Who designed this supply chain, anyway? It’s a common question from senior executives when confronted with an end-to-end view of their supply chain.

1. Winning Through Better
Supply Chain Design
Introduction
“Who designed this supply chain, anyway?”
It’s a common question from senior executives when confronted
with an end-to-end view of their supply chain.
Many of the world’s best known companies’ supply chains grew from a series of historical
accidents rather than intentional design. Because of this, a simple activity like mapping and
visualizing supply chain flows can often spark critical questions such as, “Why are materials
sourced from Region A, produced in Region B, then air-shipped as finished product back to
Region A?” By creating living models of the corporate supply chain, companies can examine
how their supply chains will perform under a wide range of market conditions and assumptions and analyze the trade-offs of cost, service and risk.
Many companies spend many millions of dollars on the implementation of ERP and advanced
planning systems, yet continue to ignore the root of the problem. Without a doubt, these
applications can bring immense benefits: An ERP system can streamline financial operations,
a transportation management system (TMS) can ensure on-time transportation and controlled
costs, a warehouse management system (WMS) can enable optimal picking and placement
of products, and an advanced planning and optimization (APO) application can balance demand and capacity for an efficient manufacturing process. But that doesn’t change the fact
that a suboptimal end-to-end supply chain operation can mean millions of dollars wasted on
inefficient processes.
It is the “design” of a supply chain that can bring the most benefit across key metrics like
cost, service, sustainability and risk. Given the new global reality of volatility, complexity and
rapid change, supply chain design has become a critical business function. Forward-thinking
businesses are continuously redesigning and improving their supply chains by using modeling
technology to examine how their supply chains will perform under a wide range of market
conditions and assumptions and analyzing the trade-offs of cost, service and risk.
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2. LLamasoft – Winning Through Better Supply Chain Design
Why Is Supply Chain Design Important?
The modern supply chain is an increasingly complex network that often stretches across
continents and supports numerous market segments. With this complexity, the impacts of
change are harder to determine and the risks involved with being unprepared grow higher.
Volatility is also near constant in the business world today. Changes in demand, shifts in
commodity prices, supply disruptions, variability in transportation availability, natural disasters,
geopolitical change, and regulatory issues all impact the flow of goods to market.
Companies with supply chains built with only blue sky scenarios in mind are massively
impacted when that clear weather takes a turn for the worst. Supply chain design enables
companies to create accurate models of their end-to-end operations to engineer a better plan
and to explore how potential changes affect service, costs, sustainability and risk.
The following are real-world examples of supply chain decisions
that are made throughout the course of doing business which
often lead to sub-optimal operations.
Sourcing Strategy
A consumer goods company has traditionally sourced their key raw
materials from South America, processed perishable finished goods in
the U.S., then ground shipped to their customers in the U.S. As demand
in new markets (Europe & Asia) grew, the company airshipped their
products to each new region to ensure freshness.
Production Footprint
A food processor determined the production location of new products
by where there was available capacity instead of considering the full
product mix and total end-to-end supply chain costs.
Product Flow
A retailer continued to procure product individually from each of its
eight North American DCs when stock was low, even though a major
cost break for volume purchase was available if they were to flow
things through a single crossdock.
Taxes & Duties
Merger & Acquisition
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A manufacturer produced new products in the same facility as older
products, even though the new products were made of a different material that has a unique tax/duty when shipped outside the local market.
A construction materials company maintained parallel distribution
facilities for different product lines in close geographic proximity after
merging with a competitor.

3. LLamasoft – Winning Through Better Supply Chain Design
Inventory Placement
An automotive parts supplier was stocking every item in every warehouse to ensure peak response to each customer, regardless of service
requirements or product demand history.
Demand Segmentation
A distribution company used a single one-size-fits-all supply chain
strategy, even though their customers have vastly different buying
behaviors and the many products they have introduced over the years
have a wide range of sales and turn profiles.
Service Levels
A clothing manufacturer signed a new service-level agreement with a
massive retail chain, which meant prioritizing nearly all their capacity
and throughput for a single customer.
The Evolution of a Supply Chain
Most corporate supply chains evolve over time through a series of individual decisions
made in the face of immediate business needs. These decisions often appear to make
perfect sense at the time and for the specific issue being addressed, but what is the actual
cumulative effect of such decisions? These decisions probably seemed right at the time they
were made; they saved a capital expense, or made an individual part of the company more
profitable, or maximized production capacity at a single facility. But over a longer period they
created inefficiencies in the supply chain.
Most companies make dozens, if not hundreds, of decisions that impact their supply chains
each year. If each one is made in a vacuum, the inefficiencies can multiply and over time
cripple a company, leaving it with a supply chain that eats up precious resources and negatively impacts the bottom line.
If these decisions are made in a supply chain design environment, especially one where
solutions can be optimized and the results simulated, these decisions can be vetted to
understand their total effect on the supply chain. Inefficiencies can be corrected or prevented
from ever being implemented.
Design vs. Planning
Planning systems are incredibly valuable for running the day-to-day aspects of a business.
Planning and execution systems automate, streamline, and optimize the existing operations
of an organization. They keep many of the important parts of a company running smoothly,
but what if the existing operations are not designed properly or not correctly positioned in relationship to each other? How well can the supply chain perform if the foundation upon which
it is built is flawed from the start?
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4. LLamasoft – Winning Through Better Supply Chain Design
Consider the following examples:
Planning & Execution Systems
Design Systems
An ERP system helps record financial transaction
history with suppliers and customers, documents
the costs of facility operations, captures orders,
and rolls up revenues, costs, and profits.
A design system can determine if a company is
using the right suppliers or if they should even be
selling to certain customers. It can help decide
which facilities should be producing products to
maximize profits.
A TMS manages load building, tendering, route
planning and tracking, driver scheduling and settlement issues, providing metrics and historical
records of the corporate transport processes.
A design system can determine which products
should travel along which routes and select what
modes should be used to optimize service and
costs. It can simulate alternative strategies to
predict overall performance.
A WMS manages the movement and storage of
materials inside the warehouse, dictating the
receiving, stocking location and picking order
for products. It can provide detailed records of
warehouse performance.
A design system defines the best locations and
capacities for warehouses and which products
should be stocked in which facilities and at what
levels to meet service levels, while minimizing
end-to-end supply chain costs.
An APO system helps minimize costs and keep
products running down the line by planning what
to make, on which equipment and in what order
given the existing production capabilities.
A design system can determine the best facility
to use in the production of specific products. It
can also help identify the type and quantity of
production equipment that will minimize cost
and maximize capacity.
Supply chain design helps companies compete and win by giving them the tools to connect
all the parts and capacities of their supply in a rational, measured and efficient manner so
that the other tools—the ERP WMS, TMS and APO—can do their jobs in an environment that
,
maximizes their effectiveness. These planning tools, as valuable as they are, are only as good
as the network they function in and that network should be designed, not just happen.
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5. LLamasoft – Winning Through Better Supply Chain Design
When to Use Supply Chain Design
Any time there is the potential for a significant change to the business operations of a
company, there is an opportunity to leverage supply chain design. Some opportunities are a
matter of course (a revised demand forecast, changes in the customer base) while others are
more periodic (expansion into a new market or reaction to an acquisition) and some are rare
(the company’s suppliers in Thailand are all under water) but in all of these cases design decisions need to be made. Making decisions with the aid of sophisticated models and tangible
analysis on the impact of those decisions increases the likelihood of a desired outcome.
Planning and execution systems are critical to running a
business. Supply chain design tools are critical to determining
how a business should run.
Supply chain design is used to answer questions. Some of these questions are focused on
near-term challenges while others look out over a longer-term time horizon. Questions also
typically fall into the category of structure (the physical makeup of the supply chain) or policy
(the decisions on flow and operations).
If any of these questions are being asked in the executive boardroom, supply chain design
can likely provide insight:
Structure
Policy
Should I use one of my existing DCs as an
inbound consolidation center?
Should I start delivering certain customers
factory-direct? At what fuel cost do I need to add
additional local DCs?
What is the best frequency and design of
multi-stop deliveries?
When and where do I need to create additional
production capacity?
Can I profitably introduce this new product into
the Asian market?
Do I insource or outsource manufacturing of
these parts?
Do I source components from local or
low-cost countries?
What is the best way to decrease the company’s
carbon footprint?
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To meet holiday demand, what products do
we pre-build?
Should I rely on a third party logistics (3PL)
supplier to manage my freight?
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Where should I position inventory to achieve
my desired service levels?

6. LLamasoft – Winning Through Better Supply Chain Design
Creating a Supply Chain Design Competence
In order to use supply chain design as a competitive weapon, a company must first develop
a competence in the process of continuously engineering their supply chain. Because supply
chain design is very much a “human process” it is not enough to simply purchase and implement a software tool. The companies that do this best focus on three core elements:
The Technology - The Individual - The Organization
The Technology
When selecting the right supply chain design technology, a company should first determine
the types of questions and challenges that their business will need to address. It would be
best to find a single application or software platform that addresses each of these needs to
avoid additional maintenance, training and IT infrastructure issues. The system should be
able to scale to address the size and scope of models that the company will be building.
As important as the technology itself, the software supplier should be able to support the
organization through continued innovation and system maintenance.
The Individual
Supply chain design is a very human activity, so it important to invest in the designers as
much as the technology. Even with the most user-friendly software, the key analysts and
modelers will require training, mentoring, and support to become proficient as designers.
Since accurate operational costs and enterprise data are essential to supply chain design,
creating a cross-functional team to provide access and validation of this data is also critical.
The Organization
Finally, to achieve excellence in supply chain design, it is important to implement a methodology and systems that will facilitate the retention of project knowledge. IT systems can enable
knowledge management, but the practice of knowledge management has to be fostered
throughout all levels of the organization. To keep the supply chain design team focused on
key business initiatives, corporate executives must know what questions the team can
answer and be kept updated through consistent delivery of key metrics so they can understand the progress that is being made and the importance of the results.
By establishing these three key pillars, a supply chain team can be successful, not just for a
single project but as an integral, repeatable process within the organization. Not only will the
design team be able to execute supply chain design reviews at regular, scheduled intervals
but they will also be able to add value whenever decisions are being made that will impact
the supply chain. In addition, they will represent an important resource for the company
when the inevitable unforeseen circumstance occurs that shocks the supply chain. While a
fully trained, competent supply chain design team can’t prevent a natural disaster, they can
make reacting to one easier and less costly.
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7. LLamasoft – Winning Through Better Supply Chain Design
About LLamasoft, Inc.
LLamasoft supply chain design software helps organizations worldwide design and improve
their supply chain operations. LLamasoft solutions enable companies across a wide range
of industries to model, optimize and simulate their supply chain network, leading to major
improvements in cost, service, sustainability and risk mitigation. Headquartered in Ann Arbor,
Michigan, LLamasoft, Inc. is a leader in supply chain excellence and innovation, advancing
technology focused on continuous improvement of enterprise supply chains for the world’s
largest organizations.
LLamasoft, Inc.
201 South Main Street, Suite 400
Ann Arbor, Michigan 48104, USA
Phone: +1 866.598.9831
LLamasoft.com
Info@LLamasoft.com
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