Book Shelf: How to Optimize Your Supply Chain Network

How do you know if your production facilities and warehouses are in the best places to ensure the most efficient and cost-effective flow of materials and goods from your suppliers to your customers? In other words, how do you design the optimal location and size of your facilities? The answer is a complex best practice known as supply chain network design, and this book sets out to explain exactly how and why companies should pay closer attention to site selection.

See Also: Supply Chain Logistics Best Practices

For one thing, the authors (all network-design experts at IBM) assert that companies can reduce their supply chain costs by 5% to 15%, representing a savings of tens of millions of dollars in some cases. Regrettably, all of the case studies in this book are concocted rather than real companies, but they serve as clear illustrations of exactly how companies can design their network structure.

For instance, the mythical Jade Paint company covers the entire US market from two distribution centers, one in eastern New York and one in Phoenix. The case study spells out exactly how much Jade spends on transporting its products from the plants to the DCs, and from the DCs to the customers. By running numerous scenarios through analytical models (the authors explain how this is done), Jade is able to determine that an optimal two-warehouse network would be to move its DCs to Columbus, Ohio, and Las Vegas to shorten the amount of travel. As a result, transportation costs were lowered from $254 million to $196 million.

While the actual numbers are merely illustrations rather than real-world, the reasoning behind them is sound, and the authors offer a comprehensive examination of the benefits to be gained from a “design for supply chain” strategy.

“Supply Chain Network Design”
By Michael Watson, Sara Lewis, Peter Cacioppi and Jay Jayaraman
FT Press, 2013, 301 pages, $89.99