Supply chain network optimization analysis (NOA) is an analytical approach that will help you to gain a better understanding about the most efficient and effective way to set up your logistics locations and operations.

NOA achieves this advantage through:

  1. Understanding your current logistics network and locations.
  2. Reviewing your supply chain strategies, demands, and constraints.
  3. Modeling different scenarios and how they will affect the network.
  4. Using data-driven decision-making to understand the current strategy and likely future states.
  5. Determining how to optimize the supply chain, especially for start and end locations and the best modes of transportation.
  6. Optimizing for cost and speed.

This results in a series of recommendations and the likely impact each will have on your supply chain network. You can then implement these recommendations to bring your costs down, increase speed, enhance quality, and boost customer satisfaction.

Please note that some of these areas will be expanded on as part of “What-If?” analysis, which we cover in the next section. “What-If?” analysis and NOA are often used together to understand your current networks, and then to model scenarios and forecast outcomes.

“30% of supply chain leaders said that responding to customer mandates for faster, more accurate, and unique fulfillment was a top business priority.”

— Supply Chain 24/7, Logility and APICS survey reveals the top supply chain priorities for advanced analytics1 

Why network optimization analysis is important

Network optimization analysis matters because it helps you understand your existing network, where you want to get to, and how to get there. This means:

  1. Detailing the current state of your supply chain network based on existing locations, flow of goods, inventory levels, demand, and capacity.
  2. Taking into account the current challenges you have in the supply chain network, for example hidden costs or impacts on speed and quality.
  3. Understanding the desired end state for your business, including your operational, tactical, and strategic needs in addition to managing environmental risks and contingencies.
  4. Providing a detailed list of recommendations and steps to drive improvement and realize benefits from your supply chain.
  5. Analyzing your cost savings and delivery speed improvements, in addition to multiple other metrics.

“Some experts suggest that 80% of the costs of the supply chain are locked in with the location of the facilities and the determination of optimal flows of product between them.”

— Supply Chain Network Design: Applying Optimization and Analytics to the Global Supply Chain2 

An image of a warehouse and an overlay of icons that show supply chain

What network optimization analysis can accomplish

Network optimization analysis provides several significant benefits to supply chain managers and businesses including:

  • Deep insight into how your logistics network is performing right now, and how it could perform in 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.

“It may appear that supply chain optimization has little impact on product quality but nothing could be further from the truth. Supply chain optimization techniques allow you to build quality management into the end-to-end production process, from raw materials to customer delivery. A focus on quality will help drive efficiency while reducing waste. In addition, quality management is an important element in supply chain planning optimization allowing quality standards and KPIs to drive what can be expected at each stage of the supply chain process.”

— opentext | Blogs, Top 7 benefits of supply chain optimization3 

How to approach network optimization analysis

Here are several useful questions to ask that will help you understand your approach to NOA:

  • Can you map out your existing supply chain in sufficient detail?
  • Have you understood and incorporated targets and metrics from across the supply chain?
  • Do you understand the constraints on your existing supply chain?
  • Are you using data-driven decision-making to support your ideal future state?
  • How are you currently approaching network consolidation?
  • What are your desired outcomes from network optimization?

Following are some context, considerations, and starting points for each question:

Can you map out your existing supply chain in sufficient detail?

Context and considerations

  • Understand that your existing supply chain network starts by mapping out the end-to-end supply chain.
  • This should be mapped in sufficient detail to understand all of the key contributing factors.
  • Existing locations, flow of goods, inventory levels, demand, capacity, and other elements will all inform this mapping process.

Starting points

  • Conduct a discovery and audit of the existing supply chain.
  • Include all supply chain partner organizations, manufacturers, suppliers, third parties, and others.
  • Capture the information in a model that allows for deeper analysis and manipulation.

Have you understood and incorporated targets, and metrics from across the supply chain?

Context and considerations

  • Your targets and metrics help to define how the supply chain is performing currently and the desired improvements.
  • These metrics can be used as baselines that various modeled scenarios can improve upon.

Starting points

  • Factors, targets, and metrics might include:
  • Plant locations and capacity.
  • Distribution locations and capacity.
  • Possible pricing levels.
  • What products to produce and where.
  • Inventory levels.
  • Customer service levels.

Do you understand the constraints on your existing supply chain?

Context and considerations

  • Existing constraints allow you to analyze the current state-of-play and how much flexibility you have for improvement.
  • NOA will provide options for reducing or removing those constraints and optimizing the network.

Starting points

Constraints include:

  • Demand constraints on having enough capacity.
  • Product flow constraints on the movement of goods.
  • Stock capacity constraints on inventory levels.
  • Production constraints on replenishment and restocking.
  • Fiscal constraints including budgeting for supply chain improvement.
  • Taxation constraints on policy and tax rates.
  • Infrastructure constraints like cost of labor, transportation facilities, and necessary utilities.
  • How are you currently approaching network consolidation?

Context and considerations

  • Supply chains often suffer from complexity, from having too many suppliers to relying on overly built infrastructures.
  • Consolidation is a way to reduce supply chain complexity by rationalizing locations, products, distribution, and other factors.
  • Network consolidation varies in maturity, from a best endeavors, piecemeal approach, through minor and mid-range continual improvements, to major programs that overhaul the whole network.

Starting points

Types of consolidation include:

  • Suppliers: Identifying who is supplying raw materials and parts.
  • Manufacturers: Establishing who is producing products and their inputs and outputs.
  • Product: The different types of products, individual SKUs, and stock levels you maintain.
  • Location: The physical location of products and logistics.
  • Infrastructure: The necessary assets to manage and distribute products.
  • Are you using data-driven decision making to support your ideal future state?

Context and considerations

  • Your existing targets and metrics are an ideal starting point for prioritizing improvements.
  • Incorporating data-driven decision-making will strengthen your business cases and project plans.
  • Understanding the gap between the current state of your supply chain and your desired strategic outcomes will let you track improvements, make tweaks, and demonstrate success.

Starting points

  • Agree on and develop accurate, reliable, timely supply chain data that identifies the current state and baseline.
  • As part of your business case work, identify ideal future metrics, targets, and data points.
  • Create a decision framework based on improvements against this baseline and ensure you’re able to report on and analyze these metrics.
  • Refine and iterate your data and decision-making to identify the strongest factors and links between network optimization and improved results.

An image showing technology is at the tip of your finger

What are your desired outcomes from network optimization?

Context and considerations

  • A comprehensive and holistic approach to network consolidation will improve performance across multiple areas.
  • Despite this, you may have strategic considerations and goals that mean you prioritize specific activities to reach business aims.
  • Broadly, improvements that you can realize from NOA are:
  • Operational cost reductions and improved profit margins.
  • Faster distribution of products leading to a better customer experience.
  • Quality control to remove bottlenecks, identify issues early, and improve the condition of products.
  • Boosts to efficiency, resulting in fewer delays, minimal waste, and less rework.

Starting points

  • Review your overall business strategy, especially for supply chain and logistics.
  • Identify the business requirements for optimizing your supply chain locations.
  • Model different scenarios and create forecasts for how they will affect the network.
  • Develop these requirements into individual business cases and identify key baselines, metrics, and desired outcomes.
  • Prioritize the business cases that will deliver the most value to your business in line with the strategic plan.
  • Start building project plans to overhaul your network locations in line with prioritized business cases.

These questions are a good starting point for understanding your current supply chain state, defining where you want to get to, and establishing your approach and decision-making process.

GEODIS are experts at helping you understand your supply chain, completing in-depth network optimization analysis, and helping you put the right steps in place. Get in touch with us to find out how we can reduce your costs, maximize customer satisfaction, and get your projects done.

To learn more, we encourage you to download the full version of our guide  — How Network Location Design Will Revolutionize Your Supply Chain — which will help our industry partners take a deeper dive into analyzing their network.

 

References

1“Logility and APICS survey reveals the top supply chain priorities for advanced analytics.” Supply Chain 24/7. 15 August 2018. https://www.supplychain247.com/article/logility_and_apics_survey_reveals_top_supply_chain_priorities_for_advanced/supply_chain

2Watson, Michael, Lewis, Sara, Cacioppi, Peter and Jayaraman, Jay. “Applying Optimization and Analytics to the Global Supply Chain.” Supply Chain Network Design. http://ptgmedia.pearsoncmg.com/images/9780133017373/samplepages/0133017370.pdf

3Morley, Mark. “Top 7 benefits of supply chain optimization.” opentext | Blogs. 10 September 2019. https://blogs.opentext.com/benefits-of-supply-chain-optimization/

 

Author: Evan Glick

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Transportation Management Marketing Analyst
Evan is Marketing Analyst for GEODIS supporting our Transportation Management line of business in the Americas Region. Evan is a seasoned marketer who writes content alongside our GEODIS subject matter experts to position GEODIS as an industry thought leader.

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