Optimization of Logistics Networks
At a time when competition between supply chains has become more important than competition between firms, the strategic analysis and optimization of logistics networks serves more than ever as a lever for efficiency that can enable organizations to gain leadership in a market where competition is constantly intensifying.

BY DANIEL VENDETTE

By analyzing its logistics network, a company can make clear-sighted strategic decisions with regard to procurement, production, inventory management and transport. By simultaneously considering these elements, which are at the heart of the organization, this type of analysis can bring about a significant reduction of costs, increase the level of customer service and/or maximize profits. It also makes it possible to attain goals such as the balancing of production capacity, maximization of the effectiveness of sites and reduction of greenhouse gas emissions.

THE OBJECTIVE OF NETWORK OPTIMIZATION
   Network optimization basically determines the number of production sites, warehouses and/or depots to be used to construct a logistics network combining effectiveness and efficiency. Using methods such as optimization or generation of scenarios, this type of study seeks to assign a capacity and an optimal geographic location to each site considering constraints specific to the network. In particular, network optimization seeks to determine procurement sources, production volume and stock levels of each of the sites under study. Finally, in the area of transport, this type of analysis helps to determine tradeoffs between different modes of transportation and recommend an efficient transport plan designed to determine the modes best adapted to each segment of the network.

OPTIMIZATION OF NETWORKS AS A MANAGEMENT TOOL
   The complexity of network optimization lies in the necessity to simultaneously consider various logistical elements such as production level, inventory level, or procurement sources. This is why a methodology based on a systemic approach is essential to the success of such a project. The results of the analysis can then provide the organization with appropriate answers to the following strategic questions:
• What are the target markets?
• Which partners should be selected?
• Which activities should be subcontracted?
• How many plants and warehouses should there be in the network?
• Where should they be located?
• What is the capacity of different sites?

• Which production, material handling and storage technologies should be employed?
• Which products should be located in each facility?
• Which clients should be supplied from each site?
• What is the material flow between different sites?
• Which procurement sources should be used by each site?
• Which means of transport should be used?
• Should you own a private fleet of vehicles?
• What would be the impact of increased demand?

CHALLENGES OF NETWORK OPTIMIZATION
   Successfully conducting such an analysis requires skills in modelling and optimization, and knowledge of production, transport and procurement. This functional diversity represents a major challenge but can eventually generate a considerable number of opportunities resulting from an integrated approach. On the other hand, many other challenges must be considered. The first concerns the collection of data. This crucial step must be performed rigorously in order to ensure the quality of the analysis results. The collection of data requires considerable involvement on the part of the organization in order to obtain the required information about the current network, products and all costs involved. The development of scenarios also represents a considerable challenge in this type of project. In particular, network optimization seeks to establish a set of scenarios based on the company's future policies and growth forecasts and on external elements that can have an impact on its activities. All of the scenarios must be evaluated as a whole to determine the scenario to be implemented. Finally, in the implementation phase of the chosen solution, the change management dimension must not be neglected; it remains an intangible element fundamental to the success of the project.
   In conclusion, we have discussed the benefits to be realized by a review of the structure of a logistics network and have described briefly how to go about a project of this type. Because of its ability to reduce costs and improve customer service, network optimization can be the source of multiple competitive advantages. It is a tool of choice for companies on the cutting edge of best practices in logistics.
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Daniel Vendette is Director, Consulting Services in supply chain management at CGI.

Figure 1: Analysis of a distribution example: current situation


Figure 2: Analysis of a distribution example: adopted scenario
 
 
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