GRA Director David Drummond talks with GRA Director Dan Knox about Supply Chain Network Design
In the interview David answers the following questions:
- What is involved in Supply Chain Network Design?
- What are examples of some Supply Chain Network Designs that GRA has recently undertaken?
Supply Chain Network Design focuses on establishing the supply chain to service your customer base. Organisations need to determine their business strategy and customer value proposition to work out what they want to service. They then can develop their supply chain strategy and the Supply Chain Network Design accordingly.
Find out more about GRA's Supply Chain Network Planning & Optimisation offering.
Dan Knox: And welcome, David. Thank you for joining
David Drummond: Thanks Dan. Good to be here.
Dan Knox: I'd like to have a chat to you about supply chain network design. What's involved in supply chain network design?
David Drummond: That's a great topic, Dan. Supply chain network design is really focused on how do you establish your supply chain to service your customer base. And a lot of organisations have a different requirement for their customers. You work out your business strategy. You work out your customer value proposition. And when you understand what you want to service, you then develop your supply chain strategy but then your network design to service that.
Dan Knox: What's involved in the network design? What do you have to consider?
David Drummond: The network design, it can be very complex, but if you're used to working with them it really is quite simple. It comes down to what's your source of supply? How do you get those goods from source of supply to your customer base. We see a lot with retail store models, bricks and mortar, and we see a lot more online in the last 10, 15, 20 years. And you've almost got two channels to market. So customers sometimes work in both spaces. They're sourcing from the same place, but they see the complexity of servicing two different demands, two different movement profiles. So it's really reviewing how those goods need to move from end to end. to move from end-to-end.
Dan Knox: Can you elaborate a bit more on some of the elements that you consider in the design?
David Drummond: We would look at the profile of the customer's products. Where they're selling to their markets. So where is demand coming from? Once you profile that demand by region and Australia is an interesting market, I guess, to focus on domestically. Your population base is really fragmented. WA, a big state, but small amounts of volume, so you look at where the demand comes from and then you look at the source of supply. That then becomes a link between the demand of product and where it needs to get to. But the volume it comes from various suppliers, so getting that profile of information means you can then start to look at, where should I put my DCs? How should I move it?
Mode of transport is one of the first considerations. Large volumes will always come by sea, but urgent things will typically come by air if they're high in value and low in weight and low in size and volume.
Once you've got a view of the supply and demand profile and where you're sourcing products, that sort of analysis then allows you to put some volume throughput to say through what ports overseas, whether it's China in Asia. People talk about Asia, but really it's a massive area. Parts of it can be Southern China, Northern China So trends have changed and I've seen it over the last 20 years where China was typically Southern China. And as costs increased, then the products started being sourced further and further north. They then moved more to Southeast Asia. So, source of cheap products through Asia has moved, and typically what companies do is they move their source of supply where they can buy the cheapest product.
But the cheapest product that you can buy at face value, isn't always the lowest cost to customer. So, being able to consider those costs from Southeast Asia versus China into Australia, where your volumes, you might have some very low volume regions you're buying from.
We've seen that with clients recently, it doesn't make sense to purchase a low purchase of cost item, and then have a huge logistics cost to get it into your network and out through your DC's to customers. Sometimes it's cheaper to consolidate your sourcing points, and then that is often done through consol facilities. Consol facilities are available all out of Asia and Europe to bring goods in.
Many companies haven't reached the maturity level to look at that yet, so they just buy, the container loads. They buy too much stock, They buy a month's worth of stock at a time because they don't have the frequency of delivery. So, the use of consol facilities allows you to bring multiple supplies product into a central point at a low cost, have it handled and cross docked effectively to be then shipped out and moved in a timely manner that lowers inventory levels domestically and allows you to ship mixed product to the different states around the country. Which gets your goods closer to customer, rather than the old days of full containers for a months' supply shipping to Sydney, for example, and then break it down in the DC, and then have a high domestic transport cost.
So, the ability to ship more directly to where the end point is, and the use of consol facilities, it's done by most large companies now, but I guess a lot of midsize are really not experienced in that space and not sure how to go about it.
Some of the analysis we've done for the clients, in recent times is showing that they've used consol facilities but they're referred to somebody, and it's almost a cookie cutter method.
They're using a consol facility, they're all the same, we'll go there. They're not really leveraging the expertise of what is the best way to go through which consol facility and make sure they get value for money in that consolidation process. The goods need to predominantly in a consol facility, travel through within a week or ten days, and there is a whole range of duty considerations, and export tax considerations at the point of origin that need to be taken into account. So, if that's done well, you have a faster supply chain, but you also have a lower cost supply chain. Some people think of warehousing offshore, rather than a consol facility. Well, if you warehouse offshore, you're increasing your cost of storage offshore. You need to make sure that domestically, those goods can almost go direct to customer and remove all your domestic warehousing and distribution centre costs, because the trade-offs don't work too well, if you start to hold goods in China. And a lot of the labour costs are cheap, but sometimes some of the other costs are not as low as people would anticipate.
Dan Knox: Now David, can you give me a couple examples of some of the projects you've worked on with supply chain network design?
David Drummond: Yeah, a couple of recent ones. One involved review of 7 offshore consol facilities, the process of feeding the goods into them was quite fragmented, not consistent. We rationalised that consol facility process and had a just-in-time into store arrangement which effectively shipped via sea arrived in the country, and within 10 days had to be through a domestic DC and into store, through numerous stores all over the country.
We have another recent example, where the client was doing both online, and bricks and mortar, their online had grown dramatically, it's in the fashion apparel-type industry where every week there's new product, new range So there's no historical sales profile, they're buying a volume of product to put into store and sell over a period of time. It pretty much goes into store and gets sold through with small reserve stocks at DC. Bringing all that into a central point, and then sending it out to your stores carries a huge domestic cost.
That review enabled us to look at the consol process overseas ship direct to state and then effectively cross dock from the state direct to store. So, in that case, the consolidation was actually a pick two store at the consol facility in full container loads, and then shipped through a third party logistics company, who brought the full container in to port, took it to the DC on the appropriate day and effectively unloaded the container and loaded on the delivery run.
So, what that removes was unloading a container at a domestic DC. Putting the stock away, picking it all again, and domestically sending it all around the country. They're now able to in the three biggest states, Queensland, New South Wales, Victoria, they ship containers direct to the cross dock facility of the 3rd party and removed a huge chunk of physical costs of moving containers and unloading, because the unloading was done by the sorters, or the sort machines that were sorting for the delivery runs, and that sort of service is available through a number of operators in Australia large 3PLs, etc, who can get to the retail stores, or even direct to consumer and that's certainly for onlines a really popular model. But this client, had grown up with bricks and mortar they were playing in the online space, and they just didn't know how to deal with more advanced logistics processes, and make it work.
Dan Knox: Well, thank you for your time today, David.
David Drummond: Thank you, Dan. It's been good.
Reproduction of GRA whitepapers and articles
GRA permit the reproduction of GRA authored whitepapers and articles so long as all the following conditions are understood and met:
- Entire credit details must be included:
- Author's name(s)
- GRA name and contact details
- GRA URL link to the original article
- All hyperlinks within the article must also be retained
- Articles must not be resold
- GRA retain full copyright.
If you have any queries about reproducing a GRA article or whitepaper, please contact GRA Marketing