Supply Chain Network Optimization Explained: Tuning Up Your Transportation & More
“Network optimization” sounds like a no-brainer for your supply chain, but knowing you want smoother operations and lower costs is very different from knowing how to achieve it.
It’s the kind of idea that should get enthusiastic approval from your C-suite for the way it supports your business’s long-term health — but do you know what immediate steps to take to make it happen?
It’s crucial that you know exactly which part of your supply chain you want to tune up, and it’s just as important that you know who you should trust to help you execute your optimization project.
Learn the who, what, where, when, why and how of network optimization and start scoping out your next supply chain upgrade.
All You Need to Know About Network Optimization
- Network optimization defined (what can you optimize?).
- Warning signs that optimization might be a good idea.
- 5 steps to a data-driven optimization.
- How supply chain consultants can help you make the right choices.
What Is Supply Chain Network Optimization?
The simplest definition of network optimization would be something like “Making your supply chain run smoother, more efficiently, and ‘better’ overall.”
But defining it on paper is different from defining it in practice. Because you need to know what your specific goals are for any project of this scale to succeed, a stronger definition of network optimization will cover all your potential targets.
What Can You Optimize?
Kick off your network optimization by choosing one of these focus areas.
- Facility Location: Are your warehouses, distribution centers and factories in the right locations to serve your customer’s geographic footprint? Are transit times rapid and consistent?
- Routing: Are the carriers in your transportation network moving as efficiently as possible? Are trailers fully utilized? Are you mixing truckload and LTL intelligently? Are you avoiding empty miles?
- Product Flows: Where are your products made, and how do they travel to your customers? Is inbound freight timed to keep production on schedule and get products out the door on time?
- Private and Dedicated Fleets: Is your owned or leased equipment running full? Are you augmenting your own freight with for-hire backhaul freight to minimize empty miles and generate incremental revenue?
Watch Our Network Optimization WebinarSVP of Coverage Jack Gerstner and Director of Supply Chain Engineering & Analytics Jay Zaleski discussed a successful optimization project with a shipper in one of our Supply Chain Master Series webinars.
Watch their conversation for concrete examples of network optimization and exclusive insights.
When Is the Right Time for Network Optimization?
You can think about this in two ways.
On the one hand, you can look at your business and assess if you have unmet needs or inefficiencies that can best be addressed through optimization.
Alternately, you can take a look at the wider landscape to see if external factors are lined up to make now the right time change things up. This is less about need than about opportunity.
Internal Signs That It’s Time to Optimize
Costs exceed your budget or are outside of an acceptable range.
Higher than expected costs can be caused by external factors, but they can also result from an inefficient supply chain strategy. According to our original supply chain outsourcing research, reducing costs is the second most common reason shippers work with 3PLs.
Internal strategic differences.
Supply chains require thoughtful yet decisive strategy to thrive during volatile times. If there are disagreements between your internal logistics decision-makers, or between your logistics team and other stakeholders, taking a concerted look at your operations can point to a clear path forward.
Unsatisfied customers.
If your end customers aren’t happy with your on-time performance, that likely means key performance indicator (KPI) targets are not being hit throughout your network. A focused optimization project can help point to which KPIs are lagging and why.
Employees forced to adjust on the fly.
If your logistics managers are tapping into the spot market more frequently and frantically than they’d like to, you might need to reassess your carrier network. And if your warehouse staff is scrambling to make orders outside normal hours, your product flows may need to be streamlined.
External Signs That It’s Time to Optimize
Freight market capacity is abundant.
The truckload market is cyclical. While there will be periods when capacity is tight and rates are elevated, these will be followed by times when the supply of transportation exceeds demand. In these softer markets when you’re less stressed about tender acceptance rates you can commit some time to a larger project.
Seasonality is in your favor.
Most shippers have a surge season, whether that’s the conventional retail Peak Season aligned with the winter holidays or some other period. It’s best to initiate an optimization outside your busiest time of the year when your resources are not stretched to the max.
What Goes Into a Logistics Network Optimization? 5 Data-Driven Steps
Whether you’re optimizing facility locations, routes, fleet size or anything else, this roadmap can help guide you to greater efficiency.
1. Identify area(s) to optimize.
Monitor your KPIs consistently to help you identify areas where performance isn’t cutting it. Bring these findings to your internal team and any external consultants to outline your project and set achievable goals.
2. Gather and analyze data.
Next, you’ll want to know exactly where you’re starting out. Collect a statistically significant sample size of internal data tracing your performance in your chosen area. A year is a good range to start with, and year-over-year trends can point to how much of a correction you need.
3. Run scenario analyses.
After that, you must identify potential courses of action and game them out. If you’re considering several facility locations, for instance, create models from your cost and performance trends that project your network performance with each of those configurations. This is the real quantitative heart of your optimization project; the best scenario analyses will also take into account industry trends, cyclicality and volatility to create robust, reliable models.
4. Make strategic recommendations.
The results are in and it’s time to assess your options. Which scenarios show the most promise for improving your KPI(s) of choice? Are you confident that your data is reliable and the results will hold up in real-world conditions? Then pick a winner and move on to the last step.
5. Report to stakeholders.
Finally, it’s time to get buy-in from the important decision-makers at your organization. Package your findings in an easy-to-digest presentation with clear data visualizations and succinct action items. Once you have the OK from your higher-ups, it’s time to put your plan into action.
How Can Supply Chain Consultants Help Optimize Your Network?
Optimizing your supply chain is a major undertaking, one that can be incredibly difficult to see through on your own with only your internal resources.
It’s extremely common for shippers to seek outside assistance in optimizing their networks — our research revealed that 63% of shippers have worked with supply chain consultants and 56% have outsourced to improve operational efficiency.
Supply chain consultants — especially those who work for 3PLs — can bring years of industry experience and intelligence to your network optimization project. They know how to assess your internal data and benchmark it against the wider industry. These outside experts also can simply lighten the load on your internal team and allow them to continue supporting your regular operations while optimization is ongoing.
And the fresh eyes and new perspective they’ll bring to your business can make a real difference on their own. Maybe the way you’ve always done something makes sense to you because you’ve done it for so long, but to an outsider there might be a better way.
Ready to Take Your Supply Chain to the Next Level? Let’s Optimize
Our supply chain consulting team has a strong record of success helping shippers save money and improve performance. You can read about how we helped Bush Brothers run a scenario analysis to locate their facilities and route their transportation for maximum efficiency — and how we helped them communicate their findings to the C-suite.
Want us to bring that same data-driven attention to detail and commitment to collaboration to optimizing your network? Fill out the form below and start the conversation.