The Importance of Network Design to Consumer Packaged Goods Supply Chains

The necessity of having a supply chain strategy to help frame the network design is becoming understood and executed by a growing number of Consumer Packaged Goods companies. By Bruce Tompkins

February 15, 2016

It is important to recognize that a Consumer Packed Goods (CPG) company’s network determines its supply chain efficiency and customer satisfaction.

Designing an optimal supply chain network means the network must be able to meet the long‐term strategic objectives of the company.

Most business units or functional areas within a company are impacted by network design efforts therefore the involvement of key stakeholders is imperative.

When designing a supply chain the following steps must be followed:

1. Define the business objectives
2. The scope must be defined
3. The form of analyses to be done must be determined
4. Determine what tools will be used
5. Finally, work completion and the best design

Once the path forward is determined and the design approach has been completed correctly, the business will reap many significant benefits.

Business and operations strategy - the formulation of strategies that drive investment, operations, and competitive positioning - is where all value begins.

Five Strategic Questions
There are five strategic questions that need to be answered:

1. What business is the CPG company in and why?
2. How should value be added to the business?
3. What are the target markets?
4. What are the products and why will customers buy from the CPG company?
5. What capabilities are needed to assure that the company adds value and differentiates?

Most CPG companies develop strategies for target markets and products 3 and 4. Some at least consider 1 and 2. Few companies resolve 5 effectively.

This is generally because operations strategies are not developed or implemented with the same scenario plan or rigor that is given to the more often seemingly interesting issues of markets and products.

The alignment of business and operations strategies is often weak or non-existent.

Mission and vision statements, plans, goals, objectives, and performance measures while important for driving execution, most often do not ensure that capabilities will be built for scenarios from the business strategies.

Companies do not always have carefully developed alternatives for customer demand, new channels, competition, supply risks, and product development. Achieving clear and sustained alignment between operations execution and the plans derived from business strategies is challenging.

Leadership understands the complexities involved, but are concerned that 90% of business strategies are not implemented as intended. Leadership is beginning to understand that supply chains are about more than logistics regarding the buying and selling of goods, supply chains are about competitive differentiation and profitable business growth.

Leadership is concerned with alignment and how execution can best be used as an enabler of business strategies rather than an inhibitor.

Strategy Before Structure
Smart companies are realizing that the first step to any network design is to develop the right operations strategy that supports the business strategy. There is no substitute or shortcut.

The operations strategy specifies how operations will meet the service needs of target markets, which capabilities distinguish the business, and delivers the operational requirements of the defined value proposition. The operations strategy defines the network capabilities that are necessary to realize the business strategy.

The capabilities are the operational elements of infrastructure, business processes, organization, technologies, and solutions that can deliver the specified services. The operations strategy is the starting place.

CPG companies are focusing their efforts on network design like never before to raise the bar of their supply chain performance and ability to support the flexibility needed in the business.

Few other supply chain initiatives offer the kind of improvement potential that a network effort can bring. More supply chain leaders in CPG companies are intent on optimizing their network.

The necessity of having a supply chain strategy to help frame the network design is becoming understood and executed by a growing number of CPG companies.