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
February 12, 2013
Three SCDigest Predictions You Should Be Modeling
Supply Chain Digest recently Released its 2013 Predictions: Taking these Predictions a Step Further and Modeling their Impact on your Supply Chain
Dr. Watson Says:
If transportation costs are going up later this year, what are you doing now?
Over the last two weeks Dan Gilmore has compiled SupplyChain Digest’s 2013 predictions (in Part 1 and Part 2). In some later articles, I will add my thoughts to the ideas expressed around Big Data, Analytics and Optimization. And, although we touched Omni Channel distribution, the predictions show that there is a lot more to talk about.
For this article, we will focus on three of the predictions you should model now.
First, Mike Regan predicts that transportation costs will increase in 2013, especially in the 2nd half of the year when new hours-of-service rules kick in and driver shortages are felt.
This is an easy one to model. You should understand how an increase in transportation costs will impact your network. Then, if the impact is large, you should decide what you are going to do about. For example, will you ship larger quantities in each shipment? This increases inventory, but decreases transportation costs. Will you add temporary cross-docks to get closer to your customers? If you are a seasonal business, will you ship product closer to the final market earlier in the year to avoid the problems in the 2nd half of 2013? You have many options. It is important to determine which is best for your business and develop a strong plan.
Second, Mark Wulfraat predicts more investment in warehouse automation.
At first glance, this would not seem to have a network modeling implication. However, if you are investing in warehouse automation, network modeling is even more important.
Several years ago, we were involved in a project that came back with the big recommendation to close a warehouse that had just received $11M in renovation and capital equipment. This was a painful situation—painful for throwing away a $11M investment, and painful for the managers that made the decision to invest in the facility. You don’t want to find yourself in that situation.
Network modeling can help you determine which warehouses you will keep for the long term and the order in which you should invest.
Third, Gene Tyndall has a view that firms realize that they do not a have a clear supply chain strategy.
In this case, network modeling can play a role in this discussion. For example, if the strategy is to provide the lowest cost or fastest delivery, network modeling can help you determine how close your current infrastructure is to the ideal and what needs to change. Also, network design can help you understand the cost and infrastructure impacts of different strategies. It may even suggest reasonable trade-offs.
Final Thoughts
Predictions are important because they help guide our planning. But, you should take the predictions a step further and make sure you model them so you can quantify the impacts and develop appropriate plans.
