EBOOK

Supply Chain Design 101

What Is Supply Chain Design and Why Is It
the Key to Supply Chain Success?

1
To Understand Supply Chain
Design, Start at the Beginning
Once upon a time, way back in the technology dark ages
(sometime before Y2K), supply chain network models
had to be created by hand. As technology progressed,
spreadsheets were used alongside calculators and back-
of-napkin sketches, but it was still pretty much a manual
process done once a year or less.

Fast-forward to modern times: todays supply chains

are increasingly complex and function in volatile global
networks. Businesses needed a way to visualize the supply
chain digitally, and get answers to a myriad of
what-if questions that spreadsheets cannot accommodate.
The answer: supply chain design.

This ebook will teach you the basics of supply chain

design to prepare you to take the next step toward
designing a better supply chain.

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Who Designed this
Supply Chain, Anyway?
Many of the worlds best known companies supply chains
grew from a series of historical accidents rather than
intentional design. Because of this, a simple activity like
mapping and visualizing supply chain flows can often spark
critical questions such as, Why are materials sourced from
Region A, produced in Region B, then air-shipped as finished
product back to Region A? By creating living models of the
corporate supply chain, companies can examine how their
supply chains will perform under a wide range of market
conditions and assumptions and analyze the trade-offs of
cost, service and risk.

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Many companies spend millions of dollars on the
implementation of ERP and advanced planning systems,
yet continue to ignore the root of the problem. Without
a doubt, these applications can bring immense benefits:
An ERP system can streamline financial operations, a
transportation management system (TMS) can ensure
on-time transportation and controlled costs, a warehouse
management system (WMS) can enable optimal picking
and placement of products, and an advanced planning
and optimization (APO) application can balance demand
and capacity for an efficient manufacturing process. But
that doesnt change the fact that a suboptimal end-to-end
supply chain operation can mean millions of dollars wasted
on inefficient processes.

It is the design of a supply chain that can bring the most

benefit across key metrics like cost, service, sustainability
and risk.

4
Why Is Supply Chain Design
Important?
The modern supply chain is an increasingly complex network that often stretches across continents and supports
numerous market segments. With this complexity, the impacts of change are harder to determine and the risks
involved with being unprepared grow higher. Volatility is also near constant in the business world today. Changes
in demand, shifts in commodity prices, supply disruptions, variability in transportation availability, natural disasters,
geopolitical change, and regulatory issues all impact the flow of goods to market.

Companies with supply chains built with only blue sky scenarios in mind are massively impacted when that
clear weather takes a turn for the worst. Supply chain design enables companies to create accurate models of
their end-to-end operations to engineer a better plan and to explore how potential changes affect service, costs,
sustainability and risk.

5
Everyday Supply Chain Decisions Can Lead to
Sub-Optimal Operations

Sourcing Strategy A consumer goods company has traditionally sourced their key raw materials from South America, processed
perishable finished goods in the U.S., then ground shipped to their customers in the U.S. As demand in new
markets (Europe & Asia) grew, the company air shipped their products to each new region to ensure freshness

Production Footprint A food processor determined the production location of new products by where there was available capacity
instead of considering the full product mix and total end-to-end supply chain costs

Product Flow A retailer continued to procure product individually from each of its eight North American DCs when stock was
low, even though a major cost break for volume purchase was available if they were to flow things through a single
cross-dock

Taxes & Duties A manufacturer produced new products in the same facility as older products, even though the new products were
made of a different material that has a unique tax/duty when shipped outside the local market

Merger & Acquisition A construction materials company maintained parallel distribution facilities for different product lines in close
geographic proximity after merging with a competitor

Inventory Placement An automotive parts supplier was stocking every item in every warehouse to ensure peak response to each
customer, regardless of service requirements or product demand history

Demand A distribution company used a single one-size-fits-all supply chain strategy, even though their customers have vastly
Segmentation different buying behaviors and the many products they have introduced over the years have a wide range of sales
and turn profiles

Service Levels A clothing manufacturer signed a new service level agreement with a massive retail chain, which meant prioritizing
nearly all their capacity and throughput for a single customer

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The Evolution of a Supply Chain
Most corporate supply chains evolve over time through a series of individual decisions made in the face of immediate
business needs. These decisions often appear to make perfect sense at the time and for the specific issue being
addressed, but what is the actual cumulative effect of such decisions? These decisions probably seemed right at the time
they were made; they saved a capital expense, or made an individual part of the company more profitable, or maximized
production capacity at a single facility. But over a longer period, they created inefficiencies in the supply chain.

Most companies make dozens, if not hundreds, of decisions that impact their supply chains each year. If each one is
made in a vacuum, the inefficiencies can multiply and over time cripple a company, leaving it with a supply chain that
eats up precious resources and negatively impacts the bottom line.

If these decisions are made in a supply chain design environment, especially one where solutions can be optimized
and the results simulated, these decisions can be vetted to understand their total effect on the supply chain.
Inefficiencies can be corrected or prevented from ever being implemented.

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Design vs. Planning
Planning systems are incredibly valuable for running the
day-to-day aspects of a business. Planning and execution
systems automate, streamline, and optimize the existing
operations of an organization. They keep many of the
important parts of a company running smoothly, but
what if the existing operations are not designed properly
or not correctly positioned in relationship to each other?
How well can the supply chain perform if the foundation
upon which it is built is flawed from the start?

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Supply Chain Design Helps Other
Systems Do Their Jobs Better
Planning & Execution Systems Design Systems

An ERP system helps record financial transaction history with A design system can determine if a company is using the right
suppliers and customers, documents the costs of facility suppliers or if they should even be selling to certain customers. It
operations, captures orders, and rolls up revenues, costs, and can help decide which facilities should be producing products to
profits. maximize profits.

A TMS manages load building, tendering, route planning and A design system can determine which products should travel
tracking, driver scheduling and settlement issues, providing along which routes and select what modes should be used to
metrics and historical records of the corporate transportation optimize service and costs. It can simulate alternative strategies
processes. to predict overall performance.

A WMS manages the movement and storage of materials inside A design system defines the best locations and capacities for
the warehouse, dictating the receiving, stocking location and warehouses and which products should be stocked in which facil-
picking order for products. It can provide detailed records of ities and at what levels to meet service levels, while minimizing
warehouse performance. end-to-end supply chain costs.vt

An APO system helps minimize costs and keep products running A design system can determine the best facility to use in the
down the line by planning what to make, on which equipment and production of specific products. It can also help identify the type
in what order given the existing production capabilities. and quantity of production equipment that will minimize cost and
maximize capacity.

Supply chain design helps companies compete and win by giving them the tools to connect all the parts and capacities
of their supply in a rational, measured and efficient manner so that the other toolsthe ERP, WMS, TMS and APO
can do their jobs in an environment that maximizes their effectiveness. These planning tools, as valuable as they are,
are only as good as the network they function in and that network should be designed, not just happen.

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When to Use Supply Chain Design
Any time there is the potential for a significant change to the business operations of a company, there is an
opportunity to leverage supply chain design. Some opportunities are a matter of course (a revised demand forecast,
changes in the customer base) while others are more periodic (expansion into a new market or reaction to an
acquisition) and some are rare (the companys suppliers in Thailand are all under water) but in these cases design
decisions need to be made. Making decisions with the aid of sophisticated models and tangible analysis on the impact
of those decisions increases the likelihood of a desired outcome.

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Planning and execution systems are critical to
running a business. Supply chain design tools are
critical to determining how a business should run.
Supply chain design is used to answer questions. Some of these questions are focused on near-term challenges while
others look out over a longer-term time horizon. Questions also typically fall into the category of structure (the physical
makeup of the supply chain) or policy (the decisions on flow and operations).

If any of these questions are being asked in the executive boardroom, supply chain design can likely provide insight:

Structure Policy

Should you use one of your existing DCs as an inbound To meet holiday demand, what products do you pre-
consolidation center? build?
Near-term

Should you start delivering certain customers factory-di- What is the best frequency and design of
rect? At what fuel cost do you need to add additional multi-stop deliveries?
local DCs? Where should you position inventory to achieve your
desired service levels?

When and where do you need to create additional Can you profitably introduce this new product into the
production capacity? Asian market?
Long-term

Do you in-source or outsource manufacturing of these Do you source components from local or low-cost coun-
parts? tries?
What is the best way to decrease the companys Should you rely on a third party logistics (3PL) supplier to
carbon footprint manage your freight?

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Create a Supply Chain Design
Competence
In order to use supply chain design as a competitive weapon, a company must first develop a competence in the process
of continuously engineering their supply chain. Because supply chain design is very much a human process it is not
enough to simply purchase and implement a software tool. The companies that do this best focus on four core elements:

Strategy Technology People Process

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 Strategy: Begin with the End in Mind
It all starts with strategy: setting the right processes, developing the right cadence,
engaging the right people. But knowing where you are headed is as much about
linking the strategy to the organizational objectives as it is about executing processes
well. Supply chain strategy and design strategy should be perfectly in sync to make
sure that the efforts being developed in supply chain design bring value in enforcing
overall supply chain strategy. While strategy provides the overarching directives for
your supply chain organization, its the people, processes and technology that turn
strategy into action.

Technology: Building the Modeling Platform

The LLamasoft design platform provides deep modeling technologies as well as
enterprise capability, enabling a move toward collaborative, automated model building.
A standardized design platform and global project repository will create one standard
for all planners. Rapid what-if analysis and automated model building process can
reduce time-to-answer from months to days.

13
 People: Build a Team and Pursue Mastery
People form the foundation for your internal design capability. If you dont have the right
talent, you cant make up for it by buying technology, establishing processes, or even setting
strategy. As the supply chain sector grows and business are focusing more on differentiating
initiatives that require significant supply chain investment and staffing, the demand for talent
is rapidly increasing. Successful team members should be effective problem solverspeople
who think analytically and are natural researchers and implementers of new processes. Once
you have a team of bright, talented analysts dedicated to supply chain design, be sure to
invest in their growth and development. In addition to giving them powerful and easy-to-learn
design technology, build a roadmap for supply chain design mastery for each analyst.

Process: A Repeatable and Standardized

Approach
Having great technology and great people, but no corporate process for supporting the
team members with executive leadership and implementation strategy may result in one or
two successful projects but will ultimately lead to frustrated modelers or great analysis that
never gets implemented. A consistent process often begins with cross-training to ensure
all models can be manipulated by any modeler, and creating standard templates for projects
keep modeling approach, datasets and timelines consistent for delivery to business leaders.
A repeatable process will deepened the impact and buy-in to the supply chain design initiative
with the organization.

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An Integral Repeatable Process
By establishing these key pillars, a supply chain team can be successful, not just for a single project but as an integral,
repeatable process within the organization. Not only will the design team be able to execute supply chain design
reviews at regular, scheduled intervals but they will also be able to add value whenever decisions are being made
that will impact the supply chain. In addition, they will represent an important resource for the company when the
inevitable unforeseen circumstance occurs that shocks the supply chain. While a fully trained, competent supply chain
design team cant prevent a natural disaster, they can make reacting to one easier and less costly.

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 WOULD YOU LIKE TO LEARN HOW TO
BEGIN YOUR SUPPLY CHAIN DESIGN
About LLamasoft JOURNEY AND TAKE YOUR SUPPLY CHAIN
TO THE NEXT LEVEL?

We love helping our customers design thriving supply chains.

LLamasoft enables organizations around the world to model and
optimize their supply chain operations for major improvements
in cost, service, sustainability and risk mitigation. Were driven to
make supply chain optimization easier, better and faster, so you
can make the world a better place. We continue to innovate with
an aggressive development roadmap including new solutions for
supply chain visibility, planning, and predictive analytics.

Named to the Deloitte Fast 500 for five consecutive years

50% of Fortune 500 companies have designed their

supply chains with LLamasoft
Supply Chain Design 201
LLamasoft has supported over 2,000 supply chain
design projects DOWNLOAD EBOOK

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Ann Arbor, Michigan 48104, USA
16
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