We recently spent some time with Don Brenchley, the Head of Industry Strategy at LLamasoft, to understand more about the concept of Supply Chain Design. Supply chain networks are getting more complex every year, and LLamasoft is at the forefront of solution providers working to bring advanced technology to bear on the topic.
IGD: What are the key factors driving change in the grocery supply chain?
LLamasoft: Consolidation amongst the majors, the rise of the discounters, the continued growth in online shopping, the Amazon effect and the ever-increasing expectations of consumers are just a few of the factors contributing to a seismic shift in the grocery supply chain.
In a time of unprecedented competition, complexity and uncertainty, grocery retailers and their suppliers must have the ability to not only optimise their existing supply chains but to reimagine and redesign them for future success.
IGD: LLamasoft specialises in Supply Chain Design – but what exactly is that?
LLamasoft: In simple terms, supply chain design is about using technology to understand the shape you’re in now and determine the shape you need to be in the future to meet your business objectives.
It’s about understanding your product flows, your assets, your customers and the mechanisms by which you meet their requirements, in granular detail, now and in the future.
Supply chain design technology enables you to create a ‘digital twin’ of your end to end supply chain, imagine what it could look like and, perhaps most importantly, to determine what your future supply chain should look like.
In so doing, it addresses many variables and levels of complexity, allowing users to quickly and accurately evaluate alternative scenarios and test the impact of changes in a safe, risk-free environment. It supports evidence-based decision making and allows organisations to embark on strategic supply chain transformation programmes with confidence that the changes they make will deliver the expected outcomes.
IGD: How can supply chain design help food and grocery companies answer strategic business questions?
LLamasoft: Our software allows companies to properly understand the distribution of costs in their supply chain and the effect of any changes on both costs and service levels. This allows them to answer a wide range of strategic business questions, for example:
- How can I reduce complexity and cost without impacting my customer experience?
- Should I be operating warehousing and logistics myself or should I use a 3PL?
- Is the complexity of my range/format justified for the margin I am achieving?
In the grocery sector, sourcing is one of the areas where we find the most money lying on the table, with our own customer research showing that customers in food, beverage and packaged goods sector typically achieve a 9.3% saving on their sourcing costs with our software. The research also demonstrates an increasing recognition of this opportunity, with the number of LLamasoft customers identifying sourcing optimisation as a strategic objective increasing by 100% over the last two years.
The other main strategic area is in optimising an existing network. If they were planning a network to serve their existing stores and other channels from scratch, the majority of grocery retailers wouldn’t want to start from where they currently are. In most cases, these networks have grown by heuristics or rules of thumb, in which a retailer may have determined that for every 50 stores they open, they require one additional warehouse. While this works fine when you reach 100 or even 250 stores, if you now have 4,000 stores, the chances are that you don’t need 80 warehouses and that the ones you do have probably aren’t in the right places to serve those stores.
However, ripping and replacing an entire network likely isn’t on the cards and supply chain design technology can help retailers redesign both inbound and outbound flows to achieve the optimal balance of cost and service.
It can also support omnichannel operations by helping retailers determine how best to structure their network to fulfil individual customer needs - from stores, warehouses, dedicated centres or a combination of all three.
IGD: Why is the concept of Supply Chain Design coming to the forefront now?
LLamasoft: Supply chain design isn’t new but it’s not ubiquitous. Retail has always been challenging and the supply chain has long been a proven source of savings and competitive advantage, but to date, progress has largely been about making the most of what you have and making better decisions. For companies seeking transformative change, it’s now about what you should have. Distribution heuristics no longer apply and building a truly competitive advantage must address many conflicting priorities.
Retail transformation starts with imagination and requires complex factors to be evaluated but ends with rational decisions. Transformative technology with sophisticated modelling, optimisation and simulation capabilities supports fact-based decision making.
A wide range of external factors also mean that retailers are operating in times of unprecedented uncertainty. Brexit is an obvious example – new trade tariffs may (or may not!) mean that it makes more sense to source products previously imported from another EU country from outside the EU. This, in turn, has a knock-on effect on flows and lead times. By using supply chain design technology to model the impacts of a range of scenarios, then you can take the requisite mitigating or competitive actions.
Finally, the technology itself has matured. Data is in a better place than it has ever been, and the technology to capitalise on that data availability now exists. Thanks to AI and machine learning, today’s supply chain design technology can handle huge amounts of data and huge amounts of complexity. The cloud also supports the ability to distribute and use these technologies on a massive scale.
IGD: What immediate benefit could a new client start to see by working with LLamasoft?
LLamasoft: Supply chain design is principally about the future and transformative change; however, early wins and rapid actionable insights are available. A deep digital representation of the supply chain may uncover issues which can be resolved relatively quickly and easily for short-term benefit, for example, lane and channel misalignment and imbalances in the network.
The other advantage of today’s supply chain design technology is in the ability to distribute or ‘democratise’ sophisticated models beyond the supply chain design function. For example, a buyer may use a subset of a highly complex model to understand the total delivered cost of a product from supplier to store, allowing them to set a price and plan promotional activities with complete confidence months ahead of that product going on sale.
IGD: How would a supply chain design project help a business enhance skills and capability?
LLamasoft: Supply chain design is no longer simply about ‘dots on a map’ but about building rapid, repeatable models and processes to configure networks and flows profitably in a changing world. As a result, the questions being asked by our customers are less about where to locate their warehouses, which customers they should serve and what inventory they should hold and more about how best to meet customer demand today, tomorrow and in the future.
Undertaking a supply chain design project is an organisation’s first step towards building an internal structure and competency to increase the value it derives from supply chain design. There is a direct correlation between the maturity of organisation’s supply chain design function and the speed, recurrence and magnitude of the benefit. As such, we see many customers investing in developing internal supply chain design competency as a major source of competitive advantage.
That said, supply chain design is a specialised discipline that requires different skills from those involved in planning and execution. It requires a new breed of individual who has advanced mathematical and analytical skills, but also a wider range of skills to effectively present and sell their ideas, both to the C-level and the wider business to secure buy-in to strategic change initiatives.
IGD: What’s with the llamas?
LLamasoft: Llamas are sturdy pack animals which were a critical element of ancient South American supply chains. Dalai Lamas are deep thinkers, philosophers and teachers of the highest order. We’re inspired by both these things and our people and products reflect a combination of determined, hard-working effort and intellectual, creative and highly sophisticated thinking. The two capital Ls in LLamasoft represent one for each of these types of llama!
Don Brenchley, Head of Industry Strategy
Don is a retail supply chain and IT management professional with an exceptional range of commercial experience and highly respected by colleagues in the global supply chain community. His experience includes management roles with blue chip organisations including Procter and Gamble, J. Sainsbury and Safeway. This practical experience has been invaluable in later leadership roles with consulting and retail technology organisations.
He matches pragmatism with innovation and thought leadership to help scope world class capabilities in leading organisations. He is a champion of the collaborative supply chain and believes fervently that technology is part of the supply chain and not apart from it.
LLamasoft enables organisations around the world to model and optimise their supply chain operations for major improvements in cost, service, sustainability and risk mitigation. Its team of industry-leading supply chain experts and consultants are driven to make supply chain optimisation easier, better and faster, and they have an aggressive development roadmap including new solutions for supply chain visibility, planning, and predictive analytics.