Module 2 - Supply Chain

Introduction to Supply chain Concepts, significance and key challenges. Scope of SCM-
historical perspective, essential features, Drivers of SCM, decision phases–process view,
supply chain frame work, key issues in SCM and benefits. Managing uncertainty in Supply
Chain, (Bullwhip Effect), Impact of uncertainties, forecasting in Supply Chain, Innovations
in Supply Chain. Sourcing Decisions in Global SCM, Key issues in Global sourcing,
Outsourcing. Network design in the SC.

Supply chain Concept

• Consists of all parties involved, directly or indirectly, in fulfilling a customer request.

• Supply chain includes not only manufacturers and suppliers.
• It also includes transporters, warehouses, retailers, customer themselves.
• Supply chain includes all functions involved in receiving and filling a customer
request.
Significance of Supply Chain
• Essential to company success and customer satisfaction.
• Boost Customer Service
– Customer expect the correct product assortment and quantity to be delivered
– Products to be available at the right location
– Right delivery time
 Right After sale support.
 Reduce Operating Costs
 Decreases Purchasing Cost (decrease inventory cost).
 Decreases Production cost (avoid material shortages that shutdown
production).
 Decreases Total Supply Chain Cost (meet customer service goals at
the least total cost).
  Improve financial position
 Increases profit Leverage (Helps to control and reduce supply chain
costs.
 Decreases Fixed Assets
 Decreases use of Large fixed assets: Plant, Warehouse, Transportation.
 Increases Cash Flow
 Speed up product flows to customers.
Societal Roles of SCM
• necessities such as food and water).
• Improves Human Healthcare (Medicines).
• Protects Humans from Climate Extremes (Light, Heat, Refrigeration, air
conditioning)
Supply Chain Improves Quality of Life
• Foundation for Economic Growth (Highway system, vast Railroad network,
numerous Modern ports, Airports).
• Improves Standard of Living (exchange of goods – quickly and at low cost).
• Job creation
• Opportunity to Decrease Pollution (cardboard waste and carbon dioxide.
• Opportunity to Decrease Energy Use.
Protect Cultural Freedom and Development
• Defending Human Freedom (Military strategically locate aircraft, ships, tanks,
missiles and other weapons )
• Protects Delivery of Necessities (Design and Operate food, medicine and water
supply chains)
Key Challenges of Supply Chain
• Material scarcity – due to an abrupt rise in consumer demand.
• Increasing freight prices
• Difficult demand forecasting.
• Port congestion.
• Changing consumer attitudes.
• Digital Transformation
• Lead times
• Delays
• Cash flow
• Data management
• Exposure to risk
• Accountability and Compliance
• Quality control and defects
• Language barriers
• Time zones
• Exchange rate and Foreign transaction costs
Scope of Supply chain
 Minimizes operating cost.
 Boosts customer service.
 Enhances financial position.
 Manages distribution.
 Bring coordination among partners.
 Inventory management.
 Supplier management

Minimizes Operating Cost

Supply chain management focuses on reducing the overall operating cost of the organisation.
It aims at bringing efficiency and raising the profitability of organisations. By developing a
proper chain it brings down the purchasing cost, production cost and delivery cost. It enables
smooth flow of raw materials from the supplier to an organisation which reduces the holding
period of materials with the supplier and avoids any losses due to delay in production.
Similarly, companies are not required to hold on expensive inventories for a longer time and
distribute quickly through the supply chain.
Boosts Customer Service
Supply chain management helps in providing better service to customers. All production
strategies are framed in accordance with requirements of customers to manufacture right
product. It properly anticipates the demands of customers before initiating the production.
Supply managers monitor all operations of business and ensure that quality products are
produced using best combination of resources. Right product available to right cost provide
better satisfaction to customers. This will boost their confidence level in company’s products.
Enhance Financial Position
Management of supply chain has an effective role on the financial position of business. It
improves the efficiency of the organisation, cut down the excessive cost and avoids any
shortage. Supply chain manager bring down the cost by reducing the use of fixed assets like
plants, transportation vehicles, warehouses etc. Proper supply chain results in speedy flow of
products which minimises the blockage of funds in inventories. It ensures that optimum
funds are always available which helps in improving financial position.
Manages Distribution
Distribution of products at the right time and the right location is a complex task for every
organisation. Supply chain management accelerated the overall distribution system of an
organisation. It coordinates with various transportation channels and warehouses for
attaining faster movement of goods. Supply chain managers ensure that all products get
delivered at the right location within the time limit. By developing a proper network for
movement of goods it has to ease the whole distribution system.
Bring Coordination Among Partners
Proper coordination among all partners of business increase productivity and profitability. It
develops a proper channel through which employees, supplier and customers can easily
interact with business. Managers can easily control the activities of their subordinates by
communicating them all the required information.
Employees in case of any problem or error can contact their supervisors. Customers can also
access their brands for any information through self-portals which are developed as a part of
the customer support system. This enables a better exchange of information and brings
coordination among partners.
Inventory Management
Maintaining an optimum inventory is a must for uninterrupted operation of every business. It
keeps record of all inventories that is raw materials, spare parts and finished goods. Supply
chain managers ensure that the proper amount of inventory is always maintained within the
organisation. They work towards avoiding situations like understocking or overstocking.
Supply chain managers frame proper strategies for procuring, producing and maintaining all
inventories as per requirements.
Supplier Management
Supply chain management works on strengthening the relationships between business and
suppliers. It tracks and records every interactions or transaction with the suppliers. Proper
supply chain enables timely procurement of all required raw materials from suppliers. It
develops a proper network through which suppliers and business can easily interact. Supply
chain management solutions provide a self-service portal through which suppliers can
contact the company in case of any issues or problems.

Historical Perspective of SCM

 1960's - Inventory Management Focus, Cost Control.
 1970's - MEP (Material Requirement Planning) & OM (Operations Management) -
Operations Planning.
 1980's - MRPII, JIT - Materials Management, Logistics.
 1990's - SCM - ERP - "Integrated" Purchasing, Financials, Manufacturing, Order
Entry.
 2000's - Time Decision Support; Synchronized & Collaborative Extended Network
for SCM.
Introduction
In the Supply Chain Management (SCM), there is the management of the flow of goods and
services; it also involves the raw material, and the process, which includes the inventory.
However, when the goods are finished there is the delivery of the goods, to take the material
from the origin to the consumption point or to the final consumer, can be called as SCM. In
supply chain end consumer matters, there is the need to take the product through the
management process, which includes the planning, design, execution, monitoring, controlling
etc. However, other objects are also included in SCM, the companies have the competitive
infrastructure and focusing on the demands of giving or providing the worldwide logistics or
the services to all type of consumers (Jacoby, 2010).

Importance of Supply Chain Management

Organizations are focused on managing the SCM so that the effective services can be there,
the companies’ are doing efforts to compete in the networked economy and the global
market. It could be said that supply chain is the new management paradigm, which has the
new business concepts and has the multiple companies or the business process. However, the
network can be successfully operated through the SCM, there are few strategies that need to
be focused on the effectiveness, moreover, there can be the complex networks, but the supply
chain focuses on the output and input processes. There are multiple multinational companies,
that have the significant results and success through applying the concept of SCM in their
companies, effective results could be seen.

In the 21st century, the multinational companies have the joint ventures and are the focus on
the strategic alliances. There are the business partnerships and the company through the
effective management focused on the technological changes that can give benefits to the
companies. The companies in the supply chain network are giving importance to the
transaction cost, the companies showing the capabilities through the collaboration with the
different SCM practices. SCM is considered important to achieve the business goals because
there is independently focus on the market orders and the consumer choices. Firms nowadays
are focused on the innovation practices so that more productivity and the profitability can be
bought in the organization, however, the firms are expanding geographically.
The History of Supply Chain Management
There is the focus on the term Supply Chain, from many years, there are six major
movements that are considered important or observed essential in the studies. The
movements or studies bring the evaluation in the supply chain management. However, the
six major movements are creation era, integration era, SCM 2.0, specialization phases one
and two and the globalization era (Baldwin, Kawai, & Wignaraja, 2014).

Creation Era
The term Supply Chain was first coined in 1882, by the Keith Oliver, from the 20 th century
the concept of Supply Chain is there and considered important, there is the creation of the
assembly line. However, with the tome there are the changes in the characteristics of the
Japanese’s management practices, moreover, the in this era, there are several aspects of the
Supply Chain as there is the re-engineering, cost reduction, and effectiveness, large scale
attention etc. In 1999, there is the introduction of Supply Chain Management by the Robert
B. Handfield and Ernest L. Nichols, Jr.
Integration Era
The era of the supply chain management was highlighted in the 1960’s when there is the
development of the electronic data interchange (EDI), and there is the introduction to the
enterprise resource planning (ERP) through the 1990’s. The era of the supply chain
management had continued in the 21 st century, there were internet collaboration efforts,
which took place so that the effectiveness could be there through the cost reduction or adding
the value to the processes. In this era, for the first time the production of the material, storage
of the material, control on the material, distribution or management of the material take
place, an example if such supply chain management is Tesco.
Globalization Era
Globalization could be considered as the era, when the business transactions or the products
exchange or given to the global countries or companies, for the advantages, the benefits then
started. The globalization is considered as the third movement of supply chain management,
development, in this era, the attention is given to the supplier relationship in the global
system so that there could be effectiveness in the expansion of supply chain. However, in the
organizations, the global business started and the companies did efforts to increase the
competitive advantages, through managing the function or the processes efficiently. The
companies considered their core businesses and the categorized the supply chain
management, though the global sourcing.

SCM 2.0
Supply chain management 2.0 could be described as the evaluation of the processes and the
changes with the supply chain with the time, however, with the time; there were the changes,
which were considered as a tool to manage the new era of a supply chain. The growing
popularity of the supply chain programs, give effectiveness to the companies, there are the
several collaboration platforms that connected the buyers and suppliers so that there could be
the supply chain finance, transactions. It could name as the World Wide Web that has
increased the productivity, collaboration and the sharing among the users. There are the
specific tools, methodologies, and the processes to speed up the supply chain; however, the
global competition is increasing with time (Hugos, 2011).

Specialization phase one

In the 1990’s, there was the specialization era, when the core competencies and the
specialization were being focused. However, there were the outsource functions take place in
this phase. The function of the other companies and the management requirements were
distributed across the company walls. There was the deep analysis of the process, the
contractor, and the manufacturer managed the bill of the original equipment manufacturers
(OEMs). The customers’ requests were also supported and the specialization models created,
for the manufacturing and the distribution. The changes were brought according to the
unique characteristics demand example, the region, channel etc.

Specialization phase two

The specialization in the supply chain, take place when there was the failure in managing the
process, in the 1980’s. There were the transportation brokerages, the problems with the
warehouse management and the inventory. However, specialization was focused, so that the
principles example, execution, planning, collaboration etc. can be effectively done. In phase
two, there are rapid changes in the market forces the locations suppliers, logistic providers
showed significant effects on supply chain infrastructure.

Summary of Supply Chain Management

In the paper, it is analyzed that Supply Chain is essential for the business process, however, it
is important to follow the process efficiently for the benefits, the companies are getting
success in the international market as they globalize and focused on the prices effectiveness
or reduction and by adding the cost. Through the history, it could be known that Supply
Chain Management is developed in the century, people and businesses now are well aware of
the process, there is the need to think about the future of Supply Chain Management.

Future of Supply Chain Management

The competition can be increased in the future; there can be more technological factors to
improve the supply chain processes. There can be risk, flexibility, and performance
challenges (Wang & Koh, 2010). However, there is the need to assess the risks related to the
Supply Chain Management process, however, there is need to adopt the excellence model of
Supply Chain for the effectiveness, through improving the visibility and innovation the
performance can be sustained.

Essential features of Supply Chain

1. Ability to integrate throughout the supply chain

Technology is an enabler, and a digital solution should introduce functionalities that span the
entire supply chain, integrating multiple entities like suppliers, OEMs, shippers, warehouse
centers, and customers. It should connect with all your other applications, including
enterprise software, legacy systems, third-party applications, help desk, and email—
regardless of the information source, operating system, or platform. This can eliminate
connectivity issues and enable efficient information flow across a chain.

2. Real-time and collaboration capabilities

Real-time information is essential to avoiding things like bottlenecks, missing goods—

and unhappy customers. With real-time capabilities, organizations are empowered to respond
to changes in the supply chain immediately, as they arise.

Effective supply chain management software should allow multiple stakeholders to work
together on a project so that they’re on the same page, without the need for frequent back and
forth communication or manual updates.

 Personalized dashboards: A personalized dashboard gives stakeholders the

insights relevant to them, at their fingertips. It allows up-to-date status monitoring of all
processes, and simplifies governance.
 Real-time notifications: Real-time notifications provide timely information on all
supply chain activities. They keep stakeholders informed so that they can react to
changes as they occur.
 Self-service portals: In a supply chain network, there are many parties involved, and
they need each other to succeed. However, they’re not all connected to each other, which
can cause miscommunication. A portal is a password-protected site that eliminates
communication challenges by enabling members to share information and plan
operations based on each other’s activities.
 Role-based authorization: Your application should be accessible to everyone, but
not all the data in it. That’s why you pick supply chain management software that has
roles and permissions which let you authorize vendors, customers, and other stakeholders
to access only the information they need.

3. Process optimization abilities

If routine, repetitive tasks are automated, it enables staff to work on more revenue-
generating ones.
 Automating the order-to-cash cycle as much as possible shortens the product
life cycle, reduces the need for paper-based documentation, and creates tighter links between
manufacturing, warehousing, and delivery.

4. Analytics and forecasting

Along with automating day-to-day tasks, good supply chain management software should
help you evaluate your business, with built-in analytics and forecasting capabilities to help
you:

 Understand the health and performance of your business

 Identify bottlenecks
 Capitalize on your current strengths
 Anticipate customer demand and plan future production
 Spot inefficiencies in your system
 Predict events which are likely to occur

5. Customization

Prebuilt components in the application and customized configuration of business rules

introduce flexibility that helps businesses adapt to changes quickly and go to market faster,
with customized solutions for consumers. Some supply chain solutions let developers extend
their features with programming languages like Java and Python. Open architecture also
encourages organizations to build their own applications to suit their unique requirements
like developing multiple variations of a product to cater to different customer segments, thus
maximizing profitability.

6. Cloud-based access and mobility

With cloud-based supply chain software, businesses can be accessed by authorized users
from anywhere, at any time, so they can continue to manage, track and monitor the progress
of transactions on the move. An additional benefit is that businesses can set up a cloud-based
solution at a lower cost, in less time, and with less risk than investing in an on-premise
system.

7. Security

Data security is the heart of any business software. While choosing a supply chain
management solution, companies should evaluate:

 Data encryption
 Virus-scanning
 Network monitoring
 Audit trail
 Fault tolerance

8. Scalability
Any software must grow with a business. And as organizations make inroads into new
regions, expand their product portfolio, and acquire new customers, a supply chain solution
should be able to handle the increasing volume that comes with it. It also needs to support
multiple applications and additional channels without affecting the system’s performance.

Decision phases of Supply Chain

1. Supply chain strategy or design

2. Supply chain planning

3. Supply chain operation

1. Supply chain strategy or design

• Given marketing and Pricing plans.

• Decides how to structure the supply chain.

• Resources allocation.

• Outsource or Perform.

• Production, location, warehouse facilities.

• Modes of transportation.

• Different shipping legs.

• Type of information systems.

2.Supply chain planning

• Time frame considered is a quarter to a year.

• Supply chain configuration determined in the strategic phase is fixed.

• Goal is to maximize the supply chain surplus.

• Forecasts, costs, prices, .

• Which market from which location.

• Subcontracting of manufacturing, inventory policies, the timing, size of marketing &

price promotions.
3. Supply chain operation

• Goal is to handle incoming customer orders in the best possible manner.

• Exploit the reduction of uncertainty and optimize performance.

• Allocate inventory or production, date to fulfill order, shipping mode, delivery

schedule, replenishment orders.

Process view

A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. There are two ways to view
the processes performed in a supply chain.

1. Cycle View: The processes in a supply chain are divided into a series of cycles, each
performed at the interface between two successive stages of a supply chain.
2. Push/Pull View: The processes in a supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in
anticipation of customer orders. Pull processes are initiated by a customer order, whereas
push processes are initiated and performed in anticipation of customer orders.
• Push/Pull View: The processes in a supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in
anticipation of customer orders.
Pull processes are initiated by a customer order,
Push processes are initiated and performed in anticipation of customer orders
Supply chain framework

Key Issues in SCM

Benefits of supply chain
 Lower inventories
 Lower costs
 Higher productivity
 Greater agility
 Shorter lead times.
 Higher profits
 Greater customer loyalty
 Cohesive operating system.
Managing uncertainty in Supply Chain (Bullwhip Effect)

WHAT IS THE BULLWHIP EFFECT?

The bullwhip effect is a phenomenon that occurs in supply chain management.

Small changes in consumer demand at the retail level lead to much more significant
fluctuations in need at the manufacturer and supplier levels.
Orders placed by retailers to suppliers fluctuate more extensively than the sales to customers.

The term “Bullwhip Effect” was first coined by Procter & Gamble researchers in the early
1990s. It described the phenomenon they observed in the supply chain for their Pampers
brand diapers.
They noticed that small changes amplified consumer demand as they moved up the supply
chain, leading to significant inefficiencies and increased costs.
BULLWHIP EFFECT EXAMPLE

The COVID-19 pandemic provided one of the most recent and noteworthy real-world
examples of the bullwhip effect, mainly concerning toilet paper.

Stores rushed to increase their orders and keep their shelves stocked as panic buying caused
supply shortages.

Manufacturers further up in global supply chains likewise increased production to keep up

with the excessive increase in customer demand.

However, the lack of toilet paper was only a short-term phenomenon, and a bullwhip effect
had occurred.
The bullwhip effect got triggered by increasing customer demand shifts and wanting to stock
their houses in preparation for the pandemic.

WHAT CAUSES THE BULLWHIP EFFECT?

 Complex supply chain

 Batch orders
 Consumer pressure
 Bad communication
 Price volatility
 Lead times issues
 Incorrect forecasts
Impact of uncertainties

 Increased OPERATIONAL COSTS

 INCREASED LABOR

 CUSTOMER DISAPPOINTMENT
 WASTE
Forecasting in Supply Chain

Forecast tools are software systems that predict future demand for products or
services.

These tools analyze historical data and identify demand patterns, trends, and
seasonality.

Several forecast tools are available, including time series analysis, causal analysis, and
machine learning-based methods.
Businesses must integrate these tools into their operations to choose the best to work for
them in line with achieving their goals and objectives.
SOLVING THE BULLWHIP EFFECT
 Introduce forecast tools
 Improve supply chain communication
 Transparency
 Reduce order size
 Reduce lead times
 Try to minimize price fluctuations
 Try to minimize price fluctuations
Forecasting in Supply Chain – Methods:

 Collective Opinion

 Customer Survey Method

 The Barometric Method

 The Expert Opinion Method

 The Market Experiment Method

 The Statistical Method, which allows a company to identify and analyze the
relationships between different variables; establish performance history over time,
identify trends and extrapolate potential future trends.

Innovations in Supply Chain

 Artificial Intelligence (AI) and Machine Learning (ML)

 Blockchain Technology

 Internet of Things (IoT)

 3D Printing/Additive Manufacturing

 Robotics and Automation

 Augmented Reality (AR) and Virtual Reality (VR)
 Predictive Analytics and Big Data

 Collaborative Platforms and Networks

 Autonomous Vehicles and Drones

 Green Supply Chain.

Sourcing Decisions in Global SCM, Key issues in Global sourcing

Global sourcing is the process of obtaining goods and services from around the world to
meet the needs of a business.

This can range from sourcing raw materials, to outsourcing production, to finding new
suppliers or distributors.
It’s a way for companies to take advantage of different countries’ resources and capabilities
to create a competitive advantage.

Global sourcing has become increasingly popular as technology has made it easier to work
with suppliers and partners from around the world.
It’s also become more affordable, as companies have access to a larger pool of potential
suppliers.

Cost Savings

One of the biggest benefits of global sourcing is cost savings. By sourcing goods and
services from different countries, companies can take advantage of different economies of
scale, access cheaper labor and materials, and reduce production costs.

Access to New Markets and Suppliers

Global sourcing also allows companies to access new markets and new suppliers. By
sourcing from different countries, companies can find new suppliers with different
capabilities and resources, access new customers and expand their reach.

Opportunities for Innovation

Finally, global sourcing can also create opportunities for innovation. By working with
suppliers from different countries, companies can find new ideas and technologies that can
help them stay ahead of the competition.

Evaluating Your Company’s Capabilities

Before embarking on a global sourcing strategy, it’s important to evaluate your company’s
capabilities. This includes assessing your resources and capabilities, understanding your
goals and ensuring you have the right processes and infrastructure in place to support global
sourcing.

It’s also important to assess your risk tolerance. Global sourcing can come with a number of
risks, and it’s important to make sure you’re comfortable with them before you begin.

Establishing Relationships with Suppliers

When it comes to global sourcing, it’s important to establish strong relationships with
suppliers. This includes understanding their capabilities, building trust and setting clear
expectations.

It’s also important to ensure that suppliers understand your company’s values and
expectations. This includes making sure they comply with local laws and regulations, and
that they understand the importance of quality and ethical standards.
Developing a Sourcing Strategy

Once you’ve evaluated your company’s capabilities and established relationships with
suppliers, it’s time to develop a sourcing strategy. This includes assessing your needs,
researching potential suppliers and negotiating terms.

It’s also important to consider the total cost of sourcing from different countries. This
includes not only the cost of goods and services, but also transportation and logistics costs,
taxes and other fees.

Managing Logistics and Transportation

Logistics and transportation can be a major challenge when it comes to global sourcing. It’s
important to make sure that goods and services are delivered on time and in the right
condition.
This includes researching different transportation methods, understanding the different
regulations and laws and finding the most cost-effective and reliable transport options. It’s
also important to consider the environmental impact of transportation and to make sure that
suppliers comply with environmental regulations.

Risk Management

Global sourcing can come with a number of risks, and it’s important to manage these. This
includes assessing potential risks, understanding their impact on your business and putting in
place systems to mitigate them.

It’s also important to have a system in place for dealing with disputes and resolving issues.
This includes understanding the legal and regulatory framework in each country and having a
plan for dealing with any potential problems.

Monitoring and Evaluating Performance

Monitoring and evaluating the performance of suppliers is crucial. This includes assessing
the quality of goods and services, understanding supplier performance and making sure they
comply with your company’s standards and expectations.
It’s also vital to assess the performance of your global sourcing strategy. This includes
tracking costs, evaluating the effectiveness of different suppliers and understanding the
overall impact on your business.

Key issues in Global sourcing

Legal and Regulatory Issues

Different countries have different laws and regulations, and it’s important to ensure that
suppliers comply with them. It’s important to do due diligence when working with suppliers
from different countries. This includes researching local laws and regulations and monitoring
suppliers for any issues.

Currency and Exchange Rate Fluctuations

Currency and exchange rate variations can also be challenging when it comes to global
sourcing. Different currencies can fluctuate in value, which can affect the cost of goods and
services.

To mitigate this risk, it’s important to monitor these fluctuations and understand how they
could affect your bottom line. It’s also important to consider ways to guard against currency
risks, such as using forward contracts or hedging strategies.

Political and Economic Instability

Changes in government or in the wider economy can affect the cost of goods and services
and can make it difficult to do business.

To mitigate this risk, it’s important to pay close attention to the political and economic
situation in the countries you’re sourcing from. This includes monitoring news reports and
staying up to date with any changes that could affect your operations.

Language and Cultural Barriers

Language barriers can be a major obstacle when working with suppliers from different
countries. This can make it difficult to communicate effectively and can lead to
misunderstandings and delays. Cultural differences can also create challenges when it comes
to global sourcing. Different countries have different values and customs, and it’s important
to be aware of these when working with suppliers.
For example, a supplier in China might be used to working with a different set of ethical
standards than one in the US. It’s important to make sure that suppliers in different countries
understand the values and expectations of your company.

Outsourcing

 Strategic positioning

 Increased value

 Reduced operational cost

 Improved ability to meet customer demand

  Flexibility

 Increased working resources

 Risk mitigation

What is Supply Chain Network Design?

Supply chain network design is a systematic approach to determining the best location and
optimal size of the facilities to be included in the supply chain and ensuring an optimal flow
of products using advanced mathematical modeling.

The success of any supply chain network depends on the plants, suppliers, warehouses, and
how the product flows from each of the origins to the final customer.

For any successful supply chain, the number of facilities and their locations is a critical
factor.

In fact, 80 percent of the operational costs of the supply chain design on where the facilities
are located and the product flows between them.
To cut costs, you need a more systematic engineering approach so that you can plan and
design the network efficiently. That is why the network design in the supply chain is so
important.

The role of network design in supply chain operations involves the following:

 Defining the business objectives

 Defining the project scope

 Determining the analyses to be performed

 Determining the tools to be utilized

 Completion of the project in accordance with the design.

Supply Chain Network Models:

The first step for network design in the supply chain is to collect the data specific to the
business, construct a basic model based on that and validate the same.

The supply chain network design models include outputs such as the total costs, which are
the same as those in real-world operations.

First, the basic model is validated, and then depending on the results an alternative design is
created or the existing one is modified for cutting costs further and increasing profits.
The construction of the supply chain network design models is handled by highly skilled
consultants who collect high-quality data, validate the model, and propose alternative
solutions.

Factors That Influence Supply Chain Design Decisions:

1. Location and Distance:

Distance between the different locations of the supply chain and the locations themselves are
important factors to be considered. The location of the supply chain network includes
customers, suppliers manufacturing abilities, airports, ports, and so on.

2. Current and Future Demand:

The current and future demands of the company are taken into account as well and should be
grouped appropriately.

3. Service Requirements:
The maximum allowable transit time and distance are used to determine the location of the
warehouses to be added to the supply chain.

4. Size and Frequency of Shipment:

The size and frequency of the shipment are essential factors for determining the costs – the
higher the frequency, the greater the cost; the smaller the shipment, the higher the cost.

5. Warehousing and Labour Costs:

Warehousing costs are fixed costs and are factored into the decision-making process. The
labor costs are not fixed, and they play a role as well.

6. Trucking Costs:

The cost and type of trucking are of considerable importance.

7. Mode of Transportation:
Which mode of transportation is used in the running of the supply chain matters as well.