Why it’s a Good Time to Innovate Your Supply Chain Network

By Bas Daver | Principal, Chainalytics | The principles for effective supply chain design change constantly and quickly for multinationals. Most of these companies realize...

By Bas Daver | Principal, Chainalytics |

The principles for effective supply chain design change constantly and quickly for multinationals. Most of these companies realize that having an effective supply chain strategy with a corresponding physical network is key to success. But while the focus on supply chain costs remains important, speed and flexibility are assuming more and more importance to these companies’ long-term success.

If your multinational company is serious about strategy, it is time to put supply chain design onto your “dynamic strategic agenda,” evaluating the many drivers that can make or break your supply chain success:           

The market and consumer buying behavior are rapidly changing. Over the past decade, multinationals have had to change their value chains significantly. Product innovation, shorter product life cycles and increased demand uncertainty make predicting market demand difficult—whether for a specific geographic area or a specific product’s volume or quantity.  

In addition, consumers’ ability to use technology to order (and demand delivery) from anywhere to anywhere has led to the growth of online stores, ecommerce and consumer-to-consumer (C2C) business, in addition to business-to-consumer (B2C) and business-to-business (B2B) sales.

Meanwhile, ecommerce buying behaviors now cross both national and international boundaries.

These technological developments, buying behaviors and related product innovations and introductions will follow each other more rapidly. At the same time, supply chain cost structures are changing.

Balancing act. All the changes above lead to increased supply chain dynamics and require constant physical network rebalancing. Companies will move more production and fulfillment activities closer to the (regional) market, especially for high mix, low-volume production, final assembly and mass customization. This demands a new balance between offshore and near-shore strategies.

It’s easy to see why traditional distribution networks will need to change in function and location. For example, in Europe five to 10 years ago, there was a trend towards distribution centralization, often built around one single, central distribution center (DC) that served the whole continent (e.g. Europe). This central structure was often extended via satellite locations, to ensure short delivery lead-times in certain countries. Today, these satellites often have limited stock, yet are still supplied from the central DC.

But today in Europe, we observe a trend towards a more regional or even local network set-ups, which aim to bring product closer to demand. Multiple regional DCs will serve parts of Europe: typically one for Northwestern markets, one for Southwestern markets and one for Eastern Europe (a growth market).  In these DCs, more and more cross-dock, localization, customization, assembly and kitting activities will take place, in addition to the traditional stock holding and warehousing activities. When choosing the right location for regional DCs, factors like multi-modal connectivity (through ports, terminals, etc.) is becoming more and more important as well.

Trend towards flexible, dynamic supply chain networks and new partnerships. Route-to-market diversification is quickly evolving due to the trends described above, which leads to increased supply chain control complexity.

For this reason, companies are being forced to organize their production and distribution to quickly and flexibly react to changes in market demand. This may mean developing partnerships with many other companies (even competitors), with corresponding new network structures, to take advantage of both infrastructure and economies of scale.

A good example is the cooperation between a large retailer and an e-tailer. Ecommerce shopping has created the need to have pick-up/collection points close to the customer. By partnering with the retailer, the e-tailer can use its extensive network and use retail stores as collection and pick-up depots.

Meanwhile, in the high-tech sector, we see a “pay for use” trend. The consumer pays based on a predefined performance or service, for example in the healthcare device sector. The product often remains the property of the company. These large high-tech companies determine the specifications and deliver the integrated product to the end customer. They act as network integrator with close collaboration with specialized suppliers, wholesalers and other service providers in development, production, distribution, installation, and maintenance. This requires perfectly integrated processes and physical networks.

Continuous and rapid market changes demand that companies put regular supply chain network design on the strategic agenda, since a flexible, dynamic physical network is key to balancing speed and flexibility (time to market) with efficient, effective operations (cost to serve).

Bas Daver is a principal at Chainalytics Europe, a leading provider of supply chain consulting, analytics, and market intelligence services. An independent, analytical, open, communicative and problem-solving professional, Bas is highly focused on results. He likes to work in teams and is able to gain results and to realise change together with others, who benefit from his ability to adapt and create effective, efficient supply chains and operations, processes and organisations.

In this article