Using Greenfield Analysis for long term strategic network design

A Greenfield analysis can be a great way to get started for long term strategic network planning. A Greenfield analysis can tell you what will be the optimal locations for your Distribution network, based on your new customer demand footprint. This can help you select candidate locations for a detailed Network design exercise.

Let us consider an example. You are a distributor and as a part of your long term network design exercise, you are looking at your 5-10 years demand outlook. You believe that your demand landscape will change significantly during the next 5-10 years. The analysts in your strategy division project that due to certain changes in the Industries your serve, local regulations, technological advances, new competitors  etc., you will lose demand nodes in some geographies whereas you will add demand in some geographies you were not serving before.

You believe that these significant changes warrant that you take a fresh look at your Distribution footprint and get a future state vision of your Supply Chain footprint.

Before we get into the Greenfield analysis, an important thing to note about a Greenfield analysis is that since it is minimizing the weighted distance, the only cost that is getting incorporated is the Transportation cost (since distance is a major cost driver in transportation), in an indirect way. It does not incorporate other costs like  facility costs, labor costs or any other factors like geographical risks, labor availability, union vs non union regions etc. You will need to perform this analysis once you have few Greenfield locations to find good candidate locations that are near your Greenfield locations.

In our example, the current state of the distribution network is as shown below. The current Distribution network obviously serves the organization well as the two existing DC locations are close to what would have been the optimal Greenfield locations for the current customer demand base.

g1

g2

Now, based on the new demand projections, below is what the demand nodes may look like in the 5-10 years range. I did not make extreme changes to the demand just to illustrate the point that only a few significant changes here and there can make your existing footprint redundant. In the new demand footprint, there are handful of new demand nodes with large annual demand, the company looses few demand nodes (customers) and demand at some of the existing customers increases/decreases.

g3

Running a Greenfield analysis, looking for 2 optimal Greenfield locations, we find the following two locations. The picture below also shows the assignment of demand nodes to optimal Greenfield locations. As you can see, your optimal locations have changed due to some changes that you expect will happen in your demand base.

g4

These new Greenfield locations can be an excellent starting point for brainstorming on and re-designing your future state, long term distribution network.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s