11 Mar Supply Chain Modeling 101 – The Basics
How does a physical product go from being a mix of materials and ingredients spread across the world, to ending up in the hands of your customer as a new product?
We have a simple answer for a complex process: this all happens through the supply chain. Due to the complex nature of logistics, a lot of planning and organization goes into managing supply chains.
Think about it: How do you know where to source the material? What is the most efficient shipping route? What is the fastest way to get to the doorstep of the target customer? How do you plan for seasonal goods and services?
Answering those questions comes down to the strategy component of logistics called supply chain modeling. In this article, we’ll define supply chain models and tell you about the six most common types.
Supply chain modeling is a process used to plan and optimize supply chain routes. Companies use supply chain modeling to develop strategies for getting products, supplies, or resources from one place and state to another.
A supply chain can be extremely complex. Rather than progressing without a plan, or trying to imagine the supply chain variables in their heads, businesses take a high-level view to logistics by creating supply chain models using specialized software. By putting the details of their route into a program, they can find ways to cut costs, increase shipping speed, and reduce the amount of energy or other resources required for getting their products from one destination to the other.
There are several forms of supply chain models. Each one caters to a different business or logistics priority. That’s why it’s always important to begin with a simple question: What are you optimizing for?
The continuous model is designed for businesses that need an ongoing, continuous supply of scheduled material. The priority here is a predictable supply chain that is seldom interrupted.
The best examples of companies in the continuous model business are food and beverages. Fast food chains, for example, don’t require much change. They provide a consistent menu on a daily basis to customers. Therefore, they need a consistent supply chain to ensure burger patties, chicken nuggets, and fries are always available to customers.
The fast model prioritizes an efficient supply chain. It’s used by companies needing to follow or set short-term trends. At the beginning of the pandemic, masks became a sudden and necessary trend across the world. Companies using a fast model could be first to market with masks while demand was high.
The efficient model is designed for companies looking for the best cost to improve their margins. Every dollar saved on developing and shipping a basic consumer good, like paper towels, means another dollar profit for a business in a competitive space.
According to the Institute of Defense and Business, “There are four components a supply chain must have to be considered an agile model: virtual integration, process alignment, a network base and market sensitivity.”
The agile model exists to be flexible. As demand or seasons come and go, businesses can easily and efficiently reduce or increase supply in the market. Like the fast model, the agile model is also ideal for businesses that rely on riding trend waves.
The custom-configuration model is designed for companies offering variability in their products. Most computer companies, for example, offer multiple styles, graphics cards, and memory capacities per computer. A consumer is able to decide which specs they’d like, and then the company ships the computer containing those exact specs to the end user. This sort of variability is foundational to the custom-configuration model.
A flexible model is ideal for companies with planned changes in demand. In this supply chain model, companies can stock shelves based on the ebb and flow of regular seasons. Athletic stores may carry tennis racquets all year around. But in areas where it snows, these stores may plan to carry fewer racquets during winter, and instead stock their shelves with ski gear.
This type of planned supply chain variability is standard in the flexible supply chain model.
The above supply chain models are helpful for understanding how supply chains work. But most businesses don’t simply select one. It’s better to take a step back, consider your business goals, and then determine what you’d like to prioritize for.
Most likely, you won’t settle for just one supply chain model. You will take elements of a few categories to design a custom model that matches your target budget, speed, and flexibility requirements.