The Right Design
Great execution cannot overcome bad planning.
By Toby Brzoznowski
Enter “bad design” into a Google image search and hundreds of examples will rapidly display on your browser. A new design does not necessarily mean a positive one and examples of bad design litter the marketplace.
In most situations, the design of a system is what ultimately determines how well it will perform. No matter how hard you try or how well you execute, the design of the system has set an upper limit on performance.
Over the last several years, this “constraint of design” has dramatically changed the way in which supply chain executives look at their jobs, and how they set their priorities – and the result has been the emergence of a third discipline in supply chain management called supply chain design.
Supply Chain Design
In order to help describe supply chain design, it is best to start with the dictionary definition of design: “To prepare the preliminary sketch or the plans for a work to be executed, especially to plan the form and structure.”
The definition of supply chain design expands on this: “To create digital models that represent the structure and policies of the supply chain, specifically to test new strategies, react to changing market conditions, and to run what-if analysis.”
In order to gain a greater understanding of their current network and help to inform new decisions, many of the world’s largest companies now use modeling technology for supply chain design. This enables organizations to build living digital models of their current supply chain network and then examine how it will perform under a range of market conditions. This also allows organizations to analyze the trade-offs between cost, service and risk in a simulated environment before executing in the real world.
The Importance of Supply Chain Design
Supply chains are huge, complex logistical systems that typically include thousands of products, orders to suppliers around the globe, production on multiple continents, millions of shipments, and constantly changing customer demand. Supply chain costs typically rank as one of the top investments a company must continuously make. Under perfect, stable conditions, a global supply chain requires heroic efforts to coordinate and manage all the moving parts.
Unfortunately, the global business environment is anything but perfect or stable. Volatility and change are the new normal, and they are happening at a never before seen pace. External challenges like fluctuating currency, fluid regulations, port closures, strikes, severe weather, or the consumers’ demand for next-day service are shaking up the game. Internal corporate decisions like mergers and acquisitions, globalization, or a shift to e-commerce are only adding to the complexity.
Arguably the top supply chain challenge facing organizations today is finding a way to adapt to these ever-changing market conditions fast enough to keep customers satisfied, more efficiently than their competitors who are vying for market share, and at a cost that doesn’t put them out of business.
Enter supply chain design. This model-based analytical process has proven effective in identifying tens to hundreds of millions of dollars in cost savings in areas like working capital reduction or transportation spend, and modeling technology has also prevented costly mistakes before they ever reached the light of day (cost avoidance).
Making Supply Chain Design a Core Competence
To make supply chain design a true core competence, it is not enough to invest in a technology. Supply chain design is very much a “human process”, not merely an IT system that gets plugged in to automatically spit out answers. Therefore, companies that do this best place an equal focus on three key elements: technology, people and process.
Technology is certainly important. Specifically organizations must ensure that they can effectively model the entire end-to-end supply chain and all the key policies that make it unique. They also need to run powerful analytics, including a range of optimization and simulation techniques to do detailed what-if analysis.
People make these models run. These people must be skilled in data analysis and continuously trained in new analytical techniques. These people also must be given the latitude to challenge standard ways of doing business, and encouraged to think outside the box.
Process ensures that everyone throughout the company understands the role that supply chain design plays in corporate strategy. Executives need to know what questions their team can answer, and understand that the Design team should be included before making any key supply chain decisions.
By establishing these three key pillars, a supply chain team can be successful in utilizing design, not just for a single project but also as an integral, repeatable process throughout the organization.
Design vs. Planning/Execution
Planning and execution systems like TMS, WMS, or Production Planning are key components of a supply chain management effort. However, these systems can only help run the existing supply chain. If the existing supply chain is designed with inherent inefficiencies, great planning and execution can only get you so far. The only way to facilitate true change is through design. Companies that have become experts at continuously redesigning their supply chain operations in the face of market change are positioned to be the leaders, and will consistently outperform the competition. Great planning and execution cannot overcome bad design – so design must become the focus.
Toby Brzoznowski is executive vice president of Llamasoft, a provider of supply chain design, analytics and optimization solutions for major organizations worldwide.