The significance of optimizing the supply chain network design of enterprises

While the concept may seem simple in theory, the complex challenges posed by permanent demand and supply imbalances, geopolitical uncertainties, unforeseen pandemics, persistent labor shortages, and rising inflation make it increasingly challenging to pinpoint the best solutions that adapt to these dynamic variables.

Furthermore, customer demand patterns and their expectations are in a state of flux, across physical retail, omnichannel, and traditional e-commerce. The reality that needs to be built five years from now may look very different and change dramatically in a decade.

So, how should supply chain leaders optimize their supply chains?

In today’s supply chain landscape, there is no denying that the reality is global and characterized by an intricate web of dependencies across upstream and downstream functions. Rather than focusing solely on the optimization of network design, supply chain leaders must shift their focus to building agility, resilience, and necessary redundancy within their respective supply chains.

Agility is an essential quality that enables adaptation to volatile customer demand patterns. As lessons learned from the pandemic have highlighted, resilience is essential to navigating inevitable setbacks in all parts of our supply chain. In addition, redundancy plays a key role, as heightened customer expectations mean that any network disruption can easily erode customer trust and lead to fluctuations in retention and churn rates, especially given the plethora of alternative options available to them.

What are some specific ways to do this?

Companies should initiate their strategic planning by clearly defining goals that are directly tied to quantifiable output indicators. These goals should be both tangible and measurable, allowing for transparent links to core aspects of the company's internal operations.

To illustrate this point, consider a scenario where a company has a goal to increase same-day delivery penetration from 10% to 30% in one year. The driving force behind this goal is to achieve an 8% surge in purchase frequency, ultimately leading to a significant $10 million increase in revenue. What makes this goal stand out is its stark clarity, ensuring that every stakeholder understands its impact on the customer experience and the company's financial dynamics, and achieving a direct connection to internal operations.

In addition, companies should take a forward-looking approach when determining their demand goals. For example, establishing demand goals that span five to seven years can provide a panoramic view for the supply chain organization. It provides insights into key decisions, such as the time to plan for specific workforce capacity versus taking immediate actions, such as investing in a highly automated facility with large capital expenditure requirements and an 18-month lead time.

At the same time, a comprehensive assessment of the company's inventory flow and placement strategy is imperative. This strategy should be directly linked to inventory targets, holding costs, and inventory turnover. The nature of the inventory, whether ambient or perishable, may require a more detailed and comprehensive inventory strategy.

Companies must maintain a constant review of their physical network footprint. This requires reviewing whether they have the optimal number of facilities planned for the coming years. In addition, the size of these facilities and the capacity of the mechanical handling equipment should be further reviewed. Being ready to expand or contract the network while maintaining the flexibility to explore alternatives such as third-party logistics (3PL) or hybrid solutions remains at the core of building network flexibility.

Finally, when addressing labor-related issues, companies should break away from outdated models and venture into developing versatile labor strategies. This involves deploying a hybrid model that combines in-house assistants with an on-demand, reliable pool of backup labor. Labor-related shortages are a root cause of business shutdowns, and while automation continues to advance, reliance on manpower will continue for a long time to come. Notably, a growing number of startups now offer flexible labor pools that operate across companies, provide surge capacity when needed, and empower employees to choose when and where they work. This approach infuses adaptability and resilience into a company’s workforce, effectively mitigating disruptions caused by labor shortages.