Supply chain network design is critical to realize step change improvements. Eighty percent of the supply chain costs are locked in at the start. Supply chain network design is about determining the optimal footprint for a company in terms of number, mission, location and size of distribution centers, manufacturing plants and suppliers. Supply chain network design aims to determine which plant should produce which product and/or determines which warehouse should fulfil demand of a certain customer.

The objective of supply chain network design is to balance service level against production and purchasing costs, inventory carrying costs, facility costs, transportation costs and risks.

Determine the optimal distribution footprint

Successfully determining the optimal manufacturing and distribution footprint requires a combination of data driven engineering solutions, operations knowledge and breakthrough thinking capability.

In the past, companies were reviewing their manufacturing and distribution footprint every 5-10 years. In today’s environment with ongoing mergers and acquisitions, new markets and channels as well as technological developments, the frequency and need of reviewing the manufacturing and distribution footprint has increased.

Distribution network analysis

Supply chain network design starts with a review of the current distribution network. This could be initiated by an upcoming (renewal of) lease of a distribution center, a merger or acquisition, or an entry into a new market. Distribution network analysis enables a fact-based review of the current distribution network and provides all necessary insights and answers to questions such as:

• What if we would have only a single DC to serve our markets?
• What if we would start off from scratch (greenfield approach)?
• What if we would alter our DC footprint?
• Where to deploy inventories in our network?
• Should we have a different strategy in place for specific customer segments and product types (i.e. fast movers versus slow movers)?

Supply chain network design & BCI advice

BCI is a leading firm in the field of supply chain network design. Our services include the strategic evaluation of a part of a footprint or a comprehensive end to end supply chain footprint in terms of cost, service, flexibility, scalability and risks. This can be a stand-alone existing network, a distribution network analysis related to pre/post acquisition or a cross-divisional manufacturing and distribution footprint review.

BCI uses state of the art supply chain network optimization software which includes Llamasoft´s SC-Guru, LogicNetPLus and SAILS. Our state of the art models are powered by BCI’s inhouse developed databases which provide regional inputs such as labor costs, labor availability, transportation distances and related costs across all transport modes, real estate and utility costs and alike.

Although strategic objectives differ by client, BCI’s services are aimed at defining the best manufacturing and distribution footprint for our client in terms of:

• Number of plants and distribution centers
• Location of plants and distribution centers
• Product mix by plant and distribution centers
• Sourcing decisions for distribution center replenishment
• Customer assignment to distribution centers
• Evaluation of alternative transportation modalities
• Evaluation of alternative distribution and inventory deployment policies
• Evaluation of customer service levels

Benefits of network optimization

• Realizing a total landed supply chain cost reduction
• Establishing service level improvements
• Testing alternative operating models
• Having a reusable tool to model future business changes
• Realizing a catalyst for communication across the organization

Our proven approach in distribution network analysis includes a five-step approach which encompasses:

• Kick-off-phase - A start-up phase to install the team, understand the current network and key drivers, develop hypotheses and compile a detailed project plan
• Understand and analyze phase - Collect data and map the current logistics network. This also includes assessing whether the current network can facilitate the ambitions for the future and strategic plans
• Supply chain design phase - Includes benchmarking, center of gravity analyses and the development of supply chain scenarios
• Detail and validate phase - Agreed scenarios are modelled to test the impact of different manufacturing and distribution footprints using existing and potential candidate locations from a financial and qualitative perspective
• Document and plan phase - Evaluate the scenarios and develop a clear recommendation and road map

Cost index network analyzer

For each scenario, BCI assesses the landed supply chain costs, the service levels in the network, the distance to the customer base etc. The visual below illustrates an example of an outcome of a supply chain network analysis.

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