The first question for organizations exploring multiple supply chains is how many are needed. Answering it requires a close look at the way the supply chain assets that a company uses to manufacture and distribute its products matches up against the strategic aspirations it has for those products and their customers.
This requirement seems obvious, but in practice most companies examine only the second half of the equation in a sophisticated way; they can, for example, readily identify which products they see as leaders on cost, service, innovation, or (most likely) some combination of these. Fewer companies seriously examine the operational trade-offs implicit in such choices, let alone make network decisions based on those trade-offs.
Oftentimes, a good place to start is to analyze the volatility of customer demand for a given product line against historical production volumes and to compare the results against the total landed cost for different production locations. This information provides a rough sense of the speed-versus-cost trade-offs and can even suggest locations where supply chain splinters might ultimately be located.
Authors: Alex Niemeyer, Brian Ruwadi, Yogesh Malik
Source: McKinsey Quarterly