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SCDigest Expert Insight: Supply Chain by Design

About the Author

Dr. Michael Watson, one of the industry’s foremost experts on supply chain network design and advanced analytics, is a columnist and subject matter expert (SME) for Supply Chain Digest.

Dr. Watson, of Northwestern University, was the lead author of the just released book Supply Chain Network Design, co-authored with Sara Lewis, Peter Cacioppi, and Jay Jayaraman, all of IBM. (See Supply Chain Network Design – the Book.)

Prior to his current role at Northwestern, Watson was a key manager in IBM's network optimization group. In addition to his roles at IBM and now at Northwestern, Watson is director of The Optimization and Analytics Group.

By Dr. Michael Watson

November 20, 2012


Political Supply Chain and Network Design

Network Modeling Tools Can Help You Determine the Impact of Specific Risks to Your Supply Chain


Dan Gilmore’s recent article on the Political Supply Chain provides some clear scenarios on what may happen to the supply chain as a result of the recent U.S. election. 


Dr. Watson Says:

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When the cost of one part of the supply chain goes up, other costs become relatively cheaper. The optimization engine in network modeling tools helps you manage this trade-off.
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Network modeling can help you figure out what you should do about it and how you should prepare.

Politics-- like natural disasters, moves by competitors, fluctuating oil prices- is another risk for your supply chain.

And, in general, network modeling tools can help you determine the impact of specific risks to your supply chain. That is, if you have a working model of your supply chain, you can quickly estimate the cost of new Hours of Service rules or "card check." This is the same as using a working model to estimate the impact of an unexpected shutdown at one of your facilities.

But, the value in network modeling is that you can use its embedded optimization to figure out what to do. These examples also illustrate the growing and critical trend of companies using network optimization tools not only to answer big questions concerning the entire network design, but also ask more focused questions relative to an on-going cadence of specific supply chain decisions that must be made. This is where the real power of these tools is increasingly being leveraged.

When the cost of one part of the supply chain goes up, other costs become relatively cheaper. The optimization engine in network modeling tools helps you manage this trade-off. In other words, optimization allows you to avoid the full brunt of a cost increase.

Specific to a political issue brought up in Mr. Gilmore’s article, if the Hours of Service rule changes, then over-the-road transportation (like truckload and LTL) becomes more expensive. This means that rail, inventory, and warehousing become relatively cheaper. To avoid the full extra over-the-road transportation costs, you may shift more to rail, ship fuller loads and increase inventory, or add a cross-dock to get closer to your customers.

Let's suppose for a minute, “card check” does get through the NLRB, as Gilmore suggests. If the "card check" rules will raise your cost of manufacturing, you can use network modeling to determine how to shift production volume. That is, you may shift volume to overseas locations and pay the extra in transportation to ship the product to customers.

Columns by Dr. Watson

Supply Chain by Design: Four Lessons from Hau Lee's Green Car Story Updated for the Era of Machine Learning

Supply Chain by Design: Profitability of Your Assets Depends on how you use Them

Supply Chain by Design: The Most Overlooked and Underestimated Data in Supply Chain Design

Supply Chain by Design: Self Driving Trucks May Create New Roles and New Types of Jobs

Supply Chain by Design: Why Driverless Trucks May Create the Need for More Drivers

Supply Chain by Design: A Non Obvious Way Self Driving Trucks May Impact Your Network Design Strategy

Supply Chain by Design: How You Should be Using Multi-Echelon Inventory Tools

Supply Chain by Design: You Don't Need the Optimization in Multi-Echelon Inventory Optimization

Supply Chain by Design: On Network Modeling - Blaspheming the Baseline

Supply Chain by Design: Profit Maximization Feature and Amazon’s Focus on Lead Time to Grow Revenue

Supply Chain by Design: Using Profit Maximization to Minimize Cost

Supply Chain by Design: Two Big Reasons You Don't Want to Maximize Profit in your Supply Chain Model

Supply Chain by Design: You Can Set Inventory Levels and Other Such Myths

Supply Chain by Design: Six Organizational Issues in Tactical Inventory Planning

Supply Chain by Design: Four Things Nick Saban Can Teach us About Inventory Planning

Supply Chain by Design: Seven Ways You Can Think About Christmas Capacity to Avoid Having the Press Blame Your Supply Chain for Missed Deliveries

Supply Chain by Design: Machine Learning and High Quality Potato Chips

Supply Chain by Design: Simple Models to Solve Complex Fast Delivery Problems

Supply Chain by Design: CSCMP Report - Five Take-Aways on Natural Gas Trucks from the AB InBev and Owens Corning Talk

Supply Chain by Design: CSCMP Report - Six Insights from LLamasoft and JLL

Supply Chain by Design: CSCMP Report - Five Supply Chain Design Lessons from Benjamin Moore and How One is Used by Amazon in their 1-hour Delivery Service

Supply Chain by Design: CSCMP Report - Two Supply Chain Design Lessons from Starbucks CEO

Supply Chain by Design: Four Groups that Need to Step Up to Help Make Network Design More of a Profession

Supply Chain by Design: Top Four Best Practices for Multi-Objective Optimization

Supply Chain by Design: Caesars Entertainment's Customer Data is Worth $1B - How Much is Your Supply Chain Data Worth?

Supply Chain by Design: Using Transactional Data to Estimate Truckload Market Conditions in Near-Real-Time

Supply Chain by Design: Routing Optimization is Hard: Lessons from UPS

Supply Chain by Design: Eli Goldratt's Book "The Goal" is on Jeff Bezos (Amazon) Reading List

Supply Chain by Design: Top Five Rules for Cleaning Data for a Strategic Analysis

Supply Chain by Design: Network Design and Accounting Data

Supply Chain by Design: Sears Case Study - Same Day Delivery

Supply Chain by Design: Three Ways UPS and FedEx Handled Christmas 2014

Supply Chain by Design: Deepen Your Optimization Knowledge Over the Holidays with Free E-book

Supply Chain by Design: Calculating Supplier Lead-Time Variability - Not as Easy as It Seems

Supply Chain by Design: The Myth of the Market Rate and Network Design Projects

Supply Chain by Design: Three Ways the Supply Chain Wastes Big Data

Supply Chain by Design: Three Supply Chain Lessons from the book Scaling Up Excellence

Supply Chain by Design: What to Do About the Rise in Costs Because of the Trucker Shortage

Supply Chain by Design: Modeling Your Competitors

Supply Chain By Design: Just Because the Feature Exists, Doesn’t Mean You Should Use It

Supply Chain by Design: Just Because People are Talking about Big Data Doesn’t Mean it is Clean Data

Supply Chain By Design: Can Western Manufacturing Be Saved: What Does it Mean to Your Firm?

Supply Chain By Design: Optimized Baseline and the "Perfect" Network Design

Supply Chain By Design: Become more Analytics-Driven to Recruit Talent

Supply Chain By Design: Step Up Your Preventative Maintenance with Predictive Analytics

Supply Chain By Design: Demystifying Stochastic Optimization

Supply Chain By Design: More on Big Data in the Supply Chain

Supply Chain by Design: Should You Extend Your Network Design Capability with a Map Portal?

Supply Chain by Design: A New Trend in Network Design: Flow Path Modeling

Supply Chain By Design: Top 5 Skills You Need in a Supply Chain Modeler

Supply Chain By Design: Comment on Biggest Supply Chain Planning Technology Challenges

Supply Chain by Design: Beyond the Square Root of N Rule

Supply Chain by Design: UPS's Christmas Problem Explained in One Graph

Supply Chain By Design: Your One Network Design New Year's Resolution

Supply Chain By Design: 80/20 Rule for Supply Chain Design

Supply Chain By Design: What Makes a Good Inventory Buffer

Supply Chain by Design: Some Things Do Not Change: Cost and Service Trade-Offs with Air Shipments

Supply Chain By Design: The Impact of Natural Gas Trucks On Your Supply Chain Design and Capabilities

Supply Chain By Design: Controlling Inbound Transportation with Inventory

Supply Chain by Design: Three Types of Supply Chain Buffers

Supply Chain by Design: Systems Thinking and the "Limits" of Optimization

Supply Chain By Design: 3D Printing and Robotics - Disrupting the Dominant Supply Chain Model

Supply Chain by Design: Future Supply Chain- Airships and the Physical Internet

Supply Chain By Design: Avoiding Capital Investments - A Hidden Benefit of Network Design

Supply Chain by Design: Three More Reasons the Impact of the New Hours of Service Rules May Not Be So Drastic

Supply Chain By Design: Three Ways to Handle the Lag Time from Modeling to Implementation

Supply Chain By Design: Three Quick Steps for Analyzing Big Data

Supply Chain by Design: What is Big Data?

Supply Chain By Design: Using Optimization to Compare Facilities or Internal Benchmarking

Supply Chain By Design: Four Steps for Thinking About An Optimization Problem

Supply Chain By Design: Don't Let the Term "Optimization" Become a Buzzword

Supply Chain By Design: Supply Chain Models Can Go Wrong - A Different Perspective

Supply Chain By The Numbers: Top Three Ways Supply Chain Models Can Go Wrong

Supply Chain By Design: Supply- and Demand-Centered Modeling: A Follow Up to 2013 Priorities

Supply Chain By Design: Three SCDigest Predictions You Should Be Modeling

Supply Chain by Design: Cost to Serve Modeling

Supply Chain By Design: Top Five Models You Should Build in 2013

Supply Chain By Design: Should You Source from China or the US? Why Not Both?

Supply Chain By Design: Same Day Delivery and Network Design

Supply Chain By Design: Political Supply Chain and Network Design

Advanced Analytics in Supply Chain - What is it and is it better than Non-Advanced Analytics?

Or, sticking with card check, let's assume your company has a few DCs that it worries might be soon unionized, and others that are less likely.

The CEO or CFO asks you to estimate the impact of a unionization move in those three facilities, and whether you should adjust the network flows and throughput of each warehouse to reduce the downside potential.

Would you like to start from scratch, using spreadsheets or a similar tool -- and probably lack confidence in the accuracy of the analysis?

Or would you rather have an existing model of the network, where cost and throughput variables for each DC can be quickly changed, and different scenarios run using mathematical optimization to determine the best possible changes?

Clearly, it's the latter. And that is what a growing number of companies are realizing.


Final Thoughts

No matter what you think about politics, political risks to the supply chain are something you should model and be prepared to address. This gives you another reason to consider bringing network modeling capabilities in-house.

Recent Feedback

Great article Mike!
With market variables changing too quickly, it is imperative for organizations to have an "operational" model from which they run "what-if" scenarios to mitigate risks, not only to evaluate strategic decisions. This is becoming the rule rather than the exception.


Erik Lopezmalo
Supply Chain Optimization Optimization and Network Design consultant
Self
Nov, 20 2012

This article almost applies directly to a procurement and supplier management class I am taking.  The network modeling optimization tool you discussed is very interesting in that it is similar to a total cost of ownership model we are working on for various case studies.  Its great to see how a number of variables and how any force majeure event can be factored into your network model to yield an optimal solution.  It is also good to see how aspects of what I am learning in class are directly applicable to the professional world of today.  Great article!    


Jonathan Kot
Supply Chain Student
University of Texas
Dec, 05 2012
 
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