How Can Bad Network Design Affect Your Business And Revenue

Supply chain networks are crucial to businesses.

They help with the logistics, distribution, transport, and storage of goods, making them a core set of activities for any company. Unfortunately, network designs get outdated as time goes by, caused by the shift in customers' needs, leading to inefficiency and other issues. Read on to learn more about them.

It Costs More Money For Businesses 

Network designs exist to maximize the efficiency and effectiveness of a business supply chain. If a company doesn't review them regularly, they can quickly become the bearers of hidden costs. Hidden costs occur because of inefficiency in a system or, in this case, the supply chain. Take, for example, a company that has warehouses on one side of a city. Five years ago, the location was fine, but because of an enormous complex built three years ago, most of the company's customers have moved, losing some. Some still buy, and the company delivers. 

In this example, one apparent hidden cost is the transportation expense, which includes the cost of fuel to dispatch the product. Since the customers aren't as many, the person will deliver to fewer people while consuming the same amount of fuel they would have if they had delivered to more. Next is the warehouse cost. The location means it isn't efficient. This example illustrates that a good network design can become an inefficient one with time if a firm does not conduct reviews of its system.

It Produces Wrong Metrics to Make Management Decision

The management team's goal is to determine how to move the company forward. To do this, they rely on data collected by employees and their supervisors to come to accurate conclusions.

If a supplier system is faulty or poor, then it will affect the metric produced. To get accurate metrics, get supply chain optimization consulting from professionals on the best way to assist with this problem. Here's an example of optimizing the supply chain. The management team wants to offer better services to some customers and decides on using total revenue to help them make their decision. It only tells half the story, and that's because the metric used is incomplete, making it wrong. A better metric would be cost-of-serve analysis, which will tell the entire story of each customer.

It Can Slow Down The Business Process

The supply chain of any business is the core, and therefore, if there are problems with the supply chain, there will be problems with the business process. Processes are a series of steps taken to achieve a set result. A poor network design will render this process outdated, cumbersome, and ineffective. It's not uncommon to see workers with plenty of idle time or the company running out of stock before realizing they need to place new orders or making delivery errors. When a company experiences the foregoing sceneries too often, then it's time to revisit the network design.

Building and maintaining an effective supply chain is an excellent decision. The hard part of it is conducting the reviews. Most management teams are hesitant because it takes time and resources to review and make adjustments. Once it's done, it will be worth it.