Making Better-Informed Decisions
September 9th, 2011 5:31 pm Category: Optimization, by: Gene Ramsay
I recently saw this short post on a supply chain-oriented LinkedIn group:
I am responsible for 17 warehouses around the GCC. I want to create 4 major “Hubs” instead. Which would you choose and why, centralized or decentralized warehousing?
This post elicited a variety of responses. Suggestions ranged from looking at the details
Is it a circle route covering all four hubs or direct to and from specific hubs? Because backhaul opportunities can impact the overall costs within your network.
to broader advice, such as
Success of this depends on demand of product category and lead time importance.
When I am faced with a supply chain network design problem, like the one implied here, my first step is to develop a clear definition of the question to be answered – not to hastily jump to a solution. Along with defining the question, you need to determine
• the objective (minimizing cost, maximizing profit, or something else?),
• the options available (the current and potential locations for warehouses in the area, in the context of the post above),
• the constraints that are of importance (service requirements, warehouse capacity, transportation lanes),
• the time horizon, and related criteria.
Then, in the case of a complex supply chain, I find that building a model and using it to evaluate options can give insight regarding both the quantities and the qualities associated with a given solution. Modeling requires effort – you need skills, as well as various data, such as the sales forecast, warehouse location options, transportation and duty costs, etc. – but with the help of a model, and good quality information to populate it, you are able to estimate the implications of different supply chain options, and know whether operating with four hubs is more cost effective than five, or three; where should the hubs best be located; or whether you should have hubs at all. A model can help you make evaluate a variety of trade-offs so that you arrive at a better-informed, and more profitable, decision on how to proceed.