Firstly – what is network design and optimisation?
Fundamentally, it’s to do with the number and positioning of the different nodes in your network: manufacturing facilities, storage warehouses, customer premises. Network optimisation is then working out the ideal number of facilities, and their locations, to find the optimal balance of cost to an organisation, and service levels to their customers.
The size and complexity of a network can differ significantly depending on the scale of business. A global organisation might have multiple manufacturing sites around the world, serving regionalised markets or focusing on certain products. Alternatively, it could be as simple as where best to place a single national distribution centre relative to a manufacturing site – or point of import – and customer demand.
There are a number of key factors that will influence network design:
- Production costs – local costs for labour, raw materials, utilities.
- Customs tariffs – depending on trade deals import duties can vary from market to market
- The cost of storage – number of warehouses, driven by customer lead time requirements
- Inventory holding costs – relative to replenishment lead times from production, and also the number of warehouses
- Primary transport costs – relative to the distance of warehouses from production
- Secondary transport costs – relative to the distance of warehouses from customers
- ESG considerations –
- Environmental – the distance (and hence CO2e) products travel to get to market
- Social – considerations around labour laws and staff well-being
- Governance – regional instability potentially leading to supply disruption
As evidenced above, the number of factors that can shape a network today is greater than it has ever been. Manufacturers have to deal with ever increasing routes to market, all with potentially different service level requirements, leading to different costs. Speed of delivery as a deciding purchasing factor has meant that many retailers find themselves with more stock holding nodes, not less, and are having to explore multi-echelon inventory strategies.
As already mentioned, the complexity around network design and optimisation scales with the size and complexity of the network. It can be as simple as finding the best place for a finished goods warehouse relative to your customer base; in this case all that is needed is a simple centre of gravity analysis. Where networks are international, or with many different nodes, then it really is best to work with a specialist partner who will have access to specialist software designed for the purpose.
Here at SCALA, we have decades of experiences in network design, optimisation and logistics strategy, including strategic sourcing. Our team members combine detailed expertise in modelling with practical operational understanding, helping us to develop solutions and savings that are realistic and not just theoretical. We understand that for various reasons some sites may be “immovable”, or heavily constrained, and we will always work with you to respect your parameters.
If you are thinking about making changes to your network relative to cost pressures or service levels, or just want to make sure it is fit for the future, then we’d love the opportunity to discuss how we might be able to help.