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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

September 23, 2014



Modeling Your Competitors

If Your Company is in a Commodity Business With High Transportation Costs, It Should Model Your Competitors


Dr. Watson Says:

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...The output of the model shows your competitors landed transportation cost into different markets...
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Most companies use network design tools to model their own supply chain.

But, if you are in a commodity business where transportation costs are a large percent of your product’s price, you should also consider building a model of your competitor’s supply chain. 

How do you model your competitors in an ethical way?  Between what you know and what is publically available, you can create good models.  You can model the following elements of your competitor’s supply chain:



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The location of their facilities.  If you are in the business, you likely know where all their warehouses or plants are

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Transportation rates.  Lane rates are publically available.  Although you don’t know how well they’ve negotiated rates, you can start from your negotiated rates and make assumptions about higher or lower their rates are likely to be.

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Truck utilization.  Again, you don’t know how full their trucks are running, but in commodity businesses, you can figure that your competitors can fill a truck in a way that is similar to how you do it.

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Markets they serve.  Your salesforce should know what markets your competitors serve and which ones they could serve.    And, you don’t need to know the demand.  You can simply model a truckload’s worth of demand in each market.

Previous Columns by Dr. Watson

Four Supply Chain Lessons from the Amazon book The Everything Store

Supply Chain by Design: What Toyota, Schneider National, PayPal, and Palantir Got Right

Supply Chain by Design: Service Level Measures in the Supply Chain, Part 2

Supply Chain by Design: Service Level Measures in the Supply Chain

Supply Chain by Design: Nike's Phil Knight on the Importance of Supply Chain

More


And, this is enough to run a model.  You don’t need to model manufacturing costs—unless these are relatively easy to get, and you don’t need exact demand.  Remember, the goal of this model is not to help make decisions for your competitor, rather it is to help you better understand your competitive landscape.  (As a side note, building a model of your competitor also helps show how you could build a simple model of your own supply chain.  You just don’t have the data to build a complex model of your competitor). 

The output of the model shows your competitors landed transportation cost into different markets.   This could be valuable information to help you determine how you should price, which markets you should enter, and which ones you should leave.

And, if you are making decisions about building new warehouses, you can go back to your competitor’s model and use that to try to figure out how they may react.   



Final Thoughts:


The other benefit of having a model of your competitor’s supply chain is that it could spur many interesting conversations within your management team.



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