Supply Chain Network Design: Process, Best Practices, Challenges, Examples

Several factors contribute to a team's winning in a game of cricket, whether it is batting, bowling, field placements, reading the opponent's tactics, or countering their every move. Although all 11 players play with their specific abilities, the entire team works as a unit. Similarly, a robust Supply Chain is the key to successful business. Each link to the chain must function efficiently to ensure that the production and distribution of a product are on point.

Supply Chain Network Design refers to building a model of the supply chain network containing all the entities involved in the process. It allows you to identify, analyse and manage the time and cost of the processes. In this blog, we cover the role of network design in the supply chain and how it is important for businesses. 

What is Network Design in the Supply Chain?

Supply Chain network design is the plan for designing each component of the supply chain to optimise the resources and reduce the time & cost involved. Planning the number of facilities and locations is the key role of network design in the supply chain. Here are the main elements to consider:

• Location and number of:
  • Manufacturing plants
  • Warehouses
  • Distribution Centres
• Inventory Management
• Logistics Planning

Supply Chain network design and optimisation requires the following:

• Integration with the latest technology
• Streamlining processes and operations
• Faster decision-making
• Enhanced visibility across the supply chain
• Seamless data sharing between each of the entities

By strategising this framework, you can gain an edge over your competitors through operational excellence.

Role of Network Design in Supply Chain

Now that you understand the basics of supply chain and network design, you would ask, what is the role of network design in the supply chain? Learning about the uses and benefits of having a network design in place is important.

Time & Cost Optimisation

To optimise the use of resources and reduce the time and cost throughout the supply chain, the network design should:

• Use the most efficient transport routes
• Reduce the operational costs

Enhancement of Service Levels

While designing a supply chain network, you should ensure that:

• Products are available to the customers when and where they need them
• Customers are satisfied with the delivery of the products and services
• Faster product deliveries

If you build an effective supply chain network design, customer satisfaction is improved and they become loyal to your brand.

Flexibility and Adaptability

The market conditions are changing quickly with technological advancements. The perfect supply chain network design should be flexible enough to tread shallow waters.

Scalability

Another important role of network design in the supply chain is to keep evolving continuously. If the network is scalable, it allows the expansion of businesses seamlessly. Similarly, you should be able to scale down your operations easily in tough times.

Importance of Supply Chain Network Design

What is the importance of supply chain network design for a business? Here’s why you should opt for it.

Efficient Operations

A perfect supply chain is the one in which operations are run smoothly. A supply chain network should be designed to remove any friction from the processes.

Customer Satisfaction

One of the benefits of having a robust supply chain network design is that the products are easily accessible to the customers. It also reduces the delivery time between various locations making the process smooth and improving customer satisfaction.

Risk Mitigation

By making a network design for your supply chain, you can add multiple suppliers and distribution centres to your network pool. In stressful times, this can prove to be your best bet for sustaining the business.

Sustainability

Businesses should not only focus on making profits but also behave responsibly towards the environment. A supply chain network design minimises the impact, on the environment and makes the business sustainable in the long run. By placing the facilities at easily accessible locations, businesses can reduce their carbon footprints 

Key Components of a Supply Chain Network

Before you start making the supply chain network design, it is important to learn about each of its components. They form the links of the chain and a supply chain cannot be complete without any of the components being left out.

Suppliers

Where do you get raw materials from? The suppliers, of course! They are the starting point of the supply chain, and they must be reliable. Various suppliers who provide quality products at competitive pricing should form part of your supply chain. It increases overall efficiency.

Manufacturing Plants

The next link to the supply chain is your manufacturing facilities. Once the raw material is procured, it reaches your manufacturing plant. It should:

• Be located in a place easily accessible to reduce the time and cost
• Have the capacity to store and manufacture the products

Distribution Centres

After manufacturing is completed, the finished products are moved to respective distribution centres. They should be strategically located to:

• Increase your access to your customers
• Perform faster deliveries
• Minimise the transportation costs

Logistics

Another component of supply chain network design is logistics. If you plan the logistics well, you can ensure connectivity between the suppliers, manufacturing plants, distribution centres and retailers, at all times. There are various modes of transport including railways, roads, water and air. Designing the logistics with proper planning can help you reduce transport costs and ensure faster deliveries.

Retailers

From the manufacturing unit, the products are transported to the distribution centres and from there to the retailers. For making products available to the end consumers, it is necessary to ace the connectivity between these links of the supply chain network. The proximity and connectivity to the retailers is a key concern for designing the supply chain network.

Customers

Developing a supply chain that is compatible with customer behaviour and demand patterns is very important. The supply chain network should be able to adapt to the changes in demand to incur minimum costs and losses.

How to Design a Supply Chain Network?

Here is the stepwise process to design a supply chain network:

• Step 1 - Define the goals: Defining the objectives of your network design is the first step. These objectives can include reducing costs, increasing the scale of operations, increasing customer satisfaction, etc.
• Step 2 - Collect the data: For designing the supply chain network, you should collect data on various components, and the challenges faced by the supply chain.
• Step 3 - Analyse your options: You should analyse the data from the above step using tools and simulators. These simulators can provide different network configurations and the impact of these design choices.
• Step 4 - Develop the Scenarios: Perform tests on how the network performs under the conditions of distress and disruptions. These scenarios can include demand changes, supply disruptions or shifts in the market dynamics.
• Step 5 - Implement and monitor: Once the supply chain network design is developed, it should be implemented and monitored to track its performance. This can help you identify problems and make adjustments whenever needed.

Key Supply Chain Network Design Challenges

There are many benefits to designing the supply chain network. However, supply chain network design faces many challenges:

• Maintaining data accuracy: Accurate data is the key to designing a flawless supply chain network. If the data collected is inaccurate, there are more chances of the network design failing.
• Changing market conditions: The market scenarios keep changing all the time. The supply chains that are effective right now might not be effective after some time.
• Technology integration: It can be complicated and costly to integrate new technology with the existing supply chains.
• Environmental and social issues: The supply chain networks should be sustainable and compatible with society.

Supply Chain Network Design Examples

Which is the most famous supply chain network design example? Does anything come to mind? Yes, Amazon. Bingo! Amazon is the biggest e-commerce platform in the world, and it runs on the supply chain network model. The model multiplied itself over the last few years, especially during COVID-19. There was an opportunity and they tabbed it.

But, was it easy for Amazon to establish itself? We have been a witness to how the services of the platform have evolved and it has integrated numerous suppliers to locally source and supply the products to its customers. That’s the magic a well-woven supply chain network design can create.

Best Practices for Effective Supply Chain Network Design

Here are the best practices you should follow to design a robust supply chain network:

• Keep improving: Continuous monitoring and improvement can help you sustain your supply chain networks in the long run.
• Collaborate with multiple partners: Adding multiple suppliers, manufacturers, and logistic partners can help you optimise your network.
• Adopt new technology: Technology is developing fast and it is changing how businesses operate. Integrating new technologies like IoT, AI, etc., can enhance the effectiveness of the supply chain.
• Manage the risks: Hope for the best and be prepared for the worst. It is a popular saying because having a contingency plan can save you in shallow waters.

Our article must have guided and motivated you to create your supply chain network design. However, it is important to tread carefully as it can be a slippery slope. If you gather inaccurate data or miss out on the key elements, things can go South quickly. Supply chain network design is a highly sophisticated task and it is important to prepare well and take expert advice if possible.