The ROI of Supply Chain Design
The benefit of utilizing supply chain modeling technology to impact large-scale supply chain strategy is well established. Many organizations are applying the same principles to impact their daily operations and implementing supply chain design centers of excellence, or COEs. While we at LLamasoft were able to track the business impacts of COEs with individual customers, our colleagues at the University of Michigan Ross School of Business recently conducted research that puts many of those hunches into statistics. They were able to quantify many of the benefits of implementing a supply chain design COE.
Supply Chain Design Drives Cost Savings
According to a recent survey of LLamasoft customers, 70 percent of LLamasoft customers with supply chain design centers of excellence in place were able to identify cost savings of at least 10 million dollars. Coupled with those savings were significant improvements made in both time and cost efficiency2. Additionally, 90 percent of these same survey respondents reported achieving at least a 31 percent increase in their overall cost efficiency1. On average, customer respondents achieved eight percent savings on inventory costs, 19 percent on production costs, 13 percent on transportation costs and five percent on overall fixed costs.
The University of Michigan study asked questions to make connections not only between the amount of cost savings, but also analyzed savings in time and efficiency. When asked to quantify “How much cost savings revenue increase have you identified as a results of COE implementation?” 40 percent of the respondents cited $10-50 million in cost savings/revenue increase, while approximately 34 percent of the respondents reported over $50 million.
When asked “By what approximate percentage has COE improved performance on time and cost efficiency?” approximately 55 percent of respondents cited between 31-40 percent improvements on cost efficiency with ten percent of respondents reporting upwards of 91-100 percent in increase time efficiency. Check out the graph below for more detail.
Supply Chain Design COEs Drive Increased Benefits via an End-to-End View
To capitalize on supply chain design as a competitive weapon and maximize potential for significant savings, supply chain design should see across the entire business to optimize the true end-to- end supply chain and not just a specific business unit or business function. Supply chain design COEs can pool talent and technology from individual departments to provide analysis capabilities to the entire organization. This organizational structure can help the group avoid the pitfalls of local bias or politics and remain focused on data-driven business solutions to benefit the whole.
Building a Successful Center of Excellence
We’ve talked in the past about key steps to build a supply chain design COE, but here is a brief recap.
Establish a Consistent Method for Identifying and Prioritizing Design Initiatives
An excellent exercise for any business considering a move toward a supply chain design COE or in the early stages of development is prioritization of modeling initiatives. Executive sponsor(s) as well as representative department heads and analysts should participate.
This process is an effective way of focusing the discussion of the team and removes some of the subjectivity normally present in these decisions and requires input from the entire group. A view of potential projects will quickly take shape and become a starting point for either COE justification or a prioritized COE project plan.
Go After Quick Wins
Even though supply chain design can identify major breakthroughs in cost savings or service, some recommendations can be disruptive and time-consuming to implement (open four new DCs, rationalize 200 products, etc.). In order to establish early credibility for an emerging COE, many companies will identify quick-win projects that are much easier to implement and still deliver significant cost benefits (product flow-path, inventory right-sizing, DC-to-customer assignments).
Get Out In Front of the Predicted Supply Chain Talent Shortage—But Be Selective
We’ve discussed the importance of the people side of supply chain design and the ongoing talent shortage. Industry experts say an understanding of technology and an ability to work in a global environment are increasingly important in the supply chain, forcing managers to look for people with a rare mix of specialized skills to manage this crucial aspect of their business.
Successful team members should be effective problem solvers—people who think analytically and are natural researchers and implementers of new processes. Invest the time to find experienced members of your team. In addition, invest the time to find team members who are experienced in the business – who know the business and can talk to the business. On average, COEs with staff that have industry experience were over 25 percent more efficient with time and cost savings measures.¹.
Pursue Design Mastery
Once you have a team of bright, talented analysts dedicated to supply chain design, be sure to invest in their growth and development. In addition to giving them powerful and easy to- learn design technology, build a roadmap for supply chain design mastery for each analyst. Identify the milestones and requirements—and benefits—for each step in their progression from new hire to program leader. Establish a process for onboarding, project shadowing and technology training.
Align COE Goals with Business Strategy
It’s never easy to get everyone on board, especially executive stakeholders. Business leaders may not be fully immersed in the day-to-day details of the supply chain, and they need information quickly in easily-digestible formats. Engage from the top to get C-level support. Start with explaining what supply chain design really does and use examples of the impact supply chain design has on companies just like yours. Keep presentations easily understandable and avoid jargon. And don’t be afraid to share your successes!
To view the results of this research more in-depth and to read case studies of these principles in action, check out our Ebook: The ROI of Supply Chain Design.
1University of Michigan 2015 Supply Chain Design COE Research
2LLamasoft 2015 Tell a LLama your Story