize that these are just starting points but we also hope that they’ll provide some context on the breadth and depth of change needed and the significant benefits of doing so.

Remember as well that all of these analyses and approaches work best when combined while taking a comprehensive and holistic approach to your supply chain. You’ll then be able to clearly identify the big picture, any endemic issues and make targeted changes to meet your strategic goals. At the same time, a detailed analysis of individual parts of the supply chain means you can make tactical and operational improvements that drive tangible results.

To learn more, please download our network location guide — How Network Location Design Will Revolutionize Your Supply Chain — which will help our industry partners take a deeper dive into analyzing their network.

Author: Evan Glick