Disruptions may drive your supply network design

Roger OakdenGlobal Logistics, Logistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

International trade and your business

An application that was not a success

The take-up of technologies by industry not only depend on the business value of a technology, but how and to whom its is sold. If the timing is wrong, there is an increased risk of failure.

So it was with Supply Network modelling; introduced with much fanfare in the early 1990s. The concept failed to gain traction and firms that had early success faded or were acquired.

The applications required specialist who were knowledgeable of the software, with an understanding of logistics and were mathematically literate. Recruitment was difficult because, as demand for supply chain modelling specialist remained low, so universities did not promote modelling units in their courses.

Low sales, mergers and acquisitions has resulted in only a small number of application suppliers remaining in the market, yet demand for an easier solution should be increasing. Over the past few years, there have been additional causes of supply chain disruptions – geopolitics, trade disputes and now a virus outbreak. This highlights the need for an increased understanding of your organisation’s supply chains; the potential for disruptions, associated risks and possible scenarios to mitigate the effects.

Supply Network modelling

An organisation’s system of multiple supply chains is a complex supply network. It contains details of items, suppliers, customers and their locations, owned and contract factories and distribution facilities. The transport links between each node in a supply chain will have their own transport and handling costs, shipment frequencies and lead times that may contain seasonal demand fluctuations, load capacity constraints and pack size limitations. These and other variables can influence flows along a supply chain, which then influence demand, supply and inventory at each node in a chain.

The situation of more frequent disruptions may require on-going updates to the flow paths for items; tariff considerations that influence sourcing decisions, inventory plans and transport mode selection. However, the impact of these changes need to be assessed and planned in a low risk modelling environment, prior to any changes in the physical supply chains.

The supply network model has now been given the catchy title of ‘Supply Chain Digital Twin’. According to the IT research firm Gartner, it is “…a dynamic, real-time and time-phased representation of the various associations between the data objects that ultimately make up how a physical supply chain operates”.

Using a supply chain digital twin, organisations can determine the best location for owned and contracted manufacturing, sea and airports for import and export, inventory consolidation locations and transport configurations. The analysis will provide the optimal supply network and for each of its chains, recommend the timing of changes.

A supply chain digital twin is positioned above the ERP, WMS and TMS systems and enables the evaluation of scenarios that illustrate the changing but interconnected relationships between service levels, inventories, capacities and cost. Based on the optimisation of your organisation’s supply network, examples of questions for analysis are:

  • By how much does infrastructure, inventory and resource requirements change over multiple and different time horizons?
  • The optimal mix of transport options and routing by trade route and distribution channel?
  • The optimal flow for an identified SKU through the supply network?
  • To maximise profit in a capacity constrained supply chain, where demand allocation decisions are required?
  • The effect of seasonal variability on inventory, capacity and resources? This includes harvest periods in agriculture supply and increased buying periods in consumer markets

Future for supply network design

Although there are currently few supply network planning applications available, they have increased modelling capability, with an improved ease of use. For a business that extends across borders, consider the requirement for an internally managed supply network planning application.

Using the tool enables the supply chain group to act as the ‘control tower’ of the organisation’s supply network. They can update the multiple sources of data and information from the network and provide the strategic plan for services provided by multiple logistics service providers (LSPs).

For businesses that do not have a supply chain group, but need the high level planning capability, fourth party logistics (4PL) or Lead Logistics Provider (LLP) firms could provide ‘control tower’ services for a client shipper. An LLP adds value through applying their intellectual property, computer applications and processes for liaison between parties in the client’s network.

The introduction of Supply Network planning in the early 1990s acted as a catalyst for the concept of 4PL/LLP. Although the approach had an initial burst of enthusiasm, especially in the vehicle industry, it waned as shippers experienced problems:

  • Contracts were not always clear concerning where the 4PL/LLP was supposed to add value, rather than just adding an additional layer of costs and complexity
  • Because the 4PL/LLP controlled the software application, access to data and industry knowledge, they could become the de facto decision maker concerning the shipper’s supply chains
  • 4PL/LLPs were often owners and operators of logistics assets. This provided a conflict of interest concerning the utilisation of assets in the client’s business

Thirty years later, the level of potential disruptions in supply chains could rekindle interest in the concept of 4PL/LLP. The development could provide a market for specialist supply chain consulting firms that have invested in their own application or use one of the commercial supply chain modelling applications.

However, supply chain professionals must be clear in the contract about the added value expected of the 4PL/LLP and the limits on their responsibilities and decisions. Based on the previous experience, 4PL/LLP should not be owners of logistics assets.

While these two approaches may suit larger client businesses, an option for SMEs with a multi-national business model, is to access a (yet to be developed) ‘freemium’ cloud based application. This would provide the basic analysis capability and on-line training at no cost, but enable a user to purchase more sophisticated application modules to suit their business needs.

As always, supply chain professionals must beware of a ‘solution’ looking for a problem to solve. Like any other technology, evaluate the impact of supply network planning applications on your business objectives and supply chain strategy.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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