From challenge to advantage: Supply Network Optimization

Automotive supply chains are facing more disruption than ever. Current challenges range from logistics disruptions to increased customization requirements. How can the network be optimized for more end-to-end resilience, flexibility, and transparency? etc. In Supply Chain Optimization, experts suggest a comprehensive answer: Companies should implement a continuous supply network optimization process, based on data from the connected supply chain.

Key Findings:

• Use innovative network design principles to solve automobile supply chain problems
• Build supply chain from a cost center into a strategic asset
• Create capability-centric supply networks
• Move towards continuous network optimization by tools and enablers

Just as the pandemic slump seemed to disappear in the rear window and demand rebounded, global supply chain worries threw a spanner in the works of the automotive industry’s recovery. And yet, this is only one of the issues arising in the unprecedented period of upheaval the industry is going through. To paraphrase Charles Dickens, it finds itself at once in the best and in the worst of times. While new trends, technologies and business models open up exciting opportunities, a host of adverse events keeps affecting global supply chains. After pandemic constraints came the microchip and materials shortage crises, logistic disruptions, and the war in Ukraine. As if exogenous shocks were not enough, changing consumer preferences, new regulatory developments and the drive for more sustainability all result in extra pressure on supply chains.

Figure: From global risks to local impacts

In order to deal with this complex landscape of challenges, Deloitte argues that a comprehensive optimization of the supply network design is needed, as well as an optimization of the entire design process itself. The foundations for this approach: real-time data and digital solutions. Three main points stick out. Supply chains cease to be viewed as cost centers and evolve into a competitive differentiator. Moreover, a one-off approach to network design is replaced by strategic network design as a continuous process of improvement. Finally, innovative tool suites, connected supply chain technologies and new capabilities in fields such as automation help organizations to reap the benefits of digitalization and underpin their optimization efforts with high-quality live data.

Connected supply chain data can be used in network design just as well as in operational planning, enabling risk management through increased visibility, efficient partner management and compliance management. In the future, strategic supply network design and everyday operational supply management will converge more and more in an integrated continuous data-driven optimization process that produces superior outcomes. Creating a network setup that is ready for present as well as future supply shocks and demand trends may very well turn out to be a matter of existential importance for automotive companies and others alike. Supply network optimization is no easy task, but one with a lot of chances.

Supply as a strategic asset

For a comprehensive overhaul of the supply network, existing rigid structures should be replaced by a dynamic network with maximum risk visibility and increased operational agility. Problems need to be identified as quickly as possible, and network structures need to be nimble enough to allocate the capacities needed to remedy problems at the right time and in the right place. Today, enabling data-driven technologies around the connected supply chain make this end-to-end approach absolutely feasible, based on a broad set of internal and external data (operational data, stock levels, traffic and weather data, market data etc.).

Not only does this help to solve current supply chain problems. It also transforms the supply chain from its historic role as a burdensome cost factor into a strategic asset that represents a valuable competitive differentiator. By adapting a continuous network (re-) design approach, strategic decision-making and operational day-to-day supply management merge in a virtuous circle of permanent improvement. 

Figure: Setting up an optimal global supply network

A network of capabilities

Where cost once was the all-dominating focus of supply chain efforts, resilience has now become a key feature of a future-proof setup. Flexibility, quality and sustainability represent further capabilities that are necessary for any future-proof supply network. In fact, the network should be designed around these very capabilities rather than around the traditional physical nodes and their functional embedding (such as manufacturing, logistics, tax, inventory). Instead of creating new nodes for emerging needs, existing nodes are reconfigured and equipped with the necessary capabilities according to competitive priorities. Current network design efforts are typically performed on a one-off basis in intervals of three to five years, with considerable effort. In contrast, adopting a continuous capability-centric network design approach with data-driven end-to-end agility is a significant step ahead. With its superior adaptability, it fulfils the needs of mature companies with global operations.

Figure: Breaking traditional boundaries

Figure: Network design stages

Tools and enablers: Move towards continuous network optimization

The optimization aims to transform network design from a one-time effort into an ongoing process. One advantage of moving towards network design as a continuous process is that it enables a much broader scope while at the same time it resolves issues according to priority. Furthermore, this improvement process takes place in lockstep with operations, for instance through live input from data sources along the connected supply chain. This data-driven approach ensures that decisions are anchored in what actually happens in the network, increasing transparency and flexibility.

As a data-driven, digitally enabled approach, network optimization is only possible with the right set of technology tools. On top of that, Deloitte also developed proprietary assets for different aspects of the optimization effort. Deloitte Illuminate ^TM creates visibility into the supply chain and generates actionable insights by analyzing live data from the supply network with AI technology. Deloitte Supplier 360 ° Control Tower ^TM offers real-time risk monitoring and supply control with dashboards and role-specific interfaces. Deloitte Delivery Centre ^TM helps with managing partners, including quality control and capabilities monitoring. Finally, Deloitte’s comprehensive ESG Management Services address all important sustainability aspects across the supply chain – governance, CO2 footprint, supply tracking and much more.

Figure: Solution building blocks

It has to be acknowledged: The optimization project agenda does look substantial. The rewards are more than worth it, however. The connected supply chain optimization approach achieves so much more than a one-off exercise in efficiency, as necessary and welcome as this may be. New potential is created by intertwining network operations and design on the basis of the connected supply chain, and incorporating continuous improvement processes into everyday supply chain management. With these steps, companies from the automotive sector realize the true aim of next gen network design optimization: not only to optimize the network, but also the design process itself.