Supply Chain Network Design & Contributing Factors

Designing Supply Chain Network for each industry or business involves arriving at a satisfactory design framework taking into all elements like product, market, process, technology, costs, external environment and factors and their impact besides evaluating alternate scenarios suiting your specific business requirements. No two supply chain designs can be the same. The network design will vary depending upon many factors including location and whether you are looking at national, regional or global business models.

1. Supply Chain Network in Simple and basic Terms Involves determining following process design:

   Procurement

   • Where are your suppliers
   • How will you procure raw materials and components

   Manufacturing

   • Where will you locate the factories for manufacturing/assembly
   • Manufacturing Methodology

   Finished Good

   • Where will you hold inventories, Number of Warehouses, Location of warehouses etc.
   • How will you distribute to markets - Transportation and Distribution logistics

   All above decisions are influenced and driven by Key Driver which is the Customer Fulfillment.

2. Designing Supply Chain Network involves determining and defining following Elements:
   • Market Structure
   • Demand Plotting or Estimation
   • Market Segment
   • Procurement Cost
   • Product /Conversion Costs
   • Logistics Costs including Inventory holding costs
   • Over heads
   • Cost of Sales

3. Network Design aims to define:
   • Best fit Procurement model - Buying decision and processes- VMI, JIT, Kanban, procurement cost models etc.
   • Production processes - One or more number of plants, plant capacity design, Building to order, build to stock etc, in-house manufacturing or outsource manufacturing and related decisions including technology for production.
   • Manufacturing Facility design - Location, Number of factories, size of unit, time frames for the plant setup project etc.
   • Finished Goods Supply Chain network - Number of warehouses, location & size of warehouses, inventory flow and volume decisions, transportation.
   • Sales and Marketing Decisions - Sales Channel and network strategy, Sales pricing and promotions, order management and fulfillment process, service delivery process definitions.

4. Network Design also examines:
   • Derives cost estimates for every network element
   • Examines ways to optimize costs and reduce costs
   • Extrapolates cost impact over various product lines and all possible permutations and combinations to project profitability

5. Some of the key factors that affect the supply chain network modeling are:
   • Government Policies of the Country where plants are to be located.
   • Political climate
   • Local culture, availability of skilled / unskilled human resources, industrial relations environment, infrastructural support, energy availability etc.
   • Taxation policies, Incentives, Subsidies etc across proposed plant location as well as tax structures in different market locations.
   • Technology infrastructure status.
   • Foreign investment policy, Foreign Exchange and repatriation Policy and regulations.

Supply Chain Network designs not only provide an operating framework of the entire business to guide the managements, they also examine the structure from strategic view point taking into account external influences, interdependencies of all processes and critically evaluate opportunities to maximize profitability.

Supply Chain Design consultants use various design softwares and optimization techniques coupled with inputs from industry consultants and experts.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.