Supply Chain Network Design Requires More Than Just a Smart Tool

This post was originally published by Supply Chain Movement, a brand of Supply Chain Media.

The need to evaluate supply chain design is increasing due to geopolitical conflicts, rising trade tariffs, and climate change. But how should it be done? What competencies do you need? And what are the prerequisites for success?

In a recent webinar, hosted by Supply Chain Media, AIMMS explained how to tackle supply chain network design. “If you are able to put together the right team with the right competencies yourself, you should definitely not outsource.”

Watch our on-demand webinar Starting Supply Chain Network Design – From Onboarding, Data To Team Composition for more insights.

Supply chain network design can help solve a variety of issues, from cost reduction to sustainability, and from inventory optimization to investment decisions. “One very interesting application concerns nearshoring. Many companies are considering manufacturing closer to their markets,” says Aditya Bansal, Supply Chain Consultant at AIMMS. “But also consider potential disasters, such as floods and wars. Which plants will be affected by these? And how can the negative impacts be mitigated?”

Therefore, supply chain network design is no longer just about minimizing costs and freeing up working capital. Aditya adds, “It is about finding the right balance between costs, service levels, risks, and environmental impact. Companies want to reduce not only costs but also emissions. They are also looking for solutions to increase their supply chain resilience.”

Spreadsheets: Yes or No?

In reality, every company is involved in some kind of supply chain network design, even if they don’t use sophisticated tools like the ones AIMMS offers. “Everyone who makes decisions about supply chain configuration is doing supply chain network design. Sometimes they do so based on management’s gut feeling, and sometimes based on spreadsheets. Others choose to outsource to a consulting firm or logistics service provider. Or they use a module in their ERP system,” says Emily Schutze, Senior Supply Chain Consultant at AIMMS.

In practice, Emily sees many companies relying on Excel. “Everyone already has that application and knows how to use it. But if you want to do it right, using Excel requires a lot of effort. You have to build a complete model of your supply chain from scratch without any help. If you want to test a different setup, you have to completely modify that model in a copy of the Excel file. Maybe that still works for a small and not too complex supply chain. But if you have a vast and dynamic supply chain, you will definitely miss improvement options.”

Six Steps

Aditya explains a six-step approach to supply chain network design.

1. Analysis phase: decide what issue you want to address.
2. Collecting and preparing data: gathering the necessary data.
3. Building a model: Create a model, effectively building a digital twin of the supply chain.
4. Analyze different scenarios: Test and improve the model; run scenarios.
5. Implementation: Evaluating results with all stakeholders. Identify the answers to your business questions.
6. Handover: Make decisions on supply chain adaptation and implement them within the organization.

Many companies struggle with the second step – collecting and preparing data. Aditya advises, “Our advice is to keep it simple. Supply chain network design is usually used to find answers to strategic questions. So there is no need to use all the market demand data down to the product level. It is fine to use data at a higher aggregation level. And if there are some data gaps, it’s no problem to make assumptions.”

Team Composition

Another crucial step is scenario analysis. What is the impact on the supply chain if market demand suddenly doubles? What is the impact if you set up a new production line or warehouse? Which modes of transport can be used without exceeding CO₂ targets? “For a good result, you need to run many different scenarios and compare their outcomes. Then it’s a matter of implementing the best scenario in practice,” says Aditya.

The success of supply chain network design depends largely on the composition of the team. Emily adds, “At the very least, you need a project leader who sets the direction, allocates the workload, and liaises with all stakeholders. That person should have thorough knowledge of the business and a vision for changing it. In addition, you definitely need a modeler and a data analyst. It is impossible to find one person with all those competencies. That’s why you have to set up a team.”

In-house vs Outsourcing

If a company is able to put together the right team, Emily recommends doing supply chain network design entirely in-house. That offers huge advantages. If necessary due to changes in the market or in the supply chain, that team can immediately run new scenarios and analyze the impact of the changes. If you don’t have all the competencies in-house, there are several options –

1. you can outsource the whole process,
2. hire a consulting firm for the first project and train the team at the same time, or
3. only outsource the data preparation and model building, and then do the scenario analysis yourself.

A good result requires more than just a network design team. Additionally, Aditya says that an implementation manager is needed to put the recommendations into practice, and also operational experts who know all the ins and outs, and what works and what doesn’t in practice. “They are also the people who can validate the built model and indicate which scenarios are interesting. Besides that, support from the leadership team is needed. That will ensure that the network design team gets the right people and resources, and the project is given the priority it deserves.”

Centralized or Decentralized

The final question is which is better: a centralized or decentralized set-up?

A large centralized network design team usually results in deeper expertise on supply chain modeling but is often somewhat further removed from day-to-day operations. A decentralized structure results in teams with more real-world knowledge, but usually lacks the flexibility to tackle multiple issues simultaneously. Aditya says, “Both options can work. Ultimately, the best option varies from company to company.”

Conclusion

In conclusion, effective supply chain network design goes beyond using smart tools. It requires a well-rounded team, strategic data use, scenario analysis, and strong leadership support to address complex challenges and drive real, lasting improvements.