This article explains how to achieve this integration and the importance of supply chain design.
What is Logistics Network Design and Why is it Strategic?
Logistics network design involves optimizing the flow of goods/cargo from the point of origin to the final destination for cost and service efficiency. It entails making decisions about facility locations, transportation routes, and inventory management policies.
Given the decisions it entails, one may assume it is an operational process. However, it’s more strategic as each decision defines and influences your supply chain’s performance for years. For instance, the facility locations you choose today determine your ability to reach new markets a year from now. Consequently, logistics network design also has long-term implications on your company’s financial health, operational efficiency, and competitive posture.
From Silos to Synergy: Logistics Network Design and Supply Chain Planning
In most organizations, network design is a standalone, strategic exercise based on historical data. Network reviews and updates are annual or conducted in response to significant events like mergers or crises. On the other hand, supply chain planning falls to operational teams working with entirely different tools, data sets, and time horizons. The role division results in:
Inefficiencies
The siloed approach towards LND and SCP results in logistic networks that address yesterday’s challenges. Supply chain managers within these static environments resort to expensive workarounds like expedited shipping, safety stock buildups, and manual interventions that erode supply chain efficiency gains.
Poor Forecasting & Slow Response
When design is static, operational teams cannot react to real-time changes. It makes them unable to achieve the responsiveness and efficiency their customers demand. For example, if a fashion retailer’s network is designed around seasonal collections and social media trends shorten product lifecycles from months to weeks, centralized distribution centers cannot keep up with the shifts. Planners would face stockouts in trending regions while excess inventory languishes elsewhere.
Missed Opportunities
The inability to quickly adapt your network design means missing out on new opportunities.
Why Integration Matters More than Ever
The modern supply chains endure a fresh set of challenges. Including geopolitical instability, natural disasters, rapidly changing consumer preferences, and economic volatility. Demanding a level of agility that is only possible when organizations have a continuous daily feedback loop between network design and supply chain planning.
The GAINS AI-powered platform provides organizations with capabilities to achieve this feedback loop. It allows both functions to enhance each other’s effectiveness, creating networks that improve continuously rather than becoming obsolete when market conditions change.
Setting the Vision: Objectives and Goals of Network Design
Supply chain network design objectives look different from business to business. And with each unique goal comes unavoidable strategic tradeoffs. Formulate objectives that reflect your company’s unique KPIs before designing a logistics network.
Key objectives to consider include:
- Cost Optimization
- Service Level Improvements
- Increased Flexibility and Resilience
- Market Expansion
- Sustainability Goals
Common Challenges and Constraints in Logistics Network Design
The logistics network design process is subject to constraints that, if not carefully addressed, hamper supply chain design evolution. Some of the most common LND challenges include:
- Data Quality Issues: Network design decisions necessitate up-to-date information about demand patterns, cost structures, and service requirements. Unfortunately, most companies either lack this data or it tends to be exclusively historical, leading to network designs optimized for problems that don’t exist.
- Regulatory Pressures: Logistic network designers deal with fast, ever-changing compliance issues and trade tariffs. These regulatory pressures restrict options.
- Competing Objectives: As discussed, each network objective comes with strategic tradeoffs. Optimizing for one objective means compromising another, making it difficult for organizations to achieve efficient logistic networks.
- Legacy Systems: Legacy systems lack the integration capabilities to support dynamic network operations.
Core Components of Logistics Network Design
A modern LND is built on the following core components:
- Facility Location: This component seeks to establish where warehouses, distribution centers, and fulfillment facilities will be positioned to serve customer demand while minimizing costs and maximizing service levels.
- Transportation: Defines the modes of transport, routes, and the carriers that will be used to move goods between facilities and to customers.
- Inventory Strategy: Addresses how much inventory to hold at each node in the network. It also defines how to coordinate restocks.
How to Design a Logistics Network (Step-by-Step)
The logistics network design process differs depending on objectives and supply chain environment. However, the steps below can help your company create an LND model that facilitates supply chain efficiency:
- Define Business and Supply Chain Objectives: Your LND objectives will effect all subsequent decisions. Coordinate supply chain leaders, finance teams, and business strategy stakeholders to create objectives that align with broader goals for success.
- Gather the Right Data: Collect data on demand patterns, supplier capabilities, transportation options, facility costs, and service requirements across all relevant markets and periods. Ensure you validate the data as well, since data pitfalls in supply chain design undermine all subsequent analysis. This is where advanced technologies for data aggregation and cleansing come in handy.
- Model Scenarios and Simulate Outcomes: Use GAINSnetwork design software to model complex interactions to test “what-if” scenarios. Visualize the potential impact of different network designs on costs, service, and capacity without risk.
- Evaluate Alternatives: Analyze each scenario against defined objectives. For instance, use weighted scoring for cost, risk, and environmental impact.
- Select Optimal Design and Implement: Select the logistics network design example that best balances all objectives and constraints. Roll out changes in phases for successful implementation.
- Monitor and Adapt Continuously: Continually track KPIs, such as SKU turnover and cash-to-cash cycle time, using supply chain planning tools to make dynamic adjustments.
How AI and Smart Planning Drive Sustainable, Modern Logistics Networks
AI and ML technologies do away with manual spreadsheet-based calculations. Instead, they replace traditional oversimplification of real-world complexity with:
Predictive Demand Sensing
Machine learning algorithms identify patterns in historical data that human analysts might miss, improving the accuracy of demand forecasting, lead time prediction, and cost estimation that underlie network design decisions.
Risk-Resilient Simulations
AI-powered simulation and scenario modeling enable companies to evaluate network resilience under a broader range of potential future conditions. Consequently, they can create contingency plans that keep networks resilient against modern supply chain disruptions.
Sustainability Optimization
GAINS’ supply chain design platform enables companies to create networks that minimize fuel consumption, consolidate shipments to reduce empty miles, and optimize facility locations to shorten delivery distances. Moreover, these systems accurately predict inventory levels, enabling companies to minimize the waste and energy consumption associated with warehousing obsolete products.
Design Smarter, Respond Faster: The GAINS DEO Advantage
Logistics network design and supply chain management are inseparable. With the GAINS composable platform, your organization can incrementally create dynamic connections between logistics network design and supply chain planning.
GAINS is a platform for smarter, faster, and more resilient supply chain decisions. Built on the principles of Decision Engineering & Orchestration (DEO), GAINS helps companies prioritize and optimize every decision — from strategy to execution — across inventory, supply, demand, and logistics.
Request a demo to explore how GAINS can transform your logistics network from a static cost center into an evolving competitive advantage.
