Why Supply Chains
Need Network Modeling

Supply chains are a critical part of any business. Be it a retail store, a warehouse or raw material for production, everything depends on complex supply chains comprised of a network of moving parts. Managing these different components is a difficult and ever evolving task. Unforeseen disruptions like the COVID-19 pandemic make life hard for supply chain managers who had to adapt and alter their supply chains almost overnight with no time to think about long-term consequences on supply chain performance, thus creating a messy tangle of suppliers, customers, deliveries, and distribution centers. So how can supply chain managers construct the most efficient and resilient supply chains possible? Supply chain network modeling helps build effective supply chains based on data and insights that can be used to drive actions to improve operations and reduce costs. A well-defined supply chain network offers the ideal combination of operational efficiency and service level excellence.

What is Supply Chain Network Modeling

Supply chain network modeling helps supply chain managers unravel the complexities associated with ensuring an efficient and seamless supply chain network. With network modeling, it becomes easier to build an efficient supply chain network while ensuring low maintenance costs. Some questions that typically come into consideration as a part of this process are - How do I design my supply chain network to deliver at the lowest possible cost? How do I always meet customer demand without interruptions? Given a network and a defined distribution strategy, how can I best use my available resources? Network modeling helps streamline key elements of a supply chain network including:

Physical movement of goods (transportation, logistics, distribution planning etc.)
Location intelligence (accurate planning of nodes along the supply chain, warehouses, distribution hubs etc.)
Inventory optimization
Sourcing optimization

The importance of network modeling

Successful supply chains rely on visibility and predictability, and a troubled environment can aggravate challenges for supply chain managers. Managing supply chain networks is complicated by several factors that interact with each other in a way that defies attempts to achieve desired outcomes. Moreover, in the traditional approach, supply chain professionals rely more on their gut reaction. Network modeling is an approach that deliberately steps away from the ad-hoc approach that supply chain managers usually employ. It helps alleviate concerns by building more flexible and resilient supply chains that are less prone to disruptions. Supply chain managers can run scenarios, evaluate, and implement changes in response to dynamic situations such as new products, demand changes, new suppliers, changes in laws and so on. This can help businesses reduce supply chain costs, improve service levels, and make proactive decisions by stabilizing the key pillars of a robust supply chain: technology, strategy and operations.

Elements of a network model

Now let’s look at the best ways to model a supply chain network. Here are some key points: 1. Establish your objectives
Decide on what you want to achieve by asking questions such as:

What level of customer service is expected from my industry?
What modes of transportation should be used to balance cost with customer service levels?
How do I plan which warehouse will supply and service which customers?
How many warehouses do I need?
What is the optimal amount of inventory of each product?
Which manufacturing units should be making product for which customers/warehouses?

2. Collect and analyze data
Base decisions on insights extracted from data gathered from the supply chain. Look for elements like demand by product and container type, transportation rates, transportation lead times, warehousing costs and inventory costs.

3. Model your supply chain network
Use third-party supply chain network modeling tools that include components like capacity limitations, customer service levels, and so on. Make sure to include several “what if” scenarios as part of the network model. Also understand that no two supply chains can be the same, and the network model will vary depending upon many factors including government policies, tax models, technology investment, labor issues, manufacturing processes etc. 4. Implement and refine
The supply chain network modeling process is not static and needs to be refined continuously to allow for changes such as new customers, new locations, increase in production capacity, changes in demand, increase in cost of logistics or raw material.

Conclusion

The increase in complexity of market, channel, supply networks and distributed facilities has rendered supply chain network modeling more intricate and complex. Though businesses have taken an integrated planning approach to optimizing their supply chain, their approach is based on the assumption that supply chain networks are static. Moreover, given the complexities of modern supply chains, running them based on assumptions or gut feel is not feasible. Investing in supply chain network modeling yields real benefits. The ability to strategically introduce flexibility in sourcing, producing, and distribution based on an end-to-end understanding of the entire supply chain results in long-term business gains even as the market and customers change over time. The trick to smartly model a supply chain network lies in choosing the right approach, and involves everything from purchasing, and production, to warehousing, inventory and transportation. Axidio’s supply chain experts work with you closely to identify, test, and implement the supply chain network model that will work best for your business and help you:

Reduce supply chain costs
Improve customer service through optimization
Create a responsive supply chain network
Analyze what if scenarios and plan for disruptions
Optimize sourcing decisions

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