Network Optimisation: The Key to Business Sustainability?

In the current political and ecological climate, there is mounting pressure on businesses to achieve greater levels of sustainability from a variety of stakeholders.

Not only do a massive 81% of consumers now prefer to buy from brands with a commitment to environmental sustainability, but it has also been shown that environmental, social and governance (ESG) issues are of increasing importance to the investment community, with more than half of global asset owners currently incorporating ESG considerations in their investment strategy.

However, the challenge is finding practical ways to work towards becoming a more sustainable organisation, that won’t have a negative impact on the business as a whole. Many have come to associate the concept of sustainability with expense, but this doesn’t have to be the case. In fact, studies from the likes of Deloitte and Harvard have found that companies that have embraced it are financially outperforming their competitors.

Fortunately, for businesses looking to reduce their environmental impact, there are a number of steps they can take that will also have a positive effect on profitability and productivity, helping to keep all stakeholders satisfied. One of these steps is ensuring that their end-to-end supply chain and logistics network is truly optimised.

How to achieve network optimisation?

Many supply chain and logistics networks evolve gradually, as a result of individual decisions made over extended periods to satisfy specific business needs in a given moment. However, these siloed decisions create inefficiencies that compound over time. Businesses therefore need to make a conscious effort to regularly pinpoint these areas of inefficiency, in order to create a more effective, streamlined network.

It’s important not only to look at the supply chain and logistics aspects, but also consider cross-functional involvement that could range across sales, marketing, finance, IT systems, manufacturing and procurement, to ensure solutions are robust and resilient to future business changes.

One of the best ways of fully assessing all the potential options is known as supply chain network design, which entails using a range of digital modelling tools to work out how to minimise logistics and supply chain costs, while also maximising levels of customer service. This can involve looking at everything from raw material supply through to customer delivery, taking into account sourcing and manufacturing locations, customer service and inventory levels, in order to clearly evaluate all possible network choices.

The network modelling tools are used to assess a variety of “what if” scenarios, demonstrating the effects of trade-offs between costs, service, stock, warehousing and transport. They can also be used to assess the impact of completely new, “greenfield” logistics options, compared with retaining some or all of the current facilities.

This process enables businesses to diagnose their supply chain’s current state, then identify (and make a convincing case for) infrastructure changes that will ensure their facilities are sized right, and in the best locations to enable them to meet customer demands at the lowest cost for the desired service level.

What are the benefits of network optimisation?

For businesses, one of the main benefits of supply chain and logistics network design is a reduction in overall supply chain costs. Rationalising regional, national and global distribution and manufacturing networks helps to identify the most cost-efficient supply chain network.

Another key benefit is an improvement in customer service. Optimising the balance between shipping/warehouse costs and service level requirements usually results in better delivery times. This greatly increases the ability to respond to customer pressures and competitive threats.

The exercise also helps businesses to perform effective contingency planning, by showing the impact of unexpected events in the supply chain. They can gain an understanding of the effects of various possible events on costs, service levels, revenues and profits, allowing them to develop and evaluate alternative plans to mitigate overall risk.

Network design is particularly useful following a merger or acquisition, as it enables businesses to consolidate their distribution and manufacturing networks. This can help them to more quickly realise return on investment.

What are the environmental benefits?

A key aspect of supply chain and logistics network design is transport optimisation. Modelling alternative transport options helps businesses to determine the optimum solution for their current activity, identifying how and where costs can be reduced and service levels improved by reconfiguring the operation.

This is done by looking at

• Whether their fleet could be better optimised.
• Whether their customer order profiles and delivery requirements have changed since the original transport operation was designed.
• Whether a recent business acquisition has provided opportunities for consolidation.
• Whether a dedicated transport operation is still optimal, or if it would be more economical to use subcontractors.
• Whether fleet size, type and geographic spread is still optimal.
• Whether distribution centres are in the right place.

Optimising fleet utilisation in this way not only helps to ensure that the supply chain can operate as smoothly as possible, but also reduces empty miles and carbon emissions, which has a significant positive effect on a business’s environmental impact.

How to achieve successful network optimisation?

Every company is different, and consequently there is no one-size-fits-all approach. Instead, a combination of modelling tools should be used to evaluate and quantify a wide range of potential scenarios, taking into account all of the individual factors concerned.

Ideally, this should be combined with the input of highly experienced expert consultants who understand and can advise clients on the implications of these assessments, which will include stock policies, numbers and geographical locations of depots, logistics and environmental costs.

Businesses must also bear in mind that identifying the optimal network is only a starting point. The key to success is then establishing a clear roadmap to facilitate the necessary changes. To do this, many factors need to be considered, such as contract and lease commitments, people changes, and systems development.

It’s clear that for businesses, sustainability responsibilities and profitability goals needn’t be mutually exclusive. Carefully designed supply chain and logistics networks can benefit both the environment and their bottom line.

For more information, visit: https://www.scalagroup.co.uk/