For years, logistics professionals have used "perfect order" as an indicator of performance. Perfect order remains a key goal, but is there a perfect logistics network to meet the expectations of digital commerce?
To answer this question, let’s look at the process of network design. Experts define the "optimal" distribution network as one that meets the stated delivery expectations at the lowest cost. Comprehensive designs use sophisticated models. These tools aid in determining the "sweet spot" solution (number, location, role, and size of facilities — manufacturing, DCs, cross-docks, etc., transportation modes, inventory deployment, and policies) by balancing the trade-offs between customer service requirements, assets and costs.
Most models stop short at minimizing costs. However, now logistics professionals are using modeling to plan and optimize networks to maximize profit, speed to customer, sustainability, and/or other strategic goals. Minimizing is no longer sufficient The secret sauce is designing the perfect network to optimize profitable growth.
To develop the perfect network, follow these critical steps:
• Define requirements and network alternatives
• Identify current and future service demands
• Capture transportation, distribution, and service costs
• Identify alternative networks
• Determine value-ranking criteria
• Select candidate networks to model
It is important to engage all stakeholders in the process, including sales and marketing, product development, supply chain, finance, etc. Conducting an accelerated strategic workshop is a great way to get everyone aligned when kicking off such an important initiative.
Consider the following:
• Develop alternative network solutions
• Model all flows, dc/fcs, and transportation
• Service and cost comparisons
• Risk analysis
The data is critical, especially when combined with critical thinking of all the implications of each scenario. When reviewing model outputs, it is important to go back to our initial network alternatives and look with fresh eyes at each potential solution. This is the opportunity to consider what has to be true for our solutions to succeed, or what if anything could change in the future that we have not considered. This is where we start to see that while one scenario might carry the lowest total cost, it has limitations that may prohibit future enhancements to delivery schedules, the potential for new client acquisitions, and/or new product launches, or whatever critical factors could affect future growth.
The Outlook
Today’s logistics leaders are not only experts at tactical execution. They answer critical questions such as: how will a more responsive network enable growth? Will network investments lower operating costs? If operating costs increase, will sales volume warrant the investment? This process will insure that you gain the greatest business value given your demand patterns to insure that the network you design aligns with your company’s commercial model for success.
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