Intelligent Design: Systematic Supply Chain Design Improves Retail Performance

Formerly an annual-at-most exercise in response to a significant organizational change, the emerging discipline of supply chain design is infiltrating the on-going operational processes of supply chain management.

What does supply chain design entail, and why is it increasing in prominence among leaders in supply chain best practices?

The ongoing process of supply chain design involves three steps:

1. Creating models of the existing supply chain
2. Harnessing advanced analytics to identify an improved future state
3. Continuously testing new strategies and what-if scenarios

“When a company’s supply chain capabilities are directly aligned with its enterprise strategy, the results tend to be superior performance and a strong market position,” note the authors of “Designing the Right Supply Chain,” strategy+business.

Implemented systematically, the discipline can include:

• Product Flowpath Analysis
• Cost-to-Serve Optimization
• Safety Stock Optimization
• Tax/Duties Optimization
• Risk Management

What was once a static and onerous process is becoming more nimble and integrated in response to rapid realignment of supply chain elements, along with advancements in technology making the technique more affordable and user-friendly.

Steepening competition, escalating regulatory issues and heightened customer expectations have created a tumultuous landscape that requires supply chain responsiveness. According to a RSR Research survey, as referenced in our latest eBook 6 Critical Disciplines Retailers Must Master, 65 percent of retailers agreed or strongly agreed with the statement, “We are going to have to completely rethink our supply chain design in the next five years because of emerging cross-channel fulfillment.” Radical upheaval requires rapid response.

As a result, supply chain design is becoming more operational. Instead of a discrete process, it is evolving into an ongoing discipline driven by engineering priciples, LEAN and six-sigma methodology, and cutting-edge technology. Harnessed properly, supply chain design can do more than respond to market forces: it can yield competitive advantage.

Citing a 2011 decision to scale down their cookie offerings, “Designing the Right Supply Chain,” lauds the Girls Scouts of America for “simplifying their supply chain to better support their mission.”

According to the authors, retailer Nordstrom exemplifies the ability to use “extremely sophisticated inventory and product life-cycle management capabilities to move products through its channels in half the time” of its competitors.

Adrian Gonzalez, president of Adelante SCM, argues that leaders in the space are setting themselves apart by “not looking at supply chain and particularly logistics as just a cost management issue.”

Once seen solely from a cost-cutting perspective, “transportation, the way we deliver products” is now utilized “to drive topline growth and enhance customer loyalty,” explains Gonzalez,  who with Mike Glodziak, president of LEGACY Supply Chain Services co-lead the popular webinar series “Are You a Supply Chain Leader or a Laggard.”

Retailers who recognize the “strategic advantage and wield it as a competitive weapon, those are the companies that will succeed in the long term.”