With increasing global disruptions, continued technological developments, new regulations and more, 2023 was an eventful year for supply chain. Given the speed of innovation today, 2024 promises to bring even more change. Now is a great time to reflect on recent developments and look ahead. To do this, we spoke with Andreas Martin, director product management at 4flow software, who has more than 20 years of experience in supply chain network design, and Wendelin Gross, head of 4flow research, about their insights from working with customers across different industries.
Questions about network design?
What do you see as the primary challenges when designing supply chain networks today?
Wendelin: Businesses are facing high levels of volatility and uncertainty about future demand, customer behavior and regulations. Supply chains must respond quickly to unexpected disruptions such as accidents or shortages, which means they must be prepared for these events. It can be more difficult than ever for supply chain managers to tackle all these challenges at once while still balancing essential objectives like cost reduction, sustainability and service level.
A second, longstanding issue for many supply chain managers is making decisions with limited data availability or poor data quality. Even though data quality is improving in the industry overall, data limitations continue to pose a challenge when designing supply chain networks. This is especially true for large businesses, because the amount of data increases manyfold with network size and complexity.
What approaches are businesses implementing to overcome these challenges?
Andreas: Particularly after the pandemic, companies have been implementing measures to maintain the resilience of their supply chains during crises or disruptions. These measures include periodically recurring network configuration and optimization to adapt to changes like evolving markets, new sourcing strategies or changing customer preferences. Particularly in the retail and consumer goods industry, businesses have also turned to smart digital inventory management to handle abrupt changes in demand or supply. This enables them to fulfill requested service levels while maintaining optimized inventory levels to reduce cost.
Many businesses, especially in automotive and manufacturing, are investing in their sourcing strategies. This might include the diversification of suppliers, nearshoring or reshoring with the goal of reducing risks from global disruptions.
Furthermore, because supply chain networks today need to meet multiple objectives, businesses are turning to advanced optimization models that consider various factors, including carbon emissions, total cost, agility and more.
And how can businesses address challenges related to poor data availability or quality?
Andreas: As for these challenges, businesses are starting to establish robust data governance frameworks that clearly define roles, responsibilities and processes for managing data throughout the supply chain network. This includes setting standards for data quality, ensuring data ownership and establishing data integration. To do that, they invest in training for employees to ensure they understand the importance of data quality and are equipped with the skills to maintain it.
That brings me to a final measure, investment in personnel – the people making the decisions about network design and optimization. Businesses are investing more in training employees to make decisions quickly and effectively.
Are there any differences in how businesses approach supply chain network design?
Andreas: Yes, certainly. We can see differences based on data maturity, for instance – which refers to the sophistication of a business’s data analysis and its ability to integrate supply chain data in decision making. Businesses with low data maturity often follow a responsive planning and optimization approach based on historical data and forecasting methods. Businesses with moderate data maturity can start using more sophisticated methods to predict or manage complex scenarios. Businesses with high data maturity can fully leverage their data for strategic decision-making. They tend to integrate network design into their regular processes to continuously plan and optimize their supply chain networks with data-driven insights.
New regulations related to sustainability pose a significant challenge to businesses today. How are companies integrating green practices into their supply chain network design?
Andreas: I’ve observed businesses integrating sustainability principles right from the initial stages of their network design processes. This is done by partnering with suppliers who are dedicated to social and environmental responsibility while performing supply chain mapping. In this approach, setting transparent guidelines, nurturing trust, and encouraging data sharing are critical for successful execution.
In addition, businesses are becoming more proactive about quantifying and monitoring carbon emissions in their networks with advanced software. This allows them to keep track of crucial progress indicators towards their sustainability objectives and identifies potential ways to decrease their carbon emissions.
You mentioned that businesses are carrying out regular network configuration and optimization. How often do these businesses reevaluate their networks, and how is this different from the past?
Andreas: A manual network optimization process, typically conducted via spreadsheets, often spans 6 months, with 10-14 weeks dedicated solely to data preparation and baseline analysis, depending on data quality. This is no longer an option if businesses want to achieve the frequency of network design seen among supply chain leaders today.
Appropriate network modeling software speeds up the optimization process by at least three times, so it takes only 3.5-10 weeks. This gives businesses the opportunity to review and refine their networks more frequently.
Businesses in rapidly evolving sectors like retail and consumer goods typically undertake network optimization twice a year now. In sectors with complex, multi-tiered networks such as automotive and manufacturing, businesses have also begun to optimize their networks more frequently than in the past, typically once every one to two years.
![[Translate to US – English:] Advanced network modeling software speeds up the network optimization process significantly, so businesses can review their supply chain networks more frequently](/fileadmin/4flow/user_upload/newsroom/blog/4flow-network-design-trend-2024.svg "[Translate to US – English:] Advanced network modeling software speeds up the network optimization process significantly, so businesses can review their supply chain networks more frequently")
Heading into 2024, what do you foresee as the key future trends of supply chain network design?
Wendelin: I expect 4 key trends will shape supply chain network design this year.
Sustainability
Companies will continue to measure and reduce their carbon footprints to reach environmental objectives.
Use of technology
Advanced analytics and artificial intelligence (AI) will support supply chain network design by modeling complex scenarios, predicting demand and risks, and making data-driven decisions.
Continuous network optimization
This is possible thanks to the integration of strategic design and tactical planning. This helps businesses improve their efficiency and cost-effectiveness.
Greater collaboration and coordination
Companies will need to work together with their suppliers and other stakeholders to achieve transparency. This can help them respond more quickly and effectively to changes in demand or other disruptions. Collaboration and transparency are equally important when it comes to legal compliance or environmental reporting, all across the supply chain.
Can you share how 4flow supports businesses with innovative supply chain network design?
Andreas: With over two decades of expertise in supply chain network design, 4flow supports global businesses with services and technology for supply chain network optimization. Our services range from strategic planning to implementation of customized solutions, as well as continuous network optimization as a service. We continue to invest in research and innovation to maintain our position as an industry leader in this area.
In terms of technology, we offer several software solutions for network design. 4flow vista is our trusted network modeling software for network scenarios and optimization. 4flow NEVA (Network Exploration Visualization and Analysis) has been upgraded with new functions to identify the optimal location for new warehouses or distribution centers and enhance sustainability with a carbon emissions dashboard. This is proof of our ongoing commitment to delivering advanced, comprehensive solutions for network design teams and supply chain decision makers.
Thanks, Andreas and Wendelin, for sharing your insight!
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An interview with:
Andreas Martin
Director Product Management
4flow software
Wendelin Gross
Head of
4flow research