When should you do a network modeling exercise? If you’ve only optimized your outbound network, you’ve hit the first trigger, since network modeling is crucial for inbound efficiency, too. Beyond this, you can watch for these signals that your network’s time has come.
Your network has grown through acquisition, through a new product introduction, or because it has shrunk through divestiture. The most strategic operation can be knocked off kilter if it suddenly adds acquired facilities, suppliers, and customers to the mix—or if some of these factors disappear from the network.
You haven’t looked at your network’s efficiency recently. Over time, companies can make significant changes in customer or product locations. In particular, volume shifts from one region to another can cause imbalances that make the entire network inefficient. For instance, one company started out with production in Colorado to serve customers on the West Coast and in the Midwest. But as New York became the epicenter of 60% of the company’s business, it was time to re-evaluate where production would be located. As Simon Ellis of IDC states in the recent report Perspective: Strategic, Tactical and Operational Decisions in the Manufacturing Supply Chain, “Business processes change and the technology available evolves, and companies must revisit capabilities periodically to ensure that they continue to drive the desired competitive differentiation…” The moral of this story: You should look at your network after any major shift.
You need to mitigate risk. Business can be interrupted or brought to a halt through disruptions such as earthquakes, hurricanes, tsunamis, and other natural disasters. Is your supply chain resilient enough to quickly resume production after a disaster? Do you have a plan to house inventory regionally or in a centralized location, or is it more strategic for you to defer inventory ownership to your suppliers? Many companies when evaluating risk don’t understand the difference between disruptions versus supply chain risk. While disruption is risk, it’s not often included in your risk profile. You can use modeling to analyze the costs associated with replenishing inventory within 12, 24, or 48 hours. Retailers can use the tools to determine which SKUs they can support from each of their warehouses if one of their other facilities is impaired. A fast serve restaurant can determine backup supplier for all of their restaurants around the world, with little or no downtime. All of these issues can be examined with network modeling, based on what your company wants to achieve.
In addition, some North American companies are now using network modeling to study the tradeoffs between nearshoring to Mexico vs. having operations in Asia as highlighted in this recent blog, Re-Shoring Revisited: MIT Suggests May be about Market Strategy. Network modeling can analyze the cost tradeoffs from one region to the next, looking at wages, transportation, warehousing, consolidation, taxes, duties, and other factors, and show a company its options for greatest efficiency.
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