Dr. Watson Says: ...Any company that realizes there may be benefits to having product flow through the supply chain in different ways could benefit from flow path modeling... What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

One of the newer trends in network design is the rise in flow path modeling.  That is, how should product flow from the supplier to the end customer.  The basic concept is that there are many different paths a product could take—it could go directly from the supplier to local warehouse or it could flow from the supplier to a central warehouse, to name just two examples—and the modeling helps you figure out the best path for every product. 

It is probably not surprising that the rise in flow path modeling closely follows the increase in interest in modeling omni-channel supply chains.  Retailers realize that they are under more pressure to deliver to the customer across many channels.  This often means that the same product may follow a different flow path, depending on its end use. 

Keep in mind that flow path modeling is more than just omni-channel.  Any company that realizes there may be benefits to having product flow through the supply chain in different ways could benefit from flow path modeling.

But, there is some confusion about what flow path modeling is.  Is it an inventory problem, because one of the typical benefits is reducing inventory (think about centralizing slow moving items)?  It is often discussed in the context of network design, but you usually aren’t making facility open and close decisions when you analyze flow paths. 

In practice, flow path modeling typically is much closer to network design.  Instead of giving the network design tool options in terms of warehouses to open and close, you give the network design tool options in terms of flow paths that the products can take.  For each option, in addition to the inventory implications, there may be implications to capacity required, labor costs (if we flow the product in full pallets or in cases), or transportation costs (if we flow the product in full truck or LTL).   On top of this, you may model economies of scale.  For example, if you can ship enough total volume into a central warehouse, you may be able to more easily get daily full trucks to the regional warehouses. 

When solving a flow path model, the optimization sorts through all the possible options (and they add up quickly in these models) and considers all the possible economies of scale to find the best flows through the supply chain.

You do need to be careful when modeling the inventory implications because inventory costs are typically non-linear with respect to total flow.  That is, the inventory costs of 100 units of flow may be $25, but the costs only $35 when the flow is 200 units.    

Final Thoughts:

Flow path modeling is not trivial.  But, just setting up the model can teach you a lot about the subtle trade-offs in your supply chain.  And, solving the model can uncover some nice benefits.