Every supply chain organization seeks an optimally designed network to reduce cost while improving efficiency, customer service levels, and a competitive advantage. Furthermore, organizational leaders understand that changes in demand, service expectations, market costs, reverse logistics, to name a few, can affect the effectiveness of supply chain networks, and therefore network design must be periodically reevaluated to either confirm design optimization or determine if a restructure is needed. However, this tends to be quite costly.
Bringing in outside expertise from a reputable consulting firm seems like a logical choice, and there are good reasons to do so. The consultant team will have the bandwidth and skills to provide the right network strategy. But once the company identifies the optimal strategy, assumptions and conditions supporting the strategy begin changing. And, depending on the frequency with which the consultants are re-engaged, a time and revenue gap occurs impacting time to value.
Another approach organizations often consider involves bringing in a consulting firm alongside an internal team that will transition into an internal Center of Excellence (CoE) to provide future model adjustments as needed. As I’ve written before, this can certainly work well under the right conditions; but unfortunately, many organizations have found that maintaining a CoE is difficult in the long term.
Factors Challenging CoE Maintenance:
- Loss of People – Whether it be promotions or pursuing new opportunities elsewhere, as people move in and out of an organization’s CoE, members are often difficult to replace due to the unique skill set needed to effectively evaluate, assess, and implement model adjustments required to stay at optimal levels.
- Erosion of Skills – Expanding further on the previous point, every time a CoE team member leaves, the organization loses some of the institutional knowledge necessary to remain effective in its modeling approach. As team members move on to new roles, the understanding behind previously made decisions involving network design often leaves with them.
- Lack of Critical Mass – Oftentimes when an organization employs a CoE, the size of the team is too small to provide the peers and mentors needed to develop and maintain the skills to successfully evaluate and apply network adjustments. With a limited number of resources available, the inability to acquire a second opinion on detailed aspects of the work can lead to inaccuracies in the design, higher costs, missed savings opportunities, or erosion in the organizational confidence in the CoE.
- Loss of Support – It is not uncommon for a CoE to lose support from upper management due to a misperception in value created over time. During the initial network evaluation, the CoE may initially identify double-digit savings, which would please any organization’s leadership. However, as continuous evaluation occurs and the baseline of comparison is improving, identified saving percentages are often lower, thus causing upper management to question the CoE’s value.
So what’s an appropriate solution? Consider outsourcing the practice to a firm that provides an ongoing analytic assessment and develops network adjustments on a recurring basis. This allows the organization to maintain at an optimized strategy with continuous outputs, at a reasonable cost. Instead of intermittent reviews of the supply chain, the outputs continuously provide update capabilities to optimize the supply chain.
Utilizing an outsourced service allows the existing, internal supply chain organization to focus on day-to day business operations, while providing strategic guidance to the outsourced supply chain design service provider.
Jonathan Whitaker is a principal in Chainalytics’ Managed Analytics Services team. His extensive analytical and supply chain background incorporates big data and analytic client engagements in areas including transformative life sciences solutions, supply chain operations and strategy, asset optimization, predictive analytics and inventory optimization.
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