Supply Chain Network Design

The lack of standardised processes and far-reaching interrelationships with other areas, suppliers, and customer platforms present companies with a major challenge when it comes to digitalising the supply chain network – especially deciding upon the focus of digitalisation and successfully selecting and implementing the most suitable tools for the most critical requirements.

Client situation: Particularly in B2C online retail with an international supply chain network, the digitalisation options are diverse and the provider market for software solutions can be confusing. The company receives large consignments of goods, both nationally and internationally, and assembles them in its own fulfillment centers into the customer orders, placed online. For customer shipments, various external 3PLdistribution networks are used for end-customer delivery. Transportation between the manufacturers and the FCs as well as between the FCs and distribution centers of the 3PLs is partly organised by the company itself and partly by third parties. To improve customer service, parcel tracking is to be integrated into the customer portal and the in-house control of logistics and transport commissioning is to be examined for the potential for optimisation through digitalisation. 

Project solution: Based on a review of all supply chain network processes with the various departments of the customer, optimisation opportunities were jointly identified and potential solutions were developed. The potential solutions were prioritised and embedded in a holistic digitalisation concept. The goals of the project were to improve customer service and optimise internal processes. The measures defined were:

• With the goal of increasing customer satisfaction: the introduction of parcel tracking; the customer selection of the carrier and shipping service levels (overnight, express, standard).
• With the goal of process and cost efficiency: the introduction of a truck management system including routing, FC slot booking, and order and dispatching function, as well as a strategic transport sourcing tool

In an agile led project, starting with a small scale proof of concept, the digital solutions were successfully implemented and deployed over a period of 6 months.

Starting with the most critical requirements and a quick market RFI, the most promising solutions were directly tested and selected based on their actual added value. Rather than according to very detailed pre-specification testing as in many classic IT projects, the agile approach was able to achieve rapid results based on the added value identified in the PoC. In addition to improving customer service, the project was able to deliver significant process cost savings as well as double-digit percentage procurement savings.

In most cases, companies already have an existing supply chain network. The situation differs from a ‘new-build' supply chain project in that existing restrictions and transformation costs must be taken into account. Often companies make these considerations when there is duplication of coverage between two existing networks in the same sales territory, for example due to a company acquisition. We also recommend a review if there is significant change to customer behavior, volumes, or the products themselves.

Client situation: The acquisition of a competitor resulted in almost 100 percent coverage between the two wholesale networks in the main sales market. Both companies operated their own wholesale warehouses and transport networks, and supplied an overlapping customer base. As part of the company integration, the supply chain network design had to be optimised in terms of warehouse locations, the inbound logistics, and in the context of the last mile distribution network. The complexity resulted primarily from the non-convergent product ranges, warehouse capacity restrictions, and non-convergent intersections of the catchment areas of the individual warehouses or sales regions. In the initial situation, inventories were duplicated, unnecessarily long transport routes were taken to deliver to customers, and last mile delivery tours were made, in some cases with a lower capacity utilisation than was necessary. The synergies promised by the company acquisition still had to be leveraged.

Project solution approach: Based on a reverse supply chain re-design, uniform sales and supply affiliations of all customers were first brought together according to logistical accessibility. Here, delivery time restrictions, the available road network, and the inventory warehouse locations formed the decisive restrictions. Based on these newly established regions, some warehouse locations were merged, some new warehouse locations were put in place, and some new warehousing facilities were added. Warehouse capacities, location costs, relocation costs, as well as the resulting transportation costs through the last mile distribution network, which were simulated with route optimisation software, were used to make this decision.

Since the costs of the network were significantly driven by the last mile distribution network, this reverse engineering approach led to the holistic optimisation of the network costs and a cost-optimal distribution network through the early inclusion of cost-optimal transport routes in combination with the warehouse location analysis.

Many companies have software to digitalise their processes but fail to use it properly. Inefficient work processes, methods, skills, and data availability are often the reason why the existing optimisation software cannot be used to its full potential.

Client situation: The best optimisation software is worthless without the right work processes, process methodology, and reliable data. How data is provided, via which interfaces and who then maintains the data are often unanswered questions. In addition, optimisation cannot achieve the desired results due to faulty or non-existent methods and processes. Optimisation tools, that can be very costly, fail to reach their full potential. Not realising an assumed benefit and on top of that paying software license costs is both frustrating and a missed opportunity for value creation.

Project solution approach: In the first step, as the basis for sustainable optimisation, the prerequisites for a permanently updated data basis including the associated recording and evaluation processes were created. For this purpose, all existing data sources and systems were examined and the current processes were analysed in interaction with the existing IT systems. Based on the target requirements for the data and the existing IT requirements, data processes were adapted and a data target framework was defined. The new data processes were implemented in the existing IT systems and the employees involved were then trained in their use.

As a second step, a process methodology was developed with the client that maximised the cost and service potential with the available resources. In this example, a new methodology for route optimisation was developed by incorporating a service level matrix and the probability of daily customer arrival. It was then rolled out through a pre-defined coordination process in cooperation with the sales department. The savings achieved from these measures reached a double-digit percentage due to optimised routes, arrival times, and approaching frequencies to individual customers.