Design Procedures’ Right to Exist in Companies

Geoffrion and Powers (1995) stated that “The corporate status of logistics has changed dramatically during the last two decades. Within many companies, it has gone from a neglected and disdained function to a highly visible one respected for its profit impact and key strategic role”. Logisticians and logistics executives generally agree that questions like “How many stocking points should be implemented, and where exactly should they be located?”’, or

“Where should the factories be located?”, as well as “Which customers should by served by which stocking point?” cover the most important strategic logistical challenges (Geoffrion &

Powers, 1995).

Foo et al. (1990) focused on the product design from a materials logistics point of view by using a conceptual methodology. They state that the ideal product should have a minimum number of possible inherent parts, standard or “preferred” parts, and a modular and reusable

and organisational design practices. In addition, they discussed 36 logistics technologies used by several organisations. Fawcett & Closs (1993) discussed the findings of their analytic examination of the interrelationship between company’s perceptions of economic globalisation, its emphasis of logistics and manufacturing considerations in the design and management of global manufacturing networks, and its competitive and financial performance. Vidal & Goetschalckx (1997) presented an extensive literature review of strategic production-distribution models, basing their research on mixed integer programming (MIP) models.

Industrial engineers are the ideal professionals to design and integrate logistics, transportation and distribution systems (Petersen, 1993). Logistics and SCM need to be considered as an international business venture. Some authors focused on the managerial approaches for global SC design. Kogut (1985) argued the importance of flexibility in global corporations as a riposte to fluctuations in exchange rates and complexities in competitive proceedings. In addition to this, the process of designing an inclusive logistics model may be seen as one of the main benefits as companies are forced to define and to precisely understand their logistics principles and functions. One typical side effect is the cost reductions, which may pass from 5 to 15% (Geoffrion and Powers, 1995). In this same logic, Goetschalckx et al. (2002) examined a company’s savings potential generated by the incorporation of strategic global SC networks’ design, including the determination of tactical production-distribution allocations and transfer prices. To do so, they elaborated two different models. While the first model is based on a bilinear programming formulation, the latter is based on primal decomposition methods for the mixed integer programming conception. However, both models are supposed to generate and discover the optimal solution. However, because of different reasons like time constraints or the scarcity of expertise in research matters, most companies need to operate with the satisficing principle described by Simon (2008).

One of the most intelligible strategic problems an LSP has to face is the optimisation of an entire SC. The strategic design of a SC requires managers to decide on the number, location, capacity, and type of production plants (Vidal & Goetschalckx, 1997). Immediate logistics questions should be answered directly and consistent manner, and should therefore be based on the strategic logistics plans of the company. However, managers do often react in a spontaneous manner, based on ‘intuitive’ knowledge instead of leading systematic investigations including ‘what-if-scenarios’ before giving answers to these questions (Goetschalckx et al., 2002). Duties and taxes have also significant impacts on international distribution models (Geoffrion and Powers, 1995).To improve production efficiency and the products’ quality, companies often adopt a wider perspective and consider the design and redesign of their entire supply chain (Baiman et al., 2001).

Internal discussions with senior managers and several experts³¹ yielded that customers have different reasons for claiming a redesign of their SCs. It is important to understand that a simple change in a SC does not necessarily consist in a redesign of the considered SC. It can be assumed that the reasons of why to redesign an existent SC do not change according to the considered domain but according to the customer and that one reason for redesigning a SC may appear more often in one domain than in another one. The aforementioned discussions also yield that the difference between a simple

example, the creation of additional employments is a change which is not always influenced by strategic reasoning. A redesign however, is mostly preceded by strategic choices such as new commercialisation strategies, reorganisation or merger of the company, change of the procurement policies, and so on. Hence, the fact of distributing a product via a retailer B instead of a retailer A is to be considered as a change, while the fact of changing the retailing strategy is to be seen as a redesign. This is the case if, for example, a product has always been distributed via retailers and will now be sold via e-commerce. Changing the procurement policies does not mean that a supplier will simply be replaced by another one, while this may result from the new procurement policies.

To complete the above literature review, semi-structured interviews have been conducted with a group of 14 Kuehne + Nagel internal experts, working in the IL (Integrated Logistics) department. In addition, we examined the Network and Supply Chain Engineering (NSCE) project database, including every project served by this department during the timeframe of 2007 to 2016. We analysed the database’s inherent 782 re-design projects, which have been completed between 2008 and 2015. The 15 most important key-drivers leading to a re-design of the SC have been determined. Effectively, those 15 key-drivers, which are listed in Table 20, constitute almost 75% out of the total amount of identified levers for action.

1. The company wants to reduce the costs

2. The company wants to identify and understand eventual synergies 3. The company wants to improve its inherent structures’ & performances’

transparency

4. The company is running out of space

5. The company wants to reconfirm its centre of gravities (COGs) 6. The SC needs to be adapted to new sales or market requirements 7. Lead-times need to be reduced

8. The (upstream) suppliers will be changed 9. The company merges with a competitor 10. A new product will be launched

11. The product allocation will be shifted 12. One or several activities will be outsourced 13. The market grows in a specific region 14. The company wants to evaluate its SCs

15. New production facilities have been implemented

Table 20 – Sub-drivers for redesigning a Supply Chain

All companies require a certain level of internal transparency and visibility. To improve the overall transparency of the SC, it needs to be evaluated and re-designed, if applicable. The company may need to reorganise its whole structure, resulting in a process of redesigning

few. Furthermore, if the company’s lease is ending or if the company is running out of space, managers need to re-examine the SC’s structure as well as the different plants and storage locations. The existing stock can thus be verified and the answer to the question

“How logical is the current situation?” can be given. If the firm’s capacity is reached, the need to expand increases and may result in reconfirming the centres of gravity (COG) or even in reviewing the entire SC. In addition, the company needs to readapt its SC to new sales or market requirements, such as reduced lead-times. One impetus behind lead-time reduction is for example that the enterprise has reliability issues, affecting customers’

satisfaction in a negative way. In such a case, a redefinition of a COG or a change of suppliers might be appropriate. It is evident that these changes require a SC redesign.

Another occasion to conduct a company to readjustment its SC is that the considered firm may have taken over a competitor. This has often big impacts on the existing SCs which need to be reviewed and to undergo radical changes. Inbound and outbound flows, storage capacities, information flows as well as distribution of demand are affected in such cases. COGs need to be (re-) defined which often have repercussions on the different flows, production and storage capacities, etc. This holds also true if a new product has been introduced, a product allocation changed, or if one or several activities have been outsourced. In case of merger, a company may temporise such big changes so that the current structure may be kept. The impact of merger is to be minimised, but a redesign is often eminent due to capacity issues. A similar explanation of why to reorganise an existing SC is a market’s growth in a specific region. This often leads to difficulties with performance, costs, and lead times. The supply lanes to these markets are put under pressure which may also endanger existing markets and new production facilities may need to be implemented. Multi-stage models for supply chain design and analysis can, according to Beamon (1998), ordinarily be separated into four categories, namely:

1. Deterministic analytical models with known and specified variables,

2. Stochastic analytical models having at least one unknown variable which is assumed to follow a particular probability distribution,

3. Economic models 4. Simulation models

The reasons why customers want to redesign their SCs may differ enormously. After all, the question of how a SC can be redesigned then arises.