By Mike Croza Understanding every part of a supply chain – and filling the gaps – is a must in today’s high inflation and increasingly competitive market. How do you get the most out of your supply chain? The answer to that question is simple enough: Make every mile count. How to actually do that gets a little more complicated. The supply chain is facing a barrage of inflationary pressures. The average cost of diesel has soared 47% over the past year. The labour markets in Canada and the U.S. are highly constrained, with unemployment sitting at 5.1% and 3.7%, respectively – both of which are at or near historic lows. Borrowing costs are surging. Finding available real estate feels next to impossible, while industrial real estate vacancy rates in key North American distribution markets currently sitting below 3% and, in some cases, under 1%. These pressures are challenging, but we view them as temporary. There are signs that the tightening in the real estate sector may be easing as developers currently have hundreds of millions of square feet of distribution space under construction. Much of that space will come on stream over the next 12 to 18 months, although it will take years for a balanced demand/supply scenario. Whether you’re trying to streamline an existing business or with a private equity firm looking to find synergies between acquisitions, at times like these, the best thing you can do is focus on what you can control. You may have little power to influence things like energy costs and real estate, but you can buffer those pressures by optimizing your network. It’s not hyperbole to suggest that investing in your supply chain unlocks efficiencies and pays big dividends, especially now. While the recent cost pressures may motivate some businesses to take a hard look at their supply chains, the leading businesses already know that a healthy supply chain can be a significant contributor to their growth. Optimize your networkCustomer expectations through COVID have forced businesses to reluctantly add infrastructure and inventory closer to where it is consumed. As you reimagine your supply chain, your plan must consider your needs today but, more importantly, ideas around future growth. To accurately model your future network, your plan must include factors like new acquisitions, projected sales growth data, product assortment additions and future sourcing locations. It’s well worth the effort. The potential cost savings for a large national retailer or manufacturer could reach into the millions – money that can be reinvested in the business to accelerate growth. We have helped clients with the analysis and business cases to realize savings on this scale by optimizing their network (inbound and outbound transportation, DC operations, and carrying cost of inventory reduction). We’ve seen it firsthand. For one client, a network optimization project contributed to net annual operational savings of over $4 million within two years. Initially, this client had a large footprint, with many backroom storage areas at its various branches, each of which held a full range of parts assortment. By adopting a centralized distribution centre model, it was able to reduce the frequency of deliveries to its branches. At the same time, the client moved towards a more centralized planning and systems model to effectively manage its customer service fill rates with less inventory and capital assets. Immediately after the project, the client committed to an aggressive implementation plan and 24 months after the project completion performance on inventory turns improved to 3.5% from 1.89%. While network optimization is still used to identify facility locations and balance the cost/service tradeoff, it has the potential to offer much more value than that for today's supply chain leaders. The dynamics of the polycrisis we are facing means businesses can’t expect to find the answers to their challenges on a spreadsheet. Businesses need to remain agile by stress-testing their operations by running what-if scenarios to inform strategy development, which touches everything from sourcing and inventory deployment to final mile delivery and order management. Location matters, but it’s not the only factor to consider Where you place those distribution centers is still critical, but it takes more than drawing lines on a map to determine the shortest distance between your warehouse and customers. Unless you’re prepared to move produce from the middle of a farmer’s field, you want to make sure that location has access to the resources you need to support your business. Apart from access to roads and highways, does the community have the infrastructure to meet your needs? What are the available commercial real estate options like? How much do they cost, and do they offer room for growth? And what about the employment market? Can you find the right people to staff your facility at the right price point? Does it have access to carriers, distance to ports and railyards? Or is the location susceptible to the growing risk of natural disasters, such as flooding, hurricanes, or tornados? We add value by challenging internal assumptions, sharing experiences from other industries, and leveraging our collective learnings from many prior network optimization assignments. From there, we help determine if you need one distribution center or six and then work downstream to your last-mile deliveries to further refine your merchandise flow, storage and efficiencies for store replenishment and customer pickup stations. Your supply chain needs to be part of your green plan Finding efficiencies through this process goes beyond savings in operating expenses, working capital, and customer service. Optimizing your supply chain can also help you lower your carbon footprint. Through the same process, companies can also assess the carbon footprint of various scenarios and make informed decisions that support both financial and ESG objectives. Even if ESG is not a top priority next to the other challenges you’re dealing with, repeated studies have shown that it’s top-of-mind for many of your investors and customers. Having an optimized supply chain that tracks and measures your emissions is not only smart because it protects the environment, but will also help protect your reputation. Three-quarters of Generation Z survey participants prefer sustainability over the brand name of a product, and 71% of Millennials, 73% of Generation X and 65% of Baby Boomers agree. The supply chain disruptions we’ve seen over the past few years have raised awareness about the cost of this on businesses. If you want to be successful, your business needs a resilient and optimized supply chain. Make every mile count – it means more to your business than distance. We should indicate that disruptions are likely to continue, so all the more reason to run “what if” scenarios and develop continuity/resiliency plans.