The logistics network design is one of the most comprehensive strategic decision problems that need to be optimized for the long-term efficient operation. It is important for managers to be responsive to redesign distribution networks more frequently to operate at the lowest costs while providing the best customer service.
To create an optimal network design, we recommend a 7-step design process:
1. Customize the process
In this first step, a network design team will start by laying out the objectives and the high-level scope of the project, with the end already in mind. Since these are large, capital-intensive projects, the team should use a formal project manager and project processes. One of the key elements is to start with a formal charter, which will define the scope of work, the objectives and end results at a high level. It also has a signature line to assign the manager with tasks, provide staff and budget authority. Once the overall framework for a project has been established, specific design steps can be discussed and a process can be distributed. For each step, the team must define the necessary inputs, tools and techniques, and outputs. These outputs will often become the inputs for the next steps, more than once. This way, the prior steps can be refined with information gained from later steps, together creating a more and more detailed plan.
In general, it is important to ensure that the process is linked to the organizational and logistics/supply chain strategy. The overall strategy can be listed, and each objective can be linked back to show how it supports specific parts of the strategy. More detailed requirements can also be drawn up that are also linked to the objectives. Being specific about what should be achieved can help when determining the relative success of the project. In addition, clear objectives will also prevent scope creep, which is when a project keeps getting things added to it without at the same time getting more time and resources. Remember, scope creep is a primary reason for project failure.
2. Determine the need for change
It is crucial to remember that a network design requires constant updates and changes. The network needs to be allowed to vary when necessary so as to adapt to new requirements and situations. The first thing to start is to determine how long it has been since the network was last evaluated or changed. For example, a network that has not been changed in years will need some serious evaluation.
As summarized and listed, there are a few common drivers of change:
Competitive advantage: Creating competitive advantages requires major organizational changes, from getting new information to applying new systems. This may also come from the new value-added services, given that they can be provided at a competitive price.
Cost reduction: Costs increase incrementally, and a more efficient network will become necessary for its continued viability.
Customer change: It can be the customer or the general business model that changed. In this case, an updated network desire will help the company to cope with the difficulties.
Customer demographic change: In this situation, many companies will decide to break into new markets to find new customers.
Supply market change
Manufacturing process change
Mergers, acquisitions, and divestitures
3. Audit the as-is network
The next step in this process is to take the time and expense of auditing the costs, lead times and other service parameters of its existing network. In an as-is audit, companies are suggested to:
Gather data and business information
Map the current system
Describe the network’s key activities and functions
List current gaps between strategy and actual capacity
Generate tactical plans for closing the gaps
4. Assess network alternatives
It is important to remember that various modeling techniques can be applied to assess network alternatives. The overall goal for this step is to find the system with the optimal cost efficiency at the selected strategic service levels. Each alternative needs to be compared to the various objectives outlined in the prior step to ensure that it can address the goals. The result should be recommended for the number of facilities and their general purpose and location.
5. Plan facilities
Planning facilities occur at this stage. The idea is to start with quantitative analysis, add qualitative factors, and then continue narrowing down the list until having some specific location alternatives. A location selection team might be formed to scout locations based on the prioritized selection criteria and analysis results.
6. Finalize the to-be-state
At this point, the detailed idea needs to be presented to the managers, who may ask for further analysis and a return to planning or could make minor changes and accept the recommendations. Finding ways to leverage certain existing assets may be a necessary change to control capital costs. Once the final plans are signed off on, implementation can realistically begin.
7. Develop the implementation plan
Implementing plans will likely involve a series of discrete projects, such as acquiring new facilities or modifying existing ones. Each of these plans will need its own funding, timeline and so on. An overall implementation plan will guide the order of projects and track their progress against the overall network objectives.
Once the projects are underway, the network planning team can gather lessons learned and use them wisely to refine the process. A final best practice of any large initiative is to track results over time and compare them to the original plan. This needs to be done after sufficient time has passed so there is relevant data. Knowing where estimated were off will help refine future estimation projects.