Author: Nathan Goldstein

Aligning supply chain strategy with corporate objectives is a critical determinant of success in modern business. Many have attempted to manipulate their traditional network design tools to achieve this alignment, yet few have succeeded. And the reasons are both vast and complex. While marketed as comprehensive solutions, traditional network design software fails to encompass the reality of factors crucial for effective decision-making. Let us delve into the inadequacies that plague these solutions and explore the imperative for a paradigm shift in supply chain optimization.

Network Design Software in a Dynamic World

Many network design software offerings tout business optimization capabilities. However, their functionality is typically confined to a narrow spectrum that only includes operations/logistics, neglecting aspects such as risk, sustainability, product, and customer profitability. Despite claims of flexibility, these tools often rely on standardized templates and averages, rendering them ill-equipped to accommodate individual businesses’ unique constraints and complexities. The consequence? Abstract answers that deviate from reality leave supply chain practitioners stranded in a sea of impractical recommendations.

Fragmented Optimization

The myopic focus of traditional network design software extends beyond operational constraints, failing to integrate critical components such as supplier contracts, multi-level manufacturing, customer/channel priorities, circular economy/sustainability, and product mix, among others. Decision-making becomes siloed, lacking the holistic perspective necessary for strategic alignment with corporate goals. As a result, organizations are left grappling with unrealistic models and disjointed strategies that undermine long-term viability and growth.

Sustainability Oversight

In an era of environmental consciousness, sustainability’s importance in supply chain optimization cannot be overstated. While some tools claim to address CO2 emissions, their rigid templates fail to capture the full breadth of sustainability constraints. True sustainability optimization demands comprehensive reporting, baseline establishment, and forward projection to gauge green initiatives’ financial and operational implications. Yet, traditional software falls short, perpetuating a cycle of incomplete analysis and missed opportunities for meaningful change.

Neglecting Financial Integration

The most dangerous oversight of traditional network design software lies in its detachment from financial variables. Beyond operational cost optimization, supply chain decisions significantly influence critical financial metrics such as revenue, profit, NPV, and margin. The absence of integrated financial modeling in the network design software denies supply chain leaders the holistic visibility necessary for informed decision-making aligned with corporate objectives. Consequently, organizations operate in the dark, unaware of the broader financial impacts of their supply chain strategies.

Embracing the Marathon, Not the Sprint

Supply chain optimization is not a sprint but a sustained marathon, demanding strategic foresight, adaptability, and resiliency. Traditional network design software for short-term sprints falls short of comprehensive support for long-range planning and strategy formulation. To navigate the complexities of the modern business landscape, organizations must demand solutions that encapsulate:

1. End-to-end modeling, including supplier contracts, multi-level manufacturing, customer/channel priorities, circular economy/sustainability, product mix, etc.
2. Cost Accounting, representing how a business incurs revenue and costs and tying these to business constraints such that a user understands when a given scenario results in different marginal revenue or changes variable costs.
3. Financial modeling: the ability to roll up plans into financial statements and to constrain or bias the solution towards line items (e.g., working capital constraints, COGS, operating profit) or ratios (e.g., margins, NPV); managing and optimizing the financial aspects of the supply chain (capital required to support growth, portfolio optimization, costing model, sustainability accounting, capacity planning) to achieve corporate goals (margin/profit/SLA).
4. Flexibility in constraint representation– for example, supporting labor modeling in engineer-to-order situations or blending in the chemical/mining/food industries.

The Imperative for Change

As businesses navigate an increasingly dynamic world, the inadequacies of traditional network design software become glaringly apparent. To thrive in the long run, organizations must embrace a new supply chain optimization paradigm that prioritizes flexibility, financial integration, and strategic alignment with corporate objectives. Only then can they chart a course toward sustainability, resilience, and enduring success in the ever-evolving marketplace.

If you want to know how leading companies are shifting to this new paradigm, watch the testimonial of our Customer, Pitney Bowes “Mastering Value Chain Optimization with Pitney Bowes’ Lee Devasier“, who embraced comprehensive solutions to adapt to rapidly changing market conditions, achieve higher efficiency, and unlock new possibilities for growth and competitiveness.