Supply chains operate in a dynamic environment and hence their network capabilities should be flexible to accommodate changes in customer, supply, and business environments. In principle, a network design should incorporate appropriate supply chain strategy (i.e., Build-to-Order, Build-to-Stock, etc.,) based on nature of business. Configuration of the network facilities should meet current and future supply/demand needs efficiently while maintaining desired service levels. Geographic constraints and infrastructure availability within the scope of operations limit the choice of facility location and transportation modes. However, an optimal network solution should be the objective. The design should provide room for effectively containing variations in demand, market growth and product portfolio. While minimizing inventory and shortage risks across product portfolio, the supply chain network should make provision to accommodate new business plans.
Factors like changes in demographics, markets, competitive structures, business & marketing plans and growth strategies will have wide implications on the network requirements demanding a major overhaul or capacity realignment. For instance, a change in the age profile within a segment may raise or shrink market potential and hence question the capacity mismatch. Similarly a series of fuel price hikes affect distribution efficiency requiring change in transportation policy. Market penetrations necessitate up-scaling production and distribution resources, but with additional capital and operating cost. Product line prunes lead to underutilized network resources affecting return on assets. Diversification into unrelated business necessitates establishing additional production and warehouse facilities in other locations making the supply chain network complex and inefficient.
Structural shifts such as changing customer preferences, product proliferation, emergence of new channels and modern retail formats, increase in rural spend-propensity, etc., besides logistics challenges and complex tax structure make the supply chain design challenging. But network optimization should be sustained even in changed scenarios. While flexibility is utmost important to accommodate future requirements, efficiency and responsiveness of the supply chain cannot be ignored. Therefore, an effective network design should take a holistic view of all related dimensions to match supply to demand efficiently absorbing potential changes that can occur in market, competitive and product landscapes.