Connecting the Dots – Why & When You Need Network Studies
Author: Jennifer Hall
March 20th | 3 min read
Network Studies – Why & When You Need Them
To thrive in today’s competitive business landscape, successful companies have recognized the importance of prioritizing supply chain efficiency and responsiveness. They understand how these factors can provide a significant competitive advantage. However, with the rise of unified commerce, global competition, economic uncertainty, and the need for transaction visibility, maintaining an optimized supply chain structure has become increasingly challenging.
Whether a company has already established itself as a leader in supply chain optimization, is beginning to explore the potential benefits, or is in the process of developing its supply chain optimization capabilities, understanding the intricacies of your supply chain network is crucial. By doing so, companies can commit to achieving end-to-end efficiency and support the operational and financial success of their organizations.
What is a Network Study
A supply chain network study or design is the strategic process of analyzing and optimizing an organization’s network to ensure it is aligned with business objectives and can effectively meet customer demands. It involves making informed decisions about number of facilities required, their optimal locations, size considerations, inventory levels, transportation modes, and service level capabilities to create a seamless and efficient flow of goods and information.
When to Consider Network Studies
Determining when to consider a network study is a crucial step in optimizing supply chain performance. While each company’s circumstances may vary, there are several common scenarios that indicate the need for a comprehensive analysis of the supply chain network. Here are some instances when a network study becomes essential:
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Rising Costs:
If your company is experiencing escalating costs within the supply chain, such as increasing transportation expenses, warehousing costs, or inventory carrying costs, it may be time to conduct a network study. Identifying cost-saving opportunities and optimizing operations can help mitigate financial burdens and improve overall profitability.
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Service Level Challenges:
Poor service levels can negatively impact customer satisfaction and retention. If your company is struggling to meet customer expectations in terms of order accuracy, delivery speed, or overall service quality, a network study can uncover inefficiencies and bottlenecks within the supply chain. By optimizing facility locations, inventory positioning, transportation modes, and fulfillment strategies, you can enhance service levels and strengthen customer relationships.
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Entering New Markets:
Expanding into new markets presents unique challenges for supply chain management. Each market has specific demands and requirements that may differ from your existing operations. Conducting a network study before entering a new market allows you to evaluate the suitability of your current supply chain network and make any necessary adjustments. This ensures that your supply chain aligns with the specific needs of the new market, enabling successful market entry and growth.
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Exploring New Sales Channels:
When exploring new sales channels, such as e-commerce platforms or brick-and-mortar retail partnerships, it is essential to assess the compatibility of your supply chain network. Different sales channels may have varying fulfillment requirements, order volume expectations, and customer service standards. By conducting a network study, you can determine if your existing supply chain can adapt to the demands of the new sales channel or if modifications are required to ensure seamless integration.
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Changes in Business Requirements:
Business requirements evolve over time due to factors such as mergers and acquisitions, changes in product lines, or shifts in customer preferences. When significant changes occur, it is crucial to assess your supply chain network’s ability to support these new requirements. A network study can help identify any gaps or limitations in the current network and provide insights to optimize operations accordingly.
How to Conduct Network Studies
In simple terms, a network study compares the cost to serve against the desired service level. It involves analyzing and optimizing supply chain networks to balance the expenses incurred in providing goods or services (cost to serve) with the level of service expected by customers. By striking the right balance between cost and service level, businesses can improve operational efficiency and customer satisfaction.
To compile several critical elements, LIDD uses an evaluation matrix that weighs multiple factors. This matrix enables decision-makers to assess various criteria and make informed choices. The key criteria to consider during a network study include:
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Ongoing costs:
- Warehousing Costs: Analyzing the costs associated with storage, labor, maintenance, occupancy, and overhead expenses for each facility in the network.
- Transportation Costs: Assessing the costs incurred in transporting goods, including freight charges, fuel expenses, carrier fees, and other related costs.
- Inventory Carrying Costs: Calculating the costs associated with holding inventory, such as storage space, insurance, obsolescence, depreciation, and financing costs.
- One-Time Expenses: Evaluating the expenses involved in setting up new facilities, including construction, equipment, technology implementation, transition, and any other necessary infrastructure investments.
- Service Level: Determining the desired level of service to be provided to customers, considering factors such as order accuracy, delivery speed, on-time performance, and overall customer satisfaction.
- Implementation Timeline: Considering the time required to implement any changes to the network configuration, including facility expansions, relocations, or technology upgrades.
- Scalability & Flexibility: Evaluating the network’s ability to accommodate future growth, changes in demand patterns, market fluctuations, and evolving business requirements.
- Risk & Sensitivity: Identifying potential risks and vulnerabilities within the supply chain network and evaluating their potential impact on operations. This includes analyzing disruptions, dependencies, and mitigating strategies.
- Business-specific: Unique requirements or interests a business may have such as proximity to headquarters, jurisdictional preferences, change management processes, and a variety of other specific cases that may influence the evaluation.
LIDD’s Approach to Network Design
Typical approaches to network design focus on routing and transportation logistics. However, this ignores about half a business’s operating costs and companies may find themselves limited by the answers their network study provides. LIDD takes a meticulous approach that goes beyond traditional network evaluation tools in order to execute network studies that model and solve real problems in you supply chain.
Modeling at the order line and SKU level, LIDD delves deeper into the operational impacts of complex network scenarios, for example, consolidating slow-moving SKUs in a single node. Unlike traditional routing tools alone that provide only a partial view, including operational design at the order line and SKU level allows LIDD to quantify warehousing costs, as well as investment considerations. Our approach that combines both quantitative and qualitative factors allows for a more thorough comparison of the overall operational impact, helping businesses make more comprehensive decisions regarding their supply chain network.
As supply chain operations grow in scale and intricacy, every element of the supply chain now merits skillful engineering and/or investment. Network studies are one of the most effective tools to make sure you are optimizing every link in your supply chain.
For more information on the topic, reach out to Jennifer Hall directly [email protected] or click the link below.
