1. Network Optimization Executive Seminar Track 1, Session A
September, 2006

2. Scope
This session covers network optimization, practices, modeling and trends.
Process and Tools: network design process, including timing, focus, tools, and strategies.
Model Inputs: the data you provide to your network.
Planning Considerations: design criteria that is considered (directly or indirectly) when determining which network alternative to select.
Outputs: goals set for network design reviews, actions taken and results achieved.

3. Network Design Many network designs are not optimal.
When you have control, you have the opportunity and the burden to implement efficient operations.

4. Network Design Significant cost reductions are possible.
* As a % of COGS or Revenue
Significant cost reductions are possible.

5. Freight Terms
The enterprise exercises greater control over inbound shipments when freight terms are collect, rather than prepaid. The dominate freight term today is collect.

6. The trend is to greater buyer control
… with some fine tuning.

7. Transportation Mode Shifts
As supply chain networks become more efficient, the trend will be to more efficient transportation modes.
Trends in Domestic Transportation Modes Usage

8. Nodes in the Network
The length of links in the network represent trade offs between transportation costs, distribution center costs, product/material first cost and customer service?
How do you balance these trade-offs?

9. History and Demand Forecasts
Accurate demand planning is important to network design and operation.
However, few shippers have accurate demand planning processes and tools in place.
Even accurate historical data is unavailable to some shippers.

10. Potential for Goal Conflicts
From the retailers perspective, supply chain decision making is divided ...

11. Transportation and Distribution Operational Control
There is a desire for significant more control transportation and distribution operations.

12. Inventory Goals and Execution
Setting Goals
Meeting Goals
Is there a balance of sales and inventory goals?
Does logistics have meaningful input into one of its primary cost drivers?

13. Optimal Decisions
What are the best practices for optimizing decision making?

14. Process & Tools
The majority of network reviews are driven by events or their anticipation.
A significant number of companies review their networks annually.
Strategic reviews look out 3 to 5 years while tactical reviews look out 1 to 3 years.
Most network analyses consider major sourcing and network nodes as fixed.

15. Process & Tools
Most companies are using packaged software; however, surprisingly the majority of the modeling software used does not optimize the network. It only summarizes costs.

16. Process & Tools
Most network analysis provide a baseline model, include inbound and outbound and focus on US operations only.

17. Process & Tools
Most modeling tools have a lot of features that are not used.

18. Model Inputs
Much of the data input is in summary form instead of details. This makes it easier for the model to perform calculations; however, it requires significant data manipulation up front and dilutes the optimization capabilities.

19. Model Inputs
Models have the ability to consider many variables; however, it requires a significant data collection and input effort.
Model optimization typically is focused on transportation costs, DC costs and service times.

20. Planning Considerations
Stocking locations are driven by optimization of costs, minimization of customer service times and minimizing individual orders being shipped from multiple locations.

21. Planning Considerations
Outsourcing of DCs and consolidation/pool facilities are a significant consideration for network analysis.
Most companies have minor or no limitations on using 3PLs.

22. Planning Considerations
Costs and service times are the primary methods for considering increasing or decreasing the number of DCs.

23. Planning Considerations
Risk is often considered in network analyses; however, it is usually done on a subjective basis.

24. Planning Considerations
Sensitivity analysis is often used to mitigate risk.

25. Outputs
Costs minimization and service time improvement are the key goals of network modeling and analysis.

26. Outputs
Costs minimization and service time improvement are the key goals of network modeling and analysis.

27. Your Expectations
What would you like to discuss and learn from this session?
What are the important issues?
How are others dealing with network optimization? What’s working? What’s not working?
Shared good and bad experiences?
Reasonable expectations for network analysis?

28. Potential Discussion Points
What are the top two or three factors in optimizing a supply chain network?
What are the biggest opportunities that would result from upgrading your network?
How do you balance the trade offs between costs and service?
What tools or techniques are available for optimizing your network? What capabilities do they have? How are they being used?
What capabilities do you need in a network optimization tool? Do you need optimization capabilities?

29. Potential Discussion Points
What data is needed to conduct network analysis and how difficult is it to gather and verify?
What criteria should be considered in network optimization?
What is the role of 3PLs play in network optimization?
What risks need to be considered in network optimization and how can they be mitigated? What sensitivity analyses need to be conducted?
What are the expected results from network optimization analysis? What drives the optimization recommendations?

30. Important Takeaways
Competitive advantage – Network optimization is a hot topic and can provide significant competitive advantage.
Processes and Tools – The majority of network optimization analysis are drive by anticipated events such as mergers. Most companies are using packaged software; however, the majority of these models do not perform optimization. There is significant opportunity to reduce costs and improve service through network optimization and the use of the proper tool is very important.
Model Input – Models have the ability to consider many variables; however, it requires a significant data collection and input effort.
Planning Considerations and Output – Cost minimization and service time improvements are the primary goals of network optimization. Risk is often considered in network analysis; however, it is usually done on a subjective basis.

31. Questions?

32. Benchmarking & Best Practices References
Information on international supply chains can be found in the following references: