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Is your distribution network optimized for agility? Or cost?
Network optimization is an important initiative undertaken by supply chain professionals. My experience in working with several companies across various industry sectors suggests that most teams optimize it for cost. Typical elements of cost considered are freight, warehousing and inventory.
Cost optimization often impacts the company’s agility in an adverse manner. As a result, they experience higher levels of inventory mismatch resulting in increased stockouts and obsolescence.
Best practice is to optimize the network for agility – higher levels of customer service and faster response to changes in demand patterns, thereby resulting in lower stockouts and reduced obsolescence. Initiatives would be clustered around flexibility and responsiveness.
Cost consideration should, at most, serve as a guard rail to prevent poorly thought-out actions in improving agility, which could potentially result in an overall cost increase.