In this article, we will outline the process for optimising your logistics network strategy plans.
Want to optimise your distribution network in 5 steps?
It could be that the best time to optimize your logistics network might be after a growth spurt or when you have a pressing need to look for greater efficiencies. The aim is always to minimise costs but not at the expense of customer service.
Even well-designed logistics networks start to show their age over time. You will know when it is time to take a new look at where you operate warehouses and distribution centres (DCs), what inventory you keep in each facility, and how you move goods from place to place. How often you need to launch a review will depend on the rate and pace of change in your specific business and its industry. The customer will tell you when it’s time.
A constantly changing environment
Advances in technology, the economic impact of new trade agreements and changes in the regulatory environment can also cause a rethink in distribution strategy. At a more operational level there will be fluctuations in input costs and practical warehouse and inventory challenges.
5 steps to follow when optimizing a distribution network:
1. Define the goal
The first step in any optimization project is defining your outcome, e.g. is it to get better control of costs or it is to accommodate changes in customer requirements? Whatever the aim, this is where the vision is cemented and the business objectives are agreed.
Tip: Get your stakeholders involved early and enlist active sponsorship from top management.
2. Gather the data and cleanse it
Assemble and analyse all your current costs: look at the capacity of current facilities and DCs over an agreed period of not less than 12 – 18 months. Include all inbound and outbound freight and delivery costs in the study. Analysts are always surprised to learn that the raw data needs to be cleaned up to provide quality information. This is often the most demanding and longest piece of the process.
3. Document the current situation
Record where facilities are located: suppliers, manufacturing and distribution facilities and customers. Now include volumes, demand patterns and products that work through that structure bearing in mind any planned changes. It makes sense here to make note of any constraints or limitations due to company operations or defined policy.
Tip: Ask the right questions of all the players. Make sure you understand your storage capacity and logistics constraints
4. Logistics network scenario modelling to test alternatives
This is where we consider all the ”what if…?” scenarios which mean setting priorities. Use analysis effectively to crunch the numbers and test different logistics network planning scenarios. The aim is to reduce the list down to a workable set of scenarios that balances the trade-offs between cost and service.
The challenge here is where you have to include activities you haven’t performed before. Make some assumptions and use industry benchmarks to assist, especially where changes in inventory levels may be a factor.
Tip: Involve end users in reviewing the possible scenarios.
5. Evaluate alternative logistics network designs and costs
This where you make it happen. The end product of the modelling exercise is a set of recommendations for improving the logistics network from which you choose the best solution. Often the preferred solution is best implemented as a pilot to test it fully. This trial run will provide the answer to the “go/no-go” decision.
Some lessons learned
- environmental changes occur during the logistics network analysis and implementation phases and you need to allow for this in the project timing
- spending significant time on the planning process and setting objectives saves time later (front-end loading)
- the data collection and validation process takes longer than you think
- the better the data, the better the result
- having visible support from top management is critical
- using a systematic process and modelling tool reduces implementation risk
- include a change management process in the project to avoid unintended outcomes
How often should a company revisit its distribution logistics network design? When there is a material change in your operating environment and when new industry innovations present themselves. A review every three years will deliver new insights, five years is probably too long.