By: Prasad Mahajan, Senior Director of Engineering at Uber Freight
Supply chain network design is a key element of a shipper’s business strategy. Network design spans the optimization, planning, execution and management of supply chain operations, and helps business stakeholders understand how much it costs and how long it takes to bring goods to market with their resources at hand. Shaping an efficient supply chain network design requires shippers to consider factors such as executing cost-effective service, optimizing product sourcing and inventory distribution to meet customer demand, and working with logistics partners to determine how to best use their transportation management solutions.
If the past three years have demonstrated anything, it’s that all shippers need to be better prepared to nimbly address supply chain disruptions as they happen. Many companies are now focused on building resilient and agile supply chain operations as they navigate fluctuations in demand and freight rates. And for new businesses, network design has only ever revolved around reacting to volatility.
The new normal of market volatility is prompting shippers to reexamine their network design in order to build or rebuild it around proactive measures rather than reactive ones. A successful design for the long term (one that maximizes ROI and operational performance) will be organized and flexible yet lean and efficient, with built-in contingency planning to adapt to market challenges. Here are some things shippers should consider when reevaluating their supply chain network design.
Building a more agile and efficient network design starts with examining its foundation. While enterprise shippers might be adopting more real-time solutions to fuel their network design, smaller shippers might be working with less modern technology or manual methods; and some shippers may lack a design altogether.
No matter the level of technology and automation a shipper is ready to adopt, all shippers need to work with logistics providers that have expertise in the complexities of building a network design—as well as a fully managed set of solutions that will help take any network design to the next level based on shippers’ particular needs.
Strategic logistics partners such as Uber Freight provide the technology, strategy and consulting services needed to manage all aspects of supply chain network design, as well as perspective on the challenges and opportunities that come with a design revamp.
These partners have expert resources with capabilities to model complex, real-world situations that allow for several “what-if” scenarios. Evaluating these scenarios helps shippers and partners to work together in formulating long-term strategies. They also understand all the core elements that influence a shipper’s network design—including the number of warehouses, their strategic location, warehouse layout and design, mode selection, order management—and how their design can impact customer service and operational reliability.
While a customized network foundation is an anchor for a comprehensive network design, data powers supply chain network design decisions—whether it’s information about capacity constraints, labor and real estate market rates, transport rates, supplier locations, cost estimates, consumer demand forecasts and more. Shippers need accurate data to assess operational performance and use that data to inform business decisions and boost ROI.
But pandemic-driven factors like out-of-region shipments, poor fill rates and unique demand patterns have disrupted supply chain networks and, in turn, contributed to unreliable supply chain data for shippers. Data silos within organizations—which occur naturally across industries including logistics and transportation—can also prevent shippers from establishing a comprehensive picture of their supply chain network data.
Understanding what the future looks like from a demand, product supply, DC footprint and sourcing perspective requires a data and analytics strategy that leverages both internal and external resources.
Internally, shippers will need to harmonize data to gain better insight into what is and isn’t working in their supply chain network. Externally, they can turn to third parties with access to vast amounts of KPI data, real-time processes and tools like predictive analytics. Taken together, shippers will have the information they need to create a more comprehensive, future-forward network design.
When establishing a comprehensive and strategic network design, shippers can address a number of transportation scenarios such as where and how to alleviate capacity crunches and labor gaps.
Distribution centers are a core component of any shipper’s network, and one area of opportunity when it comes to network redesign. But today, capacity is still in short supply: Warehouses are congested because of inflated inventory, and vacant industrial space is expected to remain below 4% for the foreseeable future, although warehouse space seems to be softening a little bit. Pair this with factors including consistent bottlenecks and lack of capacity at ports, and shippers are looking for ways to meet fulfillment demands.
To maintain supply chain flexibility and resiliency, many shippers are considering building new warehouses to improve their reach to customers, while also removing any redundancies and consolidating warehouses where they can. The reversal of ocean shipping rates, with prices dropping more than 50% from pandemic highs, is leading shippers to embrace nearshoring to reduce supply chain risks. For example, 25 new Mexico industrial parks are slated to open in 2023, providing an abundance of new economic opportunities for companies to export goods. Securing space closer to where shippers’ products are sold can make supply chain networks more efficient and cost effective.
Having a data-powered network design will help shippers execute regionalization plans effectively. Shippers and their logistics partners could proactively develop a plan for sourcing workers to help run facilities, as well as upskilling or dispersing their responsibilities.
Ultimately, shippers who build relationships with a strategic logistics partner that provides data-driven answers to improve the supply chain network, will be more prepared for future market changes. These relationships will be central for companies to achieve optimal network designs that enable reduced overall logistics cost and improved service to current and future customers.