When conducting a network optimization, long-term demand is critical to understand to provide the best service levels for your customers.While it is essential to look at the current state of the network, it is just as important to analyze future issues that might impact demand in the industrial and equipment industry.
 Tompkins International was recently engaged by a client in the industrial manufacturing industry to conduct a network optimization of its US-based distributions centers. During the course of the analysis, it was determined a management roundtable was required to evaluate the external and internal impacts on the network analysis.
The intent of the process was to look at the current network state “as is," and more importantly, review the future impact of various macroeconomic factors on its manufacturing customers.
The key to the discussion of the future state was a PEST analysis. Macro-environmental factors in PEST research are Political, Economic, Social and Technology.
The trending issues within each attribute helped shape long-term demand for the customers’ products. Some examples of how PEST can impact the manufacturing base are:
Political:
Political environments can have a significant impact on the manufacturing base. Earlier in 2011, rumors surfaced of a possible plant move by Illinois-based Caterpillar. Although it did not happen, Caterpillar did indicate they had been approached by several other states with attractive incentives to change locations. States such as Texas, Nebraska, Virginia, and South Dakota are becoming aggressive in order to lure manufacturing into their state. In the case of Maytag several years earlier, Maytag opted not to stay in Illinois. Maytag closed its two plants in Illinois and moved to Mexico.
Economic:
Costs associated with manufacturing are being closely evaluated by manufacturers. Consider the trends in the forging industry. Aircraft forgers traditionally located in California have been slowly migrating or opening new forging operations in Ohio. The result of high California energy costs and strict environmental regulations have sent forging companies packing.
Social:
One of the biggest issues is the availability and cost of labor. During a recent benchmarking assignment it was determined that the cost per case for a retailer in the northeast is $.85 per case. This compared to the costs of a retailer in south Texas of $.41 per case. The Texas retailer indicated that its lower labor costs contributed to $.16 per case of the cost difference.
Technological:
Although technology is less of an issue in the US, it needs attention as companies look to establish overseas operations or move to Central & South America. The region will need to be evaluated for the ability to sustain its manufacturing needs. China’s manufacturing capabilities are closely nearing the US in terms of quality for many items, but issues remain, such as energy availability and infrastructure.
A network optimization is a great opportunity to create a world-class supply chain channel. Fine tuning the results by taking into account future state scenarios based on external impacts to the supply chain will prepare your company to be flexible enough to maintain competitive advantages with distribution operations and service levels.
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