- What Is Supply Chain Network Design and Why Is It Important?
- Quantitative Data: Why Does Geography Matter?
- Quantitative Data: Why Have Warehouses?
- Quantitative Data: Why Have Multiple Plants?
- Solving the Quantitative Aspects of the Problem Using Optimization
- Data Precision Versus Significance: What Is the Right Level in Modeling?
- Nonquantifiable Data: What Other Factors Need to Be Considered?
- Nonquantifiable Data: What Are the Organizational Challenges?
- Where Are We Going with the Book?
- End-of-Chapter Questions
This chapter is from the book
This chapter is from the book
This chapter is from the book
Nonquantifiable Data: What Are the Organizational Challenges?
A supply chain study must span many different areas of an organization: sales, operations, logistics, finance, and IT.
The first challenge, aside from merely gathering all these people into the same room at the same time, is to understand and start to balance the different objectives that each group may have. As you can imagine, each of these groups operates with its own specific goals and these may directly conflict with each other. There are many examples of the various groups’ goals, so here are just a few related to what we’ll cover in this book:
- Sales Team—Place product as close to customers as possible (create many warehouses). Have small frequent shipments to customers (many small shipments or more frequent production runs at the plants).
- Operations Team (Production)—Produce large quantities of one product during each run in order to reduce machine downtime and changeover costs (creates a need for a lot of warehouse storage). Produce product in one location to maximize economies of scale.
- Operations Team (Warehousing)—Quickly move inventory through the warehouses (minimize storage costs). Minimize warehousing locations to reduce fixed and management costs.
- Logistics Team (Transportation)—Have large shipments on less costly modes of transportation (ocean, rail, or truckload).
- Finance Team—Have the least amount of money tied up in capital (low levels of inventory and operations requiring the least investment in warehousing and production locations). Incur the lowest costs tied to logistics (transportation, warehousing).
Understanding the different objectives of the different groups is important to any successful project.
The second challenge you have is collecting and validating data from all these different parts of the organization. The sales group must produce the appropriate historical demand data as well as dependable forecasts of sales in the future. The operations group will be needed to explain the costs, capabilities, and capacities of all the production and storage assets, as well as any related overhead and labor costs. The logistics group is also needed to provide not only current transportation rates but estimates of rates for new potential lanes resulting from a reorganized network. The finance department is depended on for comparing the output costs from the model to the costs within their financial statements for the same span of time. Doing this provides a validated starting point for the model and a baseline to which we can compare all future model scenarios and output. This data may lie in different systems as well, which only adds to your challenges and often requires IT help to sort out.
Data challenges also come when you are attempting to estimate data for the new potential locations and product flow paths. (Even though this data may be difficult to collect, this is often the whole point of a study—to consider new alternatives.) Transportation rates for new lanes, potential site costs, capacity, and capabilities, as well as the cost to shut down existing sites, must all be researched and calculated for consideration when we ask the model to make the best decision.
The third and final challenge comes after the modeling is done and you have come to the final decision. The final step of actually implementing the results can be a major challenge in and of itself. People in any company become very comfortable with a certain way of doing things. As a result, it is not always easy to get them to see the “big picture” and the value these changes will bring. Proper involvement from all of the previously mentioned teams within an organization throughout the entire project can assist with this, however, as each team understands the rules and constraints that they ensured were adhered to within the recommended solution. There are many great resources for you to learn about how to implement change like this in an organization, but this topic is beyond the scope of this book.
Making changes to a supply chain may also cause a temporary state of disruption. A supply chain cannot just stop at a moment in time and take on a new structure. It is often important to implement changes over a period of time to minimize the downtime and inconvenience that switching over operations may cause.
Despite all of this, however, the more network design projects that companies complete, the better they get at addressing these challenges. And, their future models and recommendations improve as a result. Based on the savings we see from firms that develop this capability, we can say with surety that it is well worth it!