The coronavirus pandemic has accelerated the growth of e-commerce nearly 10 years ahead of schedule, and many facilities and network designs were built on assumptions that no longer make sense.
Business leaders looking to create additional volume capacity should start by examining their existing networks.
Meeting customer expectations like free shipping, fast delivery and easy returns at the lowest possible cost requires complex analysis as part of a strategic network plan. Sophisticated tools are available that use demand data to create and analyze visual network models. They allow you to weigh cost and service alternatives and perform “what-if” analysis to contrast different scenarios, looking for the network with the greatest profitability. These tools help answer questions like:
- Do you have the correct number of distribution nodes, and are they located in the right places to support new service requirements and minimize costs?
- Are capacity constraints in some facilities driving you to incur additional transportation and operational costs to fulfill orders from other nodes?
- Do you need different types of distribution nodes to profitably service click-and-collect orders?
- Are you looking for opportunities for zone-skipping to increase speed and save on costs?
- In case of sudden disruption, where could you shift volume, and what are the impacts to service and cost?
- Is a micro-fulfillment strategy right for you? (Using existing stores' footprint or dark stores and high-density automation solutions to reduce transportation distance and time to customers)
Leading companies will go beyond this one-time review of their networks and make it a frequent and regular practice. As customer demands change, flexibility to pivot will drive revenue. And as service requirements change, so must the distribution network.
Walmart Inc., for example, recently announced it would be “accelerating how often and how fast” it performs supply-chain modeling and network design. Adding: “We’re looking at scenarios that we never contemplated before … turning off different nodes if they’re impacted, and how we’d react to that.”
Market leaders assess their store and distribution nodes regularly because network strategy has a significant impact on supply-chain profitability. The most beneficial results come from reviewing operations within distribution centers alongside network strategy.
Outlook
Business continuity and profitability depend on flexibility during disruption. To encourage future growth, business leaders will examine their existing networks for ways to increase e-commerce capacity — and they’ll make it an ongoing practice to stay in sync with the retail landscape.
Darren Jorgenson is practice lead of global strategy at Fortna Inc.
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