Supply Chain Network Optimization

Cover

Model overview with network scope and analysis parameters. Covers network description, geographic scope and analysis period.

Instructions

Step-by-step guide for setting up and using the model. Covers data entry guide, workflow overview and output interpretation.

Assumptions

Global parameters including currency, cost rates, and planning horizon. Covers planning horizon, currency and unit settings, cost escalation rates and service level requirements.

Product Mix

Product catalog with unit costs, weights, volumes, and handling requirements. Covers product specifications, unit economics, handling requirements and product groupings.

Plant Master

Manufacturing facility data including capacity, costs, and capabilities. Covers plant locations and capacity, production costs per unit, capability matrix and utilization rates.

DC Master

Distribution center profiles with throughput capacity, costs, and service areas. Covers dc locations and capacity, handling and storage costs, service area definitions and throughput limits.

Demand Centers

Customer demand by location, product, and time period. Covers geographic demand mapping, product-level demand, seasonal patterns and growth projections.

Transport Matrix

Lane-level transportation costs between all origin-destination pairs. Covers plant-to-dc rates, dc-to-customer rates, mode of transport and transit times.

Tariffs & Duties

Import/export duties and trade compliance costs by origin-destination country pair. Covers duty rates by product/country, free trade agreement benefits, customs processing costs and trade compliance rules.

Capacity Planning

Matches demand to available capacity and identifies bottlenecks. Covers demand vs. capacity analysis, bottleneck identification, capacity expansion options and utilization forecasting.

Allocation Engine

Optimizes product flow through the network to minimize total cost while meeting demand and capacity constraints. Covers cost-minimizing allocation, capacity constraint handling, multi-echelon optimization and flow visualization.

Landed Cost

Calculates total landed cost per unit including manufacturing, transport, duties, and handling. Covers full cost stack per unit, cost breakdown by component, landed cost by lane and cost comparison across options.

Scenario Analysis

Compare alternative network configurations and evaluate strategic changes. Covers new facility evaluation, nearshoring analysis, tariff change impact and consolidation scenarios.

Sensitivity

Tests how cost and demand changes affect optimal network configuration. Covers transport cost sensitivity, demand volume changes, exchange rate impact and fuel cost scenarios.

Network Summary

High-level summary of the optimized network with key metrics. Covers total network cost, optimal flow pattern, facility utilization and cost per unit served.

Dashboard

Visual overview of the supply chain network with maps, charts, and KPIs. Covers network flow visualization, cost breakdown charts, utilization gauges and scenario comparison.

Error Checks

Validates data consistency and allocation feasibility. Covers demand-supply balance, capacity overflow check, cost reasonableness and data completeness.

Total Landed Cost

TLC = Manufacturing + Transport + Duties + Handling + Storage

The complete cost to deliver a unit from production to the end customer. The primary metric for network optimization.

Capacity Utilization

Utilization = Allocated Volume / Max Capacity × 100%

How much of a facility's capacity is being used. High utilization means efficiency; too high means risk of bottlenecks.

Transport Cost per Unit

TC = (Lane Rate × Distance × Volume) / Units

Per-unit transportation cost for a specific origin-destination lane, accounting for mode and distance.

Network Total Cost

NTC = Σ(Flow × Unit Cost) for all lanes

The total cost of serving all demand through the network. The objective function that the allocation engine minimizes.

1.Map the Current Network and Define Nodes

Start by documenting the existing supply chain network — every supplier, manufacturing plant, distribution center, and major customer location. For each node, capture capacity, fixed costs, variable costs per unit, and lead times. For each lane (connection between nodes), record transportation costs, transit times, and any constraints. This baseline map is essential because you cannot optimize what you have not measured. Most companies discover significant data gaps at this stage, and filling them is prerequisite to meaningful analysis.

2.Define Demand Patterns and Service Requirements

Aggregate customer demand by geography, product family, and time period. Map service level requirements — some customers need next-day delivery, others accept weekly shipments. These service constraints are non-negotiable inputs to the optimization; they determine which network configurations are feasible. Pay special attention to demand variability — peak season volumes may require fundamentally different network strategies than steady-state demand, and the model should account for both.

3.Build the Cost Model Across All Cost Categories

Total supply chain cost includes procurement, manufacturing, warehousing, transportation, and inventory carrying costs. Model each category explicitly — transportation costs depend on distance, mode, and volume; warehousing costs include fixed facility costs plus variable handling costs; inventory costs depend on stock levels and product value. The optimization can only find the true optimum if all cost categories are represented. Omitting a category (e.g., ignoring inventory costs) will bias the result toward solutions that look cheap on paper but are expensive in reality.

4.Run Optimization and Scenario Analysis

With the cost model built, run the network optimization to find the allocation of demand to facilities that minimizes total cost while respecting all capacity and service constraints. Then stress-test the optimal network with scenarios: What if a key facility goes offline? What if demand shifts by 20%? What if transportation costs spike? The scenarios reveal network resilience and help distinguish between solutions that are optimal under one set of conditions versus robust across many conditions. Resilience is often worth a small cost premium.

5.Evaluate Network Changes with Total Cost of Ownership

When the analysis recommends adding, closing, or relocating facilities, evaluate the full cost of change — not just the steady-state savings. Include one-time costs (facility construction, equipment relocation, severance), transition risks (service disruptions during changeover), and implementation timeline. Build a business case that shows cumulative cost and savings over a 5-10 year horizon. Many supply chain transformation projects fail because they underestimate transition costs or overestimate the speed of achieving the target state.