What challenge(s) do our clients face?
Expansion, new GTM strategy, M&A – there are many different triggers for a supply chain network to require redesign. However, implementing a new network is always challenging.
Supply chain networks often develop organically over time as a business grows, expanding to reach new regions or adapting to requirements of different categories in an incremental way. At some stage however, it is common for the supply chain network to become suboptimal for the reality the organization faces, and incapable of delivering against the pillars of the supply chain strategy. In recent years different forces, such as new customer behaviours, exposure to disruptions and stricter regulations have placed increasing pressure on Supply Chains, demanding new levels of performance from their networks.
These market conditions and a number of changes within the organization can trigger the need for a network redesign:
- Geographical expansion: stretching the existing model to enter a new country or region can increase cost, lead time, and minimum order level to uncompetitive levels, particularly in cases where there are tax implications.
- Change in GTM strategy: any adjustment in GTM requires changes in fulfilment and service level requirements, which may not be possible to meet from existing site locations, transport or labor agreements.
- Increasing consumer expectations: consumer demands now reach beyond cost and service level, to include attributes such as sustainability of the supply chain or agility to adapt to changing needs throughout the consumer journey
- Changes in regulation: tax schemes, incentives and import duties may re-prioritize countries or regions for sourcing, site location and distribution
- Exposure to vulnerabilities: Globalization has driven Supply Chain reconfiguration with many players in many geographies, increasing potential vulnerabilities to disruptions
- Significant volume growth: capacity may be reached within the current network, and/or sales hit a critical mass in which a full redesign could bring relevant cost savings
- Increased footprint from M&A: following a merger the integrated organization may have new or overlapping capabilities, assets, sites, production and storage capacity, which needs to be re-evaluated to optimize.
- Omni-channel strategies: adding new channels can require the development of new processes and capabilities, such as last mile delivery and “click-and-collect” pickup points.
Redesigning a network can be extremely challenging because it has impacts on all areas of the business, from the customer service level to tax and logistic costs. From our experience in different industries at local, regional and global levels, we have seen organizations face the same difficulties:
- Capturing the different perspectives of internal stakeholders regarding the business case that triggered the network redesign and ensuring alignment throughout the whole process, given the impacts of the different scenarios being analyzed.
- Managing the complexity when integrating the large volume of data required from multiple areas, BU’s, systems, files, etc. that might not be complete and will need complementary analysis and the definition of various assumptions
- Modelling the company’s operation, defining and analyzing alternative scenarios, and finding the optimal solution based on different perspectives, requiring specialized technical knowledge.
Network redesigns involve long-term decisions and investments, with limited reversibility. This condition can cause stakeholders to hesitate if there is not an external perspective providing analysis based on experience.
How do we help?
Integration supports our clients in all these different contexts, redesigning their network hand in hand, evaluating the different viable scenarios and building a comprehensive implementation roadmap.
Integration has supported many companies redesigning and implementing their network. Our methodology helps you to:
- Pin-point issues in your network which are incompatible with your strategy
- Identify gaps versus benchmarks in your industry, and comparable industries
- Design the optimal network for your business needs, considering your existing network and capabilities, bringing different scenarios where relevant
- Define the quantity of operations, and ideal location, size, and purpose in different scenarios
- Analyze financial implications of different scenarios to support strategic trade-offs
- Evaluate qualitative aspects of the different scenarios and its potential risks
- Bring a clear business case for the recommended solution for your reality
- Prepare a feasible implementation plan, to guarantee a smooth transition and minimize customer impacts, outlining fundamental assumptions which, if changed, would trigger further network adjustments
What are the benefits?
While designing and implementing a new supply chain network is not easy, an optimized network enables you to realize your strategy and improve competitiveness:
- Drive growth: prepare your business to profitably deliver higher volumes
- Reduce complexity: especially after M&A activity, improve ease of management
- Improve agility: to meet with new or changing customer demands
- Optimize CAPEX: across different regions for each product category
- Improve resilience: reduce/solve vulnerabilities, relieve bottlenecks and prepare crisis mitigations and contingencies to reduce impact of system shocks
- Embed sustainability: reduce greenhouse gas emissions through environmentally efficient distribution lanes, to meet regulation requirements and consumer expectations
- Reduce logistics costs: eliminate inefficiencies, streamline taxes, and improve visibility to support future strategic decisions
- Develop omnichannel capabilities: enable new channels to compete in today’s landscape
How does it work?
Our network design methodology balances a strategic perspective with analytical rigor to develop a model which is technically sound and aligned with your team’s needs
Our methodology is comprehensive, allowing us to model a number of scenarios from the baseline of today’s reality to an ideal unrestricted view, with an infinite number of variations in between based on your constraints.
We approach network design projects through six main steps:
1. Business & Network Understanding: Understand the current context, characteristics, and dynamics of the business and operations, interviewing key stakeholders and analyzing company data, in order to evaluate the current network and set the baseline for evaluation.
2. Network Modelling: Develop the network model, defining all the assumptions together with our customers, a simulation tool (optimization, dynamic or static simulation) that fully incorporates costs, product flows, and other business assumptions such as future trends on demand, channels and market characteristics. Besides, we make sure to transfer the knowledge of the model developed to our customers allowing them to test different scenarios after the project, if necessary.
3. Scenario and Sensitivity Analysis: Define, simulate and evaluate potential alternative network configuration scenarios, from greenfield to real-life restrictions, to select the preferred ones based on the company’s context, guaranteeing constant alignment with key stakeholders about what is being tested. Also, stressing the main variables and assumptions to analyse its impacts on the final recommendation and to evaluate the robustness of each scenario.
4. Business Recommendation: Define the best network design/configuration through the evaluation of the sensitivity analysis results and the financials (CAPEX vs. cash flow) of the preferred scenarios, after presenting to and discussing with our clients the different options and trade-offs they will have to face with each alternative.
5. Implementation Roadmap: Define the network implementation roadmap and perform the risk analysis by interviewing the key stakeholders that will be impacted with the changes proposed for the recommended solution.
6. Assumptions documentation: Provide detailed documentation of each assumption used to get to the final recommendation, which is a key aspect of the methodology as assumptions change throughout the years and so we do not only document them, but we also make sure that the owner of each assumption is comfortable with its definition and how to adjust it in the model. It must be clear which variables resulted in the recommended scenario and who inside the company is responsible for this assumption.
A cement manufacturer, with revenues surpassing $3 billion, needed to redesign its entire transportation strategy. After a period of cement scarcity in the Brazilian market (up to 2014), the balance between supply and demand shifted and pressures on logistics cost reduction (the second largest cost line of cement businesses) and service level (now an important differentiator) increased a lot. The challenge was multiplied by the size of the operation, which included more than 30 plants and 70 DCs across the country.
They asked Integration to help them implement these changes fast and capture results in the short-term.
As competition in the cement industry is typically regional (given that it is a low value-added product, without contribution margins high enough to allow the products to travel long distances) we began by analyzing, through interviews, their customer’s expectations per region in order to define the service level which would drive their differential by audience.
We worked together with the client’s team to model the optimized network, generating efficiency while ensuring the organization met the service level requirements in each geography, considering site organization and their transportation strategy. Once the final model was agreed with leadership, we supported the business to implement the new network, coordinating the execution and removing roadblocks.
- Logistic cost reduction of ~6%
- Reduced vehicle loading time by ~50% in the largest factory, increasing fleet turnover significantly
- Clear targets set for service level KPIs per region, based on customer needs
- Created a strong differential through record OTIF results, reduction in order lead time and new logistic services
- Internal capabilities developed for the team to drive continuous improvement
A Global Food Company with revenues exceeding $10B needed to evaluate their North American manufacturing footprint for one of its categories. The category was stagnant in recent years and shifting consumer demands constrained the capacity of some manufacturing lines while generating idleness in others. In addition to that, changes in commodity prices and forex rates impacted the network costs, harming the profitability of the company. In the meantime, its main competitors had developed capabilities in their network that improved their costs, creating a competitive advantage vs. Integration’s client.
Several attempts to solve this problem had been made in the past, but without driving significant improvements. And many of these were not answering important questions, such as if food-processing technology should be upgraded or converted, if regional sourcing should be kept or not, and if packaging flexibility should be improved to increase agility and resilience throughout the network. We therefore proposed a network redesign, to guarantee an optimized solution that took into consideration financial feasibility and the CAPEX restrictions for this category.
- We visited the sites to understand their current capacity capabilities and issues, as well as the possibility of technology conversion for both food production and packaging to set the degrees of freedom that could be explored throughout the network
- We performed a benchmark analysis of their competitors’ networks to understand what was driving their competitive advantage over the client (food processing technology, footprint, portfolio, distribution, etc.) and estimated the level of cost advantage that the competition had
- We analyzed demand for the next 5 years and where the main capacity gaps would appear, to guarantee optimized potential footprint solutions
- We executed workshops with the supply chain top management team throughout the project to evaluate optimization options and ensure that solutions were feasible from both a technology and budget perspective.
- The recommended network was developed using a stepped scenario roadmap, to prioritize the “no-regret” initiatives as the first for implementation and leaving the volume-constrained adjustments as later steps so that they could account for demand fluctuations v. the assumed projection.
- Estimated 10% reduction in total network costs (material sourcing, production and transportation) staged in 3 steps that distributed the savings and investment needs over time.
- Gained clarity on the different initiatives for implementation, with the savings resulting from each one calculated and the required technology upgrades/conversions defined
- Detailed a 5-year roadmap for when each of the initiatives should take place (production shifts, line upgrades/conversions, site consolidation and regional sourcing) with a perspective per plant to clearly understand how these changes would take place for the different product lines.
- Answered all the questions the Supply Chain top management team had had from the previous analyses performed by the company.
- Gained visibility on where the client’s competitors had cost advantages over it and which network capabilities had driven these.
A leading Fast-Fashion Retailer in LATAM with revenues around $2 billion wanted to improve their store replenishment model, as the company wanted to launch innovations faster, prevent out-of-stock of key-products and reduce inventories. At the same time, the company had a challenging 10-year expansion plan which forecasted a significant grow in their e-commerce and the risk of lack of capacity in its network. We therefore proposed a revision of their replenishment model and a network redesign.
- We understood their current business and network, evaluating the impacts of each change in their replenishment model
- We developed a framework, together with the C-level of the company, that deployed strategic business objectives into network redesign guiding principles, providing the necessary direction for the network optimization
- We structured a hands-on workshop with the supply chain leadership team to review their replenishment model based on our analysis
- Once the changes were clear, we modelled the company’s network to test for scenarios considering their 10-year expansion plan and their will to grow the e-commerce business with omnichannel capabilities
- We made a recommendation for their network considering the amount of CAPEX needed and its payback, also preparing an implementation roadmap with triggers to reevaluate key assumptions.
- We trained the company’s team in the usage of the model built in order to allow them to reevaluate the key assumptions throughout the implementation phase
- Clarity on the changes they needed to make in their replenishment model and how it would impact their network
- Clarity on how their network would need to be structured to support their 10-year expansion plan
- Clarity and guidance on the CAPEX requirements for supporting the network changes, considering the changes in the replenishment model
- Logistics cost reduction of approximately 8%
- Store replenishment lead time improvement of approximately 40%
- Training of the company’s team on how to adjust the key assumptions in the model built throughout the implementation plan
OUR INDUSTRY EXPERIENCE
Our Supply Chain practice has delivered Network Design projects for over 20 years. This includes over 100 projects in more than 20 countries, in industries such as Consumer Goods, Healthcare, Retail and Chemicals.
Our supply chain specialists are located all over the world, bringing cross-industry and cross-geography benchmarks to every project, supported by powerful analytical tools to complement your knowledge of the business and create a truly bespoke solution. Whether you’re looking to evaluate M&A synergies, improve your agility to face changing customer behaviours, optimize last mile deliveries, efficiently expand your operations or evaluate the resilience of your network, our team are well positioned to bring you a fresh perspective.