Put some thinking into your Supply Chain Design - make it work for you
Dr Aristides Matopoulos, Associate Professor of Supply Chain Design and Logistics Systems at Aston University provides some valuable steps in how organisations can continuously improve the design of their supply chains.
Whether you are in manufacturing, retail, FMCG or in any other sector you may have heard or experienced the universally accepted maxim that the supply chain touches virtually every aspect of your business. Yet, most companies approach their supply chains as an afterthought and when asked, many managers find it hard to answer questions not only about the origin of their supply chains but, why they are designed the way they are.
What exactly is Supply Chain Design and why does it matter?
Supply Chain Design at the very basic level refers to decisions taken by managers regarding the design of the physical (eg. facility location, inventory levels); financial (eg. cash-to-cash cycle, costings) and information flows (eg. communicating with suppliers, demand forecasts) of the company’s supply chain to achieve its goals of superior customer value at the lowest supply chain and overall cost.
As supply chain scholars, we argue that a strategically designed supply chain can make a significant, positive, difference on the business overall making it easier to achieve your company’s goals.
However, the opposite can also be true!
To paraphrase Peter Drucker’s (father of Post-War management thinking), famous quote about organisational culture and strategy: “Bad supply chain design eats good planning and execution for breakfast!”
Particularly for SMEs faced by the extra challenge of fewer resources, including human talent, a poorly thought out supply chain may not only expose the business to various risks but it can result in significant opportunities affecting businesses’ modus operandi and profitability in the long term.
Making a start
It is a well-known fact that companies’ supply chains are not the result of a meticulous ‘best for the business’ design and have evolved over time through mergers and acquisitions or organic growth. However, that should not stop managers from thinking about (re-)designing their supply chain. Whatever the reason, such as a new product launch, an economic crisis or an incident at a supplier’s site, it is never too late to start thinking about your supply chain’s design and how you can make it better.
Before being involved in any meaningful supply chain (re-)design activity, you need to start with a good view of your supply chain.
So, how well you know your supply chain? The following yes/no questions will give you a jump start:
Do you have a good view of how your supply chain is structured?
Can you analyse its complexity (eg. who, what, when, how)?
Do all your functions (eg. procurement, manufacturing, logistics) have the same understanding of your supply chain?
Do you understand the influence of your suppliers’ supply chain (eg. of other required components, material, tooling) on your own business?
Do you routinely evaluate your supply chain for warning signs of distress (eg. supplier requests for accelerated payment terms or customer financing support)?
Can you identify risk in reaction to an incident (eg. fire) at a supplier’s or customer’s site?
Do you have a plan when there is a problem within your supply chain?
Do you know how a change in your supply chain would impact the business?
Can you identify the critical paths in your supply chain?
Can you model and compare different supply chains (eg. evaluate trade-offs and identify best alternatives if problems occur)?
How did you score?
Ten means you are ready to use the drawing board.
Above 7 means you are almost there.
Below 7 means you really need to pay attention to your supply chain.
Most organisations are running with a score of 2 or 3 and they need help. Understanding your supply chain is the first step before making any interventions and is a critical factor in the achievement of supply chain design goals.
To make sure your business succeeds now and in the future, the points below explain what you need to consider.
By now you must have started reflecting on the basics of your supply chain, which is great news, but this is just the beginning. Without getting into the details of the tactical and operational levels of supply chain design, below is a quick guide of the main issues for you to consider:
Choose a product or a product category, ideally a new product which is in the inception/design phase just before the prototype stage.
Consider make-or-buy decisions for the Bill of Materials (BoM) for the selected product on the basis of Tier 1 suppliers’ capabilities and capacities. If you are thinking of involving suppliers in different countries make sure you also understand the legal and the political complexities of such a decision.
For the critical parts and materials of your BoM dive deeper into Tier 2 suppliers’ base.
Start visualising the above using a drawing board and/or specialised software (linear or circular layouts).
Narrow down your list of possible supply chain configurations to a few and start crunching some numbers to calculate transportation, warehousing and the costs related to the management of the material flow, inbound/outbound and the cost of capital (eg. financing inventories).
Include time as an additional dimension in your calculations! A supplier from the far East with a lower product or material cost, but with five weeks lead time may at the end of the day be less competitive from a supplier from Eastern Europe with slightly higher product cost but, with a couple of days lead time.
Also make sure you:
Do not to ignore relationships. Explore links and types of relationships between your company, Tier 1 and Tier 2 suppliers. The relationships are the ‘glue’ that keeps together your supply chain.
Appreciate the ‘softer’ non-operational aspects of your decisions including availability of labour, environmental implications, business conduct and compliance, legislation, and social issues.
Whose job is it?
Supply Chain Design is not simply the job of supply chain professionals. By the very nature of the challenge, a cross-functional approach is needed despite the fact there are known issues in how cross-functional teams work. But still, this is the kind of task where knowledge and expertise of several functions is needed from product design and manufacturing to logistics, information systems (with the help of specialised software), sales and finance.
Taking up the Supply Chain Design challenge can change the classical collaboration between the company’s departments. If all aspects are equally understood and considered from the beginning – product design, manufacturing and supply chain decisions - then business can be better prepared and more resilient to changing markets.
About the author
Aristides is an Associate Professor of Supply Chain Design and Logistics Systems at Aston University and a Visiting Professor at the University of Lille 2, in France. His research focuses on how to assess logistics and supply chain capabilities and how to design the supply chain based on these assessments. At Aston University, Aristides led the development of the Supply Chain Readiness Level Tool to assess the maturity and the capabilities of manufacturing supply chains. He recently received funding from the European Regional Development Fund for the UK-Centric Supply Chains project. The aim of the project is to assist companies in the manufacturing, automotive, engineering, food and drink sectors to map, assess and improve the capabilities of their supply chains with the view to grow and to maximise UK content. In 2019 he was appointed a Royal Society Short Industry Fellow to collaborate with Williams Advanced Engineering. Together they aim to develop a tool for the automotive industry to assess suppliers’ ability to upscale production in order to raise the competitiveness of suppliers in the UK.