Video

Tips for Designing a Competitive Supply Chain Network

The following transcript was created using a combination of automated and human transcription. Please check the audio version before quoting from the transcript.

Mary: Hi, everyone. Welcome to 3 Minutes in the Loop, the bite-sized video series where you can stock up on the latest supply chain insights, strategies, and news in the time it takes to get your caffeine fix. I’m your host, Mary Vasile. And today we’re covering tips for designing a competitive supply chain network. Our special guest is Steve Johanson, president of Starboard Corporation, a supply chain network design technology company. Steve, welcome to 3 Minutes in The Loop.

Steve: Glad to be here.

Mary: So, I’d like to begin with some background information. Can you give our viewers a really quick definition of what a network design is?

Steve: Certainly. All logistics networks have a design. This is the production sites, storage sites, and flow of materials all the way to the customer. The question is whether this flow is a result of a plan or something that evolved without direction. Network design is the methods and tools that supply chain leaders use to choose a future structure of their supply chain. And they base their decisions on cost, customer service goals, and optionality, number three, that’s the ability to respond to future uncertainty.

Mary: That’s a great snapshot. Thank you. So let’s dig a bit deeper. Why is it so important for companies to consider the design of their supply network?

Steve: Got it. Well, the design of a network commits roughly 80% of the total logistics cost because it cements decisions such as the number and location of distribution sites. This in turn determines the freight distances, the inventory that’s held, the service costs, things that cannot be easily changed. And experience has shown that poorly designed or unplanned supply chains will have five to fifteen percent in excess costs. This translates directly into one to two percent of profit margin. Often that’s the difference between a competitive company and one that’s going out of business.

Mary: Yep. So that cost overrun could translate into a substantial figure depending on the size of the supply chain. What then should companies look for in a supply chain network design tool to remain competitive?

Steve: Great, well, a network design tool in the 21st century has to be fast. This means it has to absorb tons of data and turn it around into a good model without incurring weeks or months of manual effort, just to build a baseline and huge dataset. Furthermore, it also has to be nimble. Data is imperfect, conditions change, opportunity windows open and shut. Nimble means that a tool is always on, updated, and ready to assess a future state. So supply chain leaders need a tool that can move and think inside their decision-making cycle. The days of the six-month network design project are dead.

Mary: And there you have it. A fast, nimble network design is the best way for supply chains to stay competitive and save on costs. Thank you so much, Steve. Thank you for your insights and thank you for joining us today.

Steve: Thank you for having me.

Mary: And thank you for watching. Now, you’re in the loop. See you next time.