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Supply Chain Optimization Impacts Site Selection Decision

Getting logistics right isn't just important for business. Booming global population will test infrastructure in unprecedented ways.

September 2010
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GIS Becoming Necessary
GIS analysis is a great tool to analyze network optimization and cluster analysis. Network optimization can include centroid analysis, which can be conducted and integrated to determine the precise location for maximum efficiencies, minimal costs, optimum time savings, and the best supplier and market access. This can be performed with historical data to determine the optimum present location, or with sales forecasts to determine optimum future locations. Clusters consist of multiple, geographically close and interconnected industries, companies, and associated institutions that have common and complementary goals. Clusters tend to enhance productivity and competitiveness by encouraging best practices, stimulating innovation, and creating new business opportunities. Cluster analysis measures the extent and sophistication of a cluster formation.

Companies seeking location decision assistance should ask service providers for examples of past analyses, and tools - including models, GIS methodologies, and maps - used to reach logistics conclusions. The cost savings and improved efficiencies of a sophisticated logistics analysis can be significant.

Location and Logistics Networks
Analyze the entire supply chain to maximize competitiveness. This includes not only the proposed manufacturing/warehouse distribution location, but supplier locations, distributor locations, retail locations, export terminals, and various transportation terminals or infrastructure (intermodal, airports, ports, highways). Linking digital and physical infrastructure is a growing trend. This super infrastructure will be more important to site selection in the future. Additionally, analysis should not be limited to just forward logistics, but should also include reverse logistics analysis such as product returns and back-hauling.

By dynamically evaluating networks with sophisticated solutions, companies can avoid the pitfalls of making minor adjustments to networks that are ill-suited to their business needs. This is best accomplished during a site selection or portfolio analysis, as it is the best time to implement changes. In many cases, the gains of efficient manufacturing and distribution are actually negated by being in the wrong location, where a company's assets or capacity to produce, transport, and store inventory as demand changes is not optimized. Long-term profitability and competitiveness depends on the right capacity and location of physical assets.

Global Implications
The quantity and quality of goods needed to satisfy the global population will increase over the next 40 years. The U.S. population is projected to grow from more than 300 million today to over 400 million, and the global population to 9 billion, by 2050. Nearly all population growth will occur in developing countries. Logistics and the infrastructure - charged now with moving goods while sustaining the environment - will become critical. But the World Bank estimates that infrastructure is very unlikely to meet demand during this period, creating a direct investment bottleneck. Transport infrastructure will likely be concentrated in developed countries and a handful of emerging economies, particularly in urban, metro areas. Only stable economies will be able to afford and maintain this infrastructure.

Getting logistics right will be critical for any company's future competitiveness. Globalization, regionalization, and near-shoring require supply chain flexibility and the presence of an optimized logistics network to facilitate a flexible, efficient supply chain. Today and in the future, a sophisticated logistics network could be the difference between success and survival. Proper logistics analysis as part of location decision has reached a point beyond basic analysis to a new level of sophistication - and urgency.

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