Why do companies redesign their supply chain?

A couple of weeks ago we were discussing the driving forces behind supply chain redesign. Why do companies engage in a supply chain project and change their network structure. In a earlier post we already discussed our redesign checklist, but in this post we simply present a top 10 based on the projects we were involved in, in the past.

This was basically an exercise we simply hadn’t done yet. So went through our list of projects and analyzed the drivers behind it. Why did our client start this project? We ended up with a list that is presented below. We stopped at ten, but there are bound to be more reasons to initiate a redesign. So if you have anything to add or want to comment on. Let us know.

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1)      We want to reduce our costs

This is probably not a surprise. One of the key reasons to evaluate the supply chain is the drive to reduce cost. Can we reduce our capital costs, inventory, total costs? Can we find ways to reduce our costs? Trying to maintain our level of service. One of the scenarios that usually follows is the one in which the service levels are lowered to gain insight in the impact on the costs.

2)      Our lease is ending

A very practical reason but very common. When the lease contract ends it is time to review the location and supply chain structure. Is our location still the most logical one? This is one of the main reasons we came across in our projects.

3)      We have taken over another company

Another incentive to review the current network is in case of take over or merger. This often has a big impact on the supply chain the need to review its structure is eminent. The distribution of demand, inbound, outbound flows, storage capacity is affected.  The first reflex is often to keep the current structure intact to minimize the impact of the take-over but it is often necessary due to capacity issues.

4)      We are growing in a specific region

The next three drivers of change are closely related but can strain the supply chain in slighty different manner. Growth in a specific region is the first. Growing demand in a specific region often leads to difficulties with lead-times, performance and costs. Not only it puts the supply lanes to these opening markets under pressure, it can endanger existing markets as well.

5)      We are running our of space

Autonomous growth of demand often leads to capacity issues. Once capacity is reached the need to invest in new buildings or sites increases. This usually triggers a project to review the entire supply chain structure.

6)      We have introduced a new product

Introducing a new product can trigger a range of events that make it necessary to review the current supply chain and network structure. Insufficient storage capacity, equipment, people, and so on. Introducing a new product can change the distribution of demand and therefor the gravity points of the network.

7)      We are outsourcing our activities

Outsourcing (transportation and freight) activities can drive the need to review the supply chain. By changing or relocating storage and freight the gravity points can change and can trigger a supply chain redesign project.

8)      We are reorganizing our organization

Restructuring and reorganizing is also a reason for supply chain redesign. We often come across situations in which different divisions or country organziations are centralized into a single entity. This has a large impact on the supply chain. Ownership of inventory, planning hierarchy, scope, governance. What was planned by countries before is now centrally planned. centralization and getting rid of divisions in the supply chain organization is results in greatest cost reductions we come across. By far.

9)      We have to reduce our lead-time

Instead of trying to reduce the costs we also come across projects in which the objective is to increase service and reduce the lead-time. The driving force behind this is often issues with reliability or failure to comply with lead-time. A solution that usually is implemented is to locate inventory closer to the customer.

10)   It is time to evaluate our supply chain

In the top 10 but funny enough rarely the driving force behind a redesign project. Of course there are companies that engage in an assessment of their supply chain and network periodically but in comparison with the reasons listed above, this is rare.

And that’s it. Our arbitrary top 10. The list we came up with looking back on our projects in supply chain redesign. It’s remarkable that the cost reduction drivers is very dominant. Especially the last couple of years. In contrast to the period before 2008. Lead-time reduction, performance, reliability were the key drivers before the crisis.

If you have any addition or comments. Please let us know.

This post is also available in: Dutch

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