DC Velocity - July 2013

and development staff comes trotting along, excitedly describing their latest product that’s bound to be a best-seller. Similarly, the sales team is forever in the bar, celebrating winning yet another new customer. Meanwhile, your logistics team is stuck wondering how to handle the extra costs associated with the additional stock-keeping units (SKUs) and new customers, which weren’t accounted for in their budget.

How to address this problem? A colleague once resorted to configuring his company’s enterprise resource planning (ERP) system to allow only 25,000 products. Although this was a radical and perhaps crude solution, it at least forced the company’s marketing department to think about dropping an existing product whenever a new one was launched.

Once again, modeling with supply chain network design
software can help you foresee the cost and service impact of
change. Managers can simulate how keeping or dropping
particular customers and products will affect profits. Be
prepared for some pushback when you present those fig-
ures, though. Marketing will argue that particular cus-
tomers give you much of their business because your com-
pany supplies them with a low-volume, specialized product,
so that product must stay in the catalog. They’ll also argue
that other customers have potential—perhaps because they
are a high-growth business or the sales team has just won a
foothold by offering a huge discount—and therefore, the
pricing for that customer cannot be changed. Regardless of
the response your simulation elicits, remember that supply
chain design tools generate accurate numbers that support
a rational discussion.

4Consolidation or collaboration is coming. An impending acquisition, collaboration with another company to share resources, or centralization of previously decentralized supply chain functions all suggest that a network redesign is probably in order.

Typically, companies form merged, collaborative, or centralized supply chains with objectives such as achieving economies of scale in warehousing, better utilizing transport, and increasing freight purchasing power. Using network modeling software to evaluate a proposed supply chain redesign before such a large strategic change will give companies a better sense of just how feasible these objectives are.

In a merger or acquisition, for example, the acquiring company sometimes pays too much because management overestimates the level of supply chain savings and efficiency improvements. Acquirers often justify paying a high acquisition premium because they expect that eliminating redundant supply chain functions will lead to a high level of savings. But in practice, such rationalization can be diffi-