Supply Chain Software’s Best Return On Investment

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Supply chain design solutions have the best ROI of any supply chain solution. But they only work well for large networks.

Per $1 billion in company revenues, no supply chain application has a better return on investment than network design! The larger the supply chain, the bigger the payout. Further, these projects are not for the faint of heart. Executives must have the fortitude to make changes in the operating policies and the network infrastructure that may affect the lives of employees.

I recently talked to a former executive at a global automotive manufacturer. This company had undergone a network design project in 2018 with. The project was focused on the spare parts supply chain – the delivery of car parts and aftermarket accessories to automotive dealers and repair shops across Europe from their OEM vendors as well as their own manufacturing facilities in Europe. This supply chain spanned across 24 nations.

Network design solutions are absolutely necessary to uncover business value when the production-distribution infrastructure is large. A company with one factory and one DC, reorganizing the location and duties of the facilities, will have little opportunity to drive much in the way of payback from a network design solution. However, in this case, the global spare parts network was huge: over 1,700 suppliers, 19 DCs, a vast cross dock network, and over 16,000 dealers and independent repair shops.

A network design solution operates by looking at the Total Cost to Serve across a range of fixed and marginal costs. Scenarios are run, and the low-cost network that best meets customer service objectives is selected. For this project, Solvoyo consultants built a network design model and ran more than 120 scenarios to refine the customer service and inventory mix strategy.

The project took close to nine months. And, this was not because of the number of scenarios, but the initial quality of the data. Data cleaning took much longer than running the scenarios. The investment into data quality and internal consistency always proves to be valuable, as the quality of the scenario recommendations depends on the quality of the inputs.

 

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