How Network Optimization Creates Dynamic CPG Supply Chains
In today's ever-changing business landscape, a one-size-fits-all approach to supply chain planning is more than just a strategy for consumer packaged goods (CPG) companies.
Unforeseeable disruptions can occur anytime, leading to missed sales opportunities, sluggish supply chains, and mismatches between inventory capacity and consumer demand. According to McKinsey & Company research, earnings not only shrink upward of 40 percent in the short term, but 20 percent of that decrease endure over the long term if supply shocks are left unaddressed.
Now, this may seem like a "no-win" dilemma — where no sooner one supply chain shock is resolved, a new one emerges in its place. With network optimization, CPG manufacturers and distributors can keep pace and overcome every shift while continuously restructuring their network design to run a future-proof supply chain.
Finding Opportunities in Disruption
Supply chain design improvements don't always mean tearing down and rebuilding the network from scratch every three years to five years. Instead, they should be viewed as a continuous initiative with no beginning or end date and always within the context of existing market and economic conditions.
The concept of ongoing network optimization enables a shift in mindset that helps you explore and configure many different product flow alternatives and answer critical questions to proactively navigate everything from a small change in component cost to unforeseen disruptions. With the support of the right technology, your leadership team and planners can accomplish these tasks with greater speed, precision and effectiveness without relying on external consultants.
A keystone aspect of a true network optimization solution is powerful scenario analytics coupled with a digital twin. Running in an interactive, easy-to-use environment, the capabilities immediately identify optimal flow of material through a supply chain network. Organizations can see response beyond disruptions and adjust to subtle changes in commodity availability, supplier capacities, and freight prices.
This digital approach allows your CPG business to simulate the current supply design and run multiple scenarios in a virtual model. You gain clear answers to "what if?" questions based on data-driven insights that inform decision making and minimize risks associated with supply chain disruptions.
Driving Critical Opportunities for Supply Chain Resilience
Suppose one of your brands could be manufactured in multiple plant locations and economically sourced from distribution centers one-day away from 60 percent of your customers. Wouldn't you want to move towards that now rather than wait years for a major redesign study to occur? Network optimization means that a supply network is used in the best manner to increase revenue growth, improve customer satisfaction, and reduce supply chain costs.
This is only the start of a long list of use cases you can achieve with network optimization technology. Here's a glimpse at the top six:
- Manufacturing analysis helps optimize production decisions by balancing capacity constraints and operational requirements. It assists in making critical decisions, such as determining whether nearshoring production in Mexico outweighs the cost advantage of manufacturing goods in China.
- External finished goods and raw material analysis incorporates factors including tariff costs and supplier capacity shortages into impact analyses.
- Emerging market analysis aids the building of road maps that address trade-offs based on market changes. Supply chain design options can also be expanded to help the business adapt and react to variability in ways that encourage growth and entry into new markets and regions.
- Distribution response allows strategic orchestration of the logistics network during times of disruption. Alternative paths can be modeled around port slowdowns or supplier shortages, and optimal supply and logistics partners can be discovered to mitigate risks. For instance, an importer model can quantify the time and cost of bypassing a traditional port stop by changing course to another country’s port or railing containers across the country.
- Logistics analysis enables the understanding and quantification of the viability and benefits of solutions, such as pooling, delaying strategies, and utilizing third- and fourth-party logistics offerings. In fact, you can redesign your network in another country to take advantage of consolidated import operations in a limited number of ports.
- Distribution network strategy provides the space to explore and design distribution strategies that balance costs and customer service goals. This includes optimizing the flow and profitability of existing markets, employing omnichannel techniques, and leveraging on-demand warehousing and fulfillment services and other technologies.
In each of these scenarios, a network optimization solution allows you to visualize and quantify operational excellence while communicating future possibilities and rapidly acting on the right decisions to improve your supply chain strategy.
Reframing Change to Fulfill Demand More Profitably
While the benefits of network optimization are significant, CPGs used to face risk and frustration with the difficulty of implementing this capability. The complexity of legacy applications required extensively trained technicians and the scarcity of normalized data demanded extensive data science projects. This all led to a high failure rate of projects. However, the right partner can overcome and achieve maximum supply chain efficiency and flexibility.
By adopting a true network optimization solution, your CPG business replaces the traps and limitations of traditional supply chain planning approaches with predictive insight, transparency, and problem-solving creativity. More importantly, your business can transform whenever and wherever needed to fulfill long-term business goals and exceed consumer expectations through faster shipment and optimized inventory management.
Steve Johanson is senior vice president, network optimization industry principal at Logility, a provider of AI-based supply chain planning solutions.
Steve Johanson leads Logility’s Center of Excellence for Supply Chain Design and Optimization. Previously, he founded, Starboard Corp. a new technology for performing network optimization. Johanson's experience includes work with leading Fortune 500 companies. He was also a ship’s Navigator and Celestial Navigation instructor in the US Navy. He earned a B.S. in Aerospace Engineering from the U.S. Naval Academy and an M.B.A. from the University of Rochester.