Network Design The Right Way

Transcription

1 Network Design The Right Way John Spain Tompkins International Dale Pickett Tompkins International Tompkins Supply Chain Leadership Copyright Forum 2015 August 31 September 2, 2015 Your Supply Chain. The Right Way.

2 Session Agenda Network Design Starts with Operations Strategy Fulfillment Scenarios for E-Commerce Strategy-Structure-Implement Network Design Cost Model Types of Network Design Analyses Network Planning Tools Network Design Steps Executing the Network Model Discussion 2

3 Network Design Starts with Operations Strategy The Operations Strategy Must Address the Following Points with Respect to Network Design: Focus on total value and profit maximization, not cost optimization Network structure and capabilities that impact demand A robust analysis of DC, FC, or other warehouse operational configurations Global does matter going back to suppliers Omnichannel and E-Commerce have changed everything Real estate Don t forget incentives, they can be significant Change management is critical 3

4 Optimizing the Customer Experience An important element of winning in today s multi or omnichannel consumer marketplace, is a network design and processes that is agile, flexible, and fast. Impact Area Strategy Question Customer What are our true costs to serve and how should we stratify both customers and services for greatest insight? People Is our team equipped to work this way skills, tools, roles? Impact to others? Infrastructure What is the optimal use of facilities and inventory to maximize profitability and customer satisfaction? Technology Can the required information flow, decision making, and planning needs be accommodated with current systems? Process Organization Performance Implementation How will the new design(s) improve performance? What is the level of performance improvement? Save resources/time/costs? What are the barriers to overcome to successfully implement? Qualify the relative effort and resources required for each alternative. Information and Technology Infrastructure

5 Strategy-Structure-Implement 1. Strategy Before Structure: By ensuring alignment of the operations and business strategies we identify the capabilities needed to achieve the desired growth and service levels, while margins are identified. 2. Determine The Right Structure: By focusing on the right capabilities to enable, we select and/or design processes, organizations, technologies, and infrastructure tailored to achieve the desired service performance level(s). 3. Implement It Successfully: By leveraging real-world experiences in the design phases, we deliver projects that achieve ontime and on-budget executions that realize the needed ROIs. 5

6 Network Design Cost Model Network Design Seeks to Optimize Margin and Service 6

7 Fulfillment Scenarios for E-commerce There are at Least 5 Fulfillment Scenarios for E-Commerce Fulfillment Distribution centers and fulfillment center including regional FC s (RFC) Local fulfillment centers (LFC) Local fulfillment centers with pickup (LFC-P) Stores Combined DC/FC facilities 7

8 Network Design Cost Model Network Design is Based on Quantitative Analysis and a Review of Processes, Technology, and People that: Ensures alignment with the overall business environment and growth strategy Utilizes the best analytical tools Analyzes alternative processes to maximize return on investment and business value Models the design with the intent to be refreshed as changes occur in supply chain characteristics 8

9 Types of Network Design Analyses When a Company Decides to Evaluate its Network, Leadership Must First Address the Type of Effort that Should be Performed. Strategic Network Design A major business expansion, such as an acquisition A change in business strategy, such as targeting a new market The change of the business with the passage of time Responding to competitive pressures Tactical Optimization of an Existing Network Contingency Planning Energy shortages Strikes Natural disasters Human actions Product quality issues 9

10 Tools to Consider While there are a number of ways to approach the network planning process, it is usually done with quantitative modeling and optimization tools. Optimization tools used to design the best network of facilities by balancing the tradeoffs between demand, revenue, costs, and customer service. Also included is an evaluation which optimizes inventory deployment policies and transportation resources. Simulation tools used to evaluate how real-time variability can impact supply chain performance and risk 10

11 Network Design Steps Once Leadership Understands the Components of the Network then the Scope can be Defined and the Process Initiated. Skipping or shortcutting a step can have serious ramifications to the results of a network analysis. 11

12 Understanding Data Requirements There are six (6) primary modeling tables, plus other general information. Inventory Policies Specify rules and costs related to inventory Sourcing Policies Specifies where a product can be sourced Sites represent the physical or conceptual locations in the network General Information Personnel Operating schedules Facility layouts and asset lists Operational cost at GL level Inventory Policies Sourcing Policies Sites Supply Chain Model Trans. Policies Products Demand Products represent the material that flows through the network Demand Drives the model. Goal of the model is to serve demand, thereby incurring cost and generating revenue Transportation Policies Specifies how products are transported between sites Corporate tax structure, rates, duties paid Depreciation schedules, accounting methodology Future requirements and growth rates Inventory goals

13 Executing the Model Executing the model for each network scenario will identify the: Network configuration including the number of facilities, locations, roles, sizes, capacities, and costs Facility high level design concepts, capital, operating costs, and performance Transportation routing, modes, rates, service levels, and costs Reverse logistics and customer returns Inventory levels, reduction/increase in safety stock and deployment costs Network performance including: Projected impact to demand Total costs to serve (facilities, labor, transportation, and inventory) Customer service levels by channel and/or location Overall value proposition costs to benefits 13

14 Executing the Model (cont d) Executing the model for each network scenario will identify the: Finalized economic analysis Determine transition costs to implement each alternative Capital Expense Off sets for grants and incentives Develop financial model to provide the complete cash flow story by scenario to include total operating costs (facilities, labor, transportation, inventory holdings, and costs) capital expenditure requirements, inventory assets, and one time expenses Finalize financial analysis according to preferred justification methods 14

15 Success is Not Simple Success is Not Simple: It is a Process Next Steps Possible requirements should be defined, analyzed, evaluated, and validated. Development of a specific set of strategic requirements Action-oriented and time-phased plan. Where possible, the plan should set forth very specific actions needed to meet requirements: o Future sales volumes o Inventory levels o Transportation costs o Warehousing costs Company leadership s support for the plan should include: a detailed written document that illustrate which strategy is best for the company because it maximizes profits to stakeholders 15

16 Questions When did you last do a Supply Chain Optimization? 1 year 3 years 5 years What was your goal? What was your expectation? 16

17 Questions Why was it a really successful or somewhat directional? What are the top three things have you would you do differently? The next time you admire a company s seamless, cost effective and customer responsive supply chain, think of the detailed network analysis behind it. 17

18 Conclusion If the plan answers the questions the senior leadership team requested at the outset and your company is prepared for this to become a process and not a project, you may be on your way to optimization success. The next time you admire a company s seamless, cost effective and customer responsive supply chain, think of the detailed network analysis behind it. 18

19 Network Design The Right Way Discussion 19