What is a supply chain network?

So, how do you design a supply chain network? By creating a working model that shows you each part of your product delivery process, along with the true costs and time associated with each step. In designing a supply chain network, you can:

• Pinpoint inefficiencies.
• Answer key questions—for example, are your warehouses in the optimal locations, or are too many of your suppliers off-shore?
• Make trade-offs, between plant location and freight costs or between inventory stockpiling and risk.
• Best of all, you can adjust your model using sophisticated software, before you ink partner commitments or make expensive brick-and-mortar investments.

Supply chain network: a definition

Supply chain network is a strategic, ongoing process to configure and optimize a supply chain. It involves advanced data analytics, mathematical modeling, and innovative technologies to maximize efficiency and responsiveness. This approach includes:

1. Tactical network optimization: Exploring ways to enhance the current network for short-term planning and efficiency gains.
2. Strategic network configuration: Aligning facility locations, capacities, and market strategies with business objectives.
3. Risk identification and mitigation: Assessing potential risks through "what-if" scenarios and developing action plans for each.

Together, these elements address modern supply chain complexities by balancing cost, risk, service, and sustainability, thereby adapting to market changes and fostering sustainable growth.

Modern supply chain challenges

Disruptions faced during the pandemic provided a good illustration of our dependence upon supply chains, and the complex vulnerabilities they can be prone to if they are not well designed.

• Lack of visibility: End-to-end visibility has long been a major goal for supply chain managers. Today’s connected and powerful technologies help to mitigate these issues – reducing inefficiencies and delays that businesses face as they struggle to get a complete picture of their network and operations.
• Volatility in customer demand: We are in a time of unprecedented shifts in consumer behavior and expectations. When supply chains struggle to keep up with these demands, it can result in planning challenges, leading to overstocking or stockouts, and a weakening of the overall agility of the value chain.
• Complexity of global operations: Regulatory compliance becomes more difficult by the day, exacerbated by shifting geopolitical and environmental issues from region to region. Multi-tier supply chain networks face increased risks and challenges in ensuring consistent quality and performance across the world.
• Technological limitations: Legacy and outdated technologies are often inadequate in today’s complex environment. Limitations in data analysis capabilities, automation, and real-time tracking can hinder your aims for a more optimized and responsive supply chain.
• Environmental and sustainability concerns: From consumer expectations to your own robust sustainability goals, balancing growth with environmental and social responsibilities presents a unique challenge.
• Security: The dual focus on cyber and physical security is critical in safeguarding sensitive data and physical assets against increasing threats. The design of IoT and connected networks must address these complex security challenges.

Key components of network in supply chains

The core components of supply chain network support the use of data analytics and centralized supply chain management systems to help you streamline operations and overcome the challenges listed above.

• Cost optimization: A core component of the practice of supply chain network design revolves around balancing operational efficiency and maintaining cost-effectiveness. This includes optimizing logistics, manufacturing, and distribution costs – through better visibility and modeling of your current activities.
• Risk Management: An end-to-end approach to regulatory compliance, data management and analysis, and supply chain transparency is essential. Good risk management practices not only protect your supply chain, they also help protect your brand and reputation.
• Responsiveness and agility: Today’s businesses must rapidly adapt to changes in market conditions, customer preferences, supply dynamics, and global events. Modern technologies are essential to help you map and model contingency plans and pivot safely and quickly when the unexpected occurs.
• Service-level agreements (SLAs): These help to set clear, measurable standards for performance, quality, and service across the stakeholders in your value chain. This helps to ensure global consistency and reliability in the management and delivery of all your goods.
• Sustainability and ESG metrics: The stakes are high today to ensure that you integrate environmental, social, and governance considerations into your value chain practices. Smart supply chain solutions help ensure that these practices are transparently upheld across your global operations.
• Data analytics and information flow: The core aims of supply chain management have not changed for years. But what has changed is the essential role of data and effective information management in ensuring operational efficiency and strategic planning.
• Technology integration: AI, blockchain, digital twins, advanced analytics, and today’s range of smart, connected solutions – these are the technologies that underpin modern supply chain innovation, and that help to optimize transport, location intelligence, distribution, and fulfilment.

Location intelligence and modeling in supply chain networks

A further essential component of supply chain network design is location intelligence, which provides vital insights for strategic planning and operational efficiency. Through the real-time analysis of geospatial data, your teams can better understand the physical flow of your goods. And by integrating locational data with the rest of your supply chain data, you get an actionable view of your logistics and value chain network. This intel helps you make informed decisions about warehouse locations, transportation routes, and the prediction of market trends. This means spotting and avoiding bottlenecks, tracking the live movement of goods, and forecasting demand based on geolocational patterns.

In addition to geographical optimizations, today’s supply chain network design also incorporates modeling techniques that use advanced analytics for predictive insights, scenario planning, and risk assessment – allowing you to simulate various supply chain scenarios, to improve efficiency, resilience, and responsiveness. This approach lets you integrate data-driven insights into your planning strategies, ensuring better agility and preparedness.

Innovative technologies in digital supply chain network

• Big Data analytics: Comprehensive analysis of large and complex data sets helps to improve forecasting accuracy and strategic planning. This includes the application of predictive analytics to anticipate market trends and consumer behaviors.
• Artificial intelligence (AI): Utilized for sophisticated predictive analytics, demand forecasting, and automation, AI technologies – and the machine learning algorithms that underpin them – significantly streamline operations and decision-making processes.
• Internet of Things (IoT): IoT devices range across a broad spectrum of assets that can track, automate, communicate, advise, and warn – all in real-time. Cloud connectivity within IoT networks helps improve transparency, tracking, operational control, predictive asset management, and smart supply chain networks.
• Blockchain technology: Blockchain provides unparalleled transparency and security, especially in areas like traceability, provenance, and secure transactions. It enhances trust among supply chain partners by providing immutable record-keeping.
• Cloud computing: Cloud-based solutions facilitate flexible and scalable data storage and processing, enhancing collaboration and information sharing across various supply chain components. Cloud solutions also support the seamless integration of diverse supply chain activities and systems.
• Advanced robotics and automation: Improving operational efficiency, particularly in warehousing and logistics, robotics and automation technologies reduce human error and increase productivity. These tools are essential in high-volume and high-speed operational environments.

Digital twins in supply chain network

In addition to the important technologies listed above, digital twins represent a breakthrough in how supply chains are managed and optimized. Through the creation of virtual replicas of physical supply chains, digital twins allow for detailed analysis, simulation, and optimization. Because there is no physical risk of damage to these digital assets, it allows supply chain managers to test both routine operations as well as various extreme disruptions. The integration of real-time data with these models further allows for continuous refinement and adaptation, making digital twins an invaluable tool for dynamic and resilient supply chain network design.

Key benefits of an optimized supply chain network

• Efficiency and cost reduction: Every bit of wasted space in a vehicle or warehouse, all the little delays that add up to big ones, each of the unnecessary miles your teams have to go — these can all hurt your bottom line. Effective supply chain network design can help you spot these weaknesses and coordinate more predictive responses, saving on production, streamlining operations, and minimizing waste.
• Sustainability and reverse supply chain integration: Meeting and exceeding your sustainability targets is a worthwhile challenge (but a challenge nonetheless). Network design solutions can help you see areas where energy, packaging, and carbon usage savings can be made – including the costly and resource-heavy area of reverse logistics.
• Enhanced customer satisfaction and brand reputation: Of course, fast, reliable deliveries are near the top of your customers’ priority lists. But with a well-designed and integrated supply chain, you’re also able to deliver on the tracking, service, support, and real-time assistance that helps build your reputation.
• Increased agility: An effectively designed supply chain not only generates and gathers data, it also uses advanced analytics to leverage and understand that data. This lets you worry less about unexpected future disruptions – having responsive plans and options in place, whatever tomorrow brings.
• Better decision-making: A major component of increased agility is the ability to act on information in a swift manner – confident that your intel is accurate and robust and that your decisions will be the right ones.

Emerging supply chain trends

Current trends in supply chain management and network design are reshaping the industry. Businesses are prioritizing (more than ever) their sustainability goals, including a heightened focus on greening reverse logistics. There's a growing emphasis on resilience and effective risk management, with strategies focusing on supplier diversity and flexibility. Customer-centric approaches are becoming more prevalent, tailoring supply chains to align with the evolving preferences of e-commerce consumers. Globally, there's a movement towards more sophisticated trade management, navigating complex regulations and compliance demands. Additionally, the trend of “near sourcing” and local production is gaining traction, reducing reliance on globally extended supply chains, and enhancing market responsiveness.

Why SAP for supply chain network?

SAP Business Network solutions take a comprehensive approach to supply chain network design and management, integrating advanced analytics and end-to-end visibility into a cohesive global value chain. This delivers operational agility and resilience, supports asset and financial management, and embeds sustainable practices – offering your business a competitive edge in today’s complex market.

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