First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  April 5 , 2007  

Supply Chain Network Optimization and Competitive Advantage

Gilmore Says:
Our research shows is that companies using network planning tools not only get smart technology support for an ever widening array of decision-making, which should be worth a lot on its own, but also make more decisions, and execute those decisions more quickly.

What do you say? Send us your comments here

Is the evolving way some companies are using Supply Chain Network Planning and Optimization tools changing the basis of supply chain competition?

I think maybe so.

As many of you know, the redesign and optimization of supply chain networks is very hot right now, more so than ever it seems to me. Virtually every week carries another story about one of more companies planning a major change to their supply chain networks. Recent examples include Hershey and ConAgra, but there are many more.

There are any number of factors driving these network changes, from the relentless need to reduce costs, taking a more holistic supply chain view, the way outsourcing and virtualization are changing supply chains, globalization, inventory reduction initiatives, transportation pressures, etc.

While there are a number of ways to approach the problem, use of what is generally termed “Network Planning and Optimization” software to drive the redesign process is common, and these tools are currently enjoying strong use and adoption as the number of network optimization projects expands.

The most recent issue of The Supply Chain Digest Letter, our hardcopy newsletter focused on a single topic, covered Network Planning and Optimization software in detail. If you didn’t receive your copy in the regular mail, go to to subscribe to The SCDigest Letter, and to access our resources page for Network Planning. There, you will find a pdf version of the newsletter, white papers, an excellent video overview, other articles on the topic, vendor profiles, and more.  

In doing research for this issue, what stood out is the changing way a growing number of companies are using these tools. In the past, network redesigns were generally undertaken every 3-7 years, when either the pain of logistics costs got too great, there was a merger or acquisition, or some other catalyzing event occurred. Generally, given this approach, companies would leverage a Network Planning software tool through a consultant, who are generally able to use the software for a specific project rather inexpensively.

What we found, however, is that a small but growing group of companies are adopting the use of these tools on a continuous basis. This means buying the tools, not just “renting” them from a consultant, and forming a dedicated team of some sort to continually help answer supply chain questions. Our research has found “teams” as small as one to as many as 6-7 at the very high end.

Perhaps the highest form of evolution here is Pepsico/Frito-Lay, which has such a dedicated team and uses a network planning tool to help drive a continuous series of strategic, operational and tactical decisions.

We provide a fairly detailed case study in this issue of The Supply Chain Digest Letter. I’ve spoken to several other companies in the last year or so that are taking somewhat similar approaches, and think this change might be more profound, and have a bigger impact on supply chain competitiveness, than is generally recognized.

Here’s the thesis:

First, companies using these tools on a continuous (Frito-Lay) or near continuous (quarterly review – Henkel Adhesives), are simply powering more decisions more often using smarts and processing power that are frankly impossible for humans to replicate across dozens or hundreds of options.

Second, companies taking this approach tend to not only use the tools for broader strategic decisions and network “tweaking,” but also to support much more near-term planning decisions, from master planning to support for sales and operations planning (a growing trend), new product introduction strategies, production line decisions, and more.

Third, these companies seem in parallel to build into their cultures a bias towards change and action – a more determined approach to continuous improvement and performance optimization.

The challenge with network planning tools in part has always been that they can just make recommendations. To unlock any value, companies must take these recommendations and put them into action, never an easy course.

I don’t know if it’s the chicken or the egg, but what our research shows is that companies using network planning tools not only get smart technology support for an ever widening array of decision-making, which should be worth a lot on its own, but also make more decisions, and execute those decisions more quickly. They strive more continuously towards optimality.

It seems to me that if I am even close to right, this is a huge competitive advantage for companies like Pepsico/Frito-Lay and others in terms of supply chain cost and responsiveness.

Or so it seems to me. But I would welcome your thoughts.

If this is an area on your radar, we think you will find The SCDigest Letter and accompanying Resource web page of interest. We put a lot of effort into this – think you will benefit from that work.

Do you agree that companies employing Supply Chain Network Planning and Optimization technology on a consistent basis can gain an important competitive advantage? Why or why not? Do you think times are changing enough that more companies could be taking this approach? Let us know your thoughts at the feedback link below.

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