The shape of a supply chain distribution network

ImanNiroomand

Today, I’d like to discuss distribution networks shapes. A distribution network is a channel that a company uses to get its products from the manufacturer to the end customer. The shape of this distribution network could vary from a small and simple size network to very complicated networks such as power grid network. The factors that are involved in defining the shape of the distribution network are end customer product demands, product variety, product availability, response time, returnability, and customer experience. Among these factors, response time gets higher weight in establishing the distribution shape.

Response times are the time between when a customer places an order and receives delivery. If customers can tolerate a large response time, fewer locations are required in a distribution channel and the emphasis would be on the larger capacity at each location. However, if customers require short response times then the more locations should be built in the network.

Changing the distribution network is something that a company is often reluctant to do in short range since it has direct impact on supply chain cost elements such as inventories, transportation, facilities and handling. But it is just a matter of time and sooner or later a company needs to reshape its distribution network.

As a rule of thumb we can say, the more facilities in a network, it causes more inventory costs but less shipping costs. In opposite, the less number of facilities would lead to less facility overhead cost but more transportation costs for remote customers. So if we assume the distribution costs are a summation of facility and transportation costs and call it logistic costs, then would these two elements be enough to configure the shape of the distribution network? Where would the response times fit in this equation?

Distribution Network Figure 1

Figure 1

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S&OP Summer Reading Series by Accenture Strategy Guest Blogger

Steven J.Puricelli

S&OP Summer Reading Series

Kinaxis recently asked me to author a blog series on the topic of Sales and Operations Planning (S&OP). Naturally, I was flattered to be asked to contribute to their popular 21st Century Supply Chain blog. But I was also very excited, because as a strategy consultant at Accenture, I’m able to share a wide range of client experiences on ‘what good looks like’ and what business issues clients are facing across a wide range of industries. In addition, prior to becoming a consultant, I was a practitioner in industry, managing S&OP processes. That gives me a unique appreciation of the challenges organizations face, and what it’s actually like to be part of an S&OP team.

I’ve designed this series to focus on the most common or frequently asked questions I hear from my clients. In this first posting, I will provide an overview of the six key areas I plan to talk about in my blogs. Going forward, I will dive into the details around each of these areas, share examples, and highlight options you may want to consider in your organization. I look forward to sharing my thoughts with you and hope you’ll include this blog on your summer reading list. I also hope we can engage in an exciting dialogue on the topic of S&OP and how we can work to improve your organization’s performance and outcomes.

How can organizations better use S&OP?

I’m often asked as I travel around the country working with various organizations, irrespective of the industry: “What are the most common S&OP challenges facing organizations today and why isn’t our process working?” Many of the organizations are struggling with the long-standing dilemma of effectively balancing customer service with supply chain costs, yet all have some form or shape of an S&OP process in place. So what’s going on? Why is this happening? I get asked these questions all the time. And candidly, I see it all the time too in my everyday personal life… stock outs, backorders, inventory markdowns, and clearance sales. These symptoms all point to a failure or breakdown in an organization’s S&OP process. So, how can organizations better use S&OP to improve their agility and responsiveness to today’s dynamic markets?

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And I thought last year’s Top 25 Supply Chain was a surprise

CJWehlage
  • by CJ Wehlage
  • Published

On the bus ride back to the McDowell Marriott after the 2016 Gartner Top 25 Supply Chain event, I plugged my ear phones into my cell and listened to some Pearl Jam. Their classic hit, Last Kiss, the song summed up my thoughts about the 2016 rankings. So, the supply chain version of Last Kiss would go something like this…

“Oh where, oh where, can my supply chain be?

The trends took her away from me

She’s gone peripheral, so I’ve got to think Core

So I can get my supply chain back to reality”

The “Green Washing” of the Top 25

If you take out the new CSR ranking from 2016, your Top 25 rankings would be:

Actual 2016 Rank Without CSR Rank Wehlage Bold Predictions
1 Unilever Amazon Amazon
2 McDonald’s McDonald’s Unilever
3 Amazon Unilever Inditex
4 Intel Intel Intel
5 H&M Cisco Samsung
6 Inditex H&M Cisco
7 Cisco Inditex McDonald’s
8 Samsung Nike H&M
9 Coca Cola Starbucks Nike
10 Nestle Colgate Palmolive Starbucks

 

Three pieces of edgy insights from this:

a. My Bold Predictions were not far off. I did call the Nike and Starbucks entry into the Top 10. I am bolder on Samsung, simply because they had the highest 2016 Inventory Turns aside from McDonalds. As well, Samsung was 7th in Peer Voting rank, so the other “185” Peer voters agree with me.

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Move over old man. It’s time to meet supply chain planning 4.0

TrevorMiles
  • by Trevor Miles
  • Published

What I took away from the Gartner Supply Chain Executive Conference

Supply Chain Management is a relatively young practice, though many of the core principles go back many decades and are based on Operations Research concepts. These have focused on optimization and efficiency. Undoubtedly the world is a better place because of this focus on manufacturing and distribution efficiency over the past 50 years, resulting in large gains in productivity and therefore standards of living, initially in the West, but more recently around the world. All of this productivity gain was achieved in the analog phase.

We are now entering the digital phase of business. Even if we discount a great deal of the hype for what it is, hype, the reality is there has been a significant shift to digital. The title of the recent Gartner Supply Chain Executive Conference, “The Bimodal Supply Chain: Tackling Today, Preparing for Tomorrow”, says it all. It was focused on the manner in which companies can adapt to the digital world while still operating in the analog world. Hence bimodal. As outlined in the diagram below, the bimodal approach advocated by Gartner is about innovating on top of a stable platform. Once the value of the innovation has been captured and stabilized it can be drawn into the stable platform.

Gartner Supply Chain Strategy

“Disrupt or Be Disrupted — Defining the Bimodal Supply Chain”, 30 December, 2015 Analyst(s): Dana Stiffler | Jane Barrett | Debra Hofman | John Johnson

The keynote, delivered by David Willis of Distinguished Analyst at Gartner, describes the bimodal shift as:

The shift requires a new approach to investment in technology, leadership and talent, taking a more agile approach. The bimodal supply chain combines stable best practices with innovation-seeking behaviors to keep your organization competitive.

I have no question that Gartner is correct in their assertion of the need for a bimodal approach to the adoption of digital technology, whether more broadly to the business in general or specific to supply chain processes. Industry 4.0 is a reality. The Internet of Things is a reality. The only question is how quickly companies will absorb these innovations and adapt processes to accommodate them.

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Innovate to Survive—Isn’t That Already the New Norm?

AlexaCheater

Innovative Supply ChainInnovate to survive. That’s the key message I took away from this year’s Gartner Supply Chain Executive Conference. While that may not be exactly what Gartner had in mind—the official theme was The Bimodal Supply Chain: Tackling Today, Preparing for Tomorrow—it was a running dialogue across all the sessions I sat in on.

Their idea of the bimodal supply chain in essence breaks things down into two ‘modes.’ Mode one focuses on tackling the issues your supply chain is facing today. Mode two is about innovation and growth, and the point was made in a number of sessions that you need to do both if you want to excel. If you’re someone who looks forward to change, who seeks it out because it’s inspiring and exciting, then mode two may seem obvious. You’ve likely already embraced this era where innovation across all facets of life has exploded and become ordinary.

To me, innovation, aka what’s driving mode two of Gartner’s bimodal supply chain model, is already intertwined in our day-to-day lives. Hasn’t it always been to some capacity? Innovation is what has taken us from the birth of the internet to this growing concept of the Internet of Things and now beyond.

We know innovation is important, it’s what moves us forward. History has proven that notion over, and over, and over again. Just look at the advancements in supply chain courtesy of innovation like MRP I, MRP II, and APS. Without them, we likely wouldn’t have been able to keep pace with the widespread globalization that has led to extensive supply chains and an explosion in product portfolios. I do agree strongly with Gartner that while we may all know how critical innovation is, we have to face the reality that actually achieving it is hard. Very hard. And in most cases true innovation isn’t just going to happen on its own. At least not in the type of siloed and conservative organizations that are quite prevalent across supply chains today.

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Is Your Supply Chain the Tortoise or the Hare?

AlexaCheater

Is Your Supply Chain the Tortoise or the Hare?In Aesop’s Fables there is a very famous story about a tortoise and a hare. For those of you unfamiliar with this children’s classic, the moral of it is this—slow and steady wins the race. Except of course, if you work in supply chain.

While turtles and tortoises have many wonderful qualities that should be celebrated as part of World Turtle Day, their characteristically slow pace and unhurried nature can prove detrimental to any business trying to keep up in this digital age, and the rapidly changing consumer demands that go along with it.

Now that’s not to say I’m advocating rushing headlong into anything without some thought. Your supply chain does need to be at least part tortoise in that aspect. There’s value and protection in stability. But if you spend all your time planning, are you really going to be prepared when the course unexpectedly changes direction? If your first thought is to go back to the planning stage to factor in this new variable, you may soon find yourself left in the dust of a much faster paced and agile competitor.

My colleague CJ Wehlage has described speed as the true innovation in supply chain. He talks about the ability to act on change in minutes, bringing your suppliers, distributors, shippers, etc. together and getting everyone on the same page as quickly as possible. Digital technology has enabled your customers to make decisions more rapidly and confidently, making the process that much more efficient and effective. Shouldn’t your supply chain be able to do the same?

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Design for the Supply Chain Pt 8: Long-Lasting

JonathanLofton

“Oxfords, not Brogues”Design for the Supply Chain is Long Lasting

If you’re into supply chain and liked the movie this quote is from, then we’re on the same street!

Ok, now that we’re straight on ‘classic’ shoes, let’s talk about the next principle in the “10 Principles of Good Design” as applied to supply chain and supply chain management (Design for the Supply Chain).

Principle #7: Good design “Is long-lasting”

“Is long-lasting – It avoids being fashionable and therefore never appears antiquated. Unlike fashionable design, it lasts many years – even in today’s throwaway society.” – ‘Dieter Rams: ten principles for good design

I was talking with my wife recently and she mentioned the 80/20 rule (Pareto principle) for some systems engineering project she’s working on. I gave an example from inventory management about ABC classification. This way of classifying inventory to provide guidance on which items to place the highest focus on has been around since the 1950’s.

There are a multitude of approaches or techniques for managing inventory (e.g. just-in-time, kanban, postponement, backordering, consignment/vendor-managed-inventory, etc.). Different techniques are appropriate for different businesses and even different segments of inventory within a business. However, there’s always a need to do some level of classification to determine which technique makes the most sense. I keep debating with myself whether to say some techniques have gone “out of fashion” or we’ve just gotten a lot better at determining which ones to use as we’ve learned to manage extended supply chains.

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Executive Advisor Michael Massetti on Supply Chain’s Image, Workforce Automation, and Supply Chain Challenges

MelissaClow
  • by Melissa Clow
  • Published

This guest post comes to us from Argentus Supply Chain Recruiting, a boutique recruitment firm specializing in Supply Chain Management.

Today, we’re bringing your our follow-up to our interview with Supply Chain guru and advisor to Chief Supply Chain Officers Michael Massetti. In the previous installment, Michael gave us the lowdown on big picture trends he’s witnessing in Supply Chain and the market for talent in the field, as well as a discussion of Chief Supply Chain Officers and how titles might actually mean more than they seem.

Michael Massetti is Executive Partner in Supply Chain at Gartner, a leading technology research company. He has a background in the world of technology, having led Supply Chains at some of the world’s largest tech companies. He’s also a great advocate for the field, providing thought-provoking and engaging content about Supply Chain on LinkedIn Publisher.

In this follow-up, we talk about the role of automation in the Supply Chain. We talk about whether Supply Chain needs an image makeover, as well as challenges that Supply Chains face at high-growth, mature, and turnaround organizations, respectively.

Michael MassettiIn your work with Gartner, you act as a Supply Chain advisor to executives at Fast-growth, mature, and turnaround organizations. What different Supply Chain challenges do you think each of these types of companies encounter?

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