How to Design Your Distribution Network for the Next Normal

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Published September 29, 2020

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While COVID-19 caused a significant surge in online sales, e-commerce was already on the rise prior to the pandemic, forcing many businesses to reevaluate their distribution and fulfillment networks to accommodate higher volumes and different delivery methods. Distribution centers (DCs) that are used to handling bulk orders with fixed delivery routes and schedules are now having to shift their operations to fulfill individual customer orders within tighter timeframes.

As businesses continue to explore new ways to expand fulfillment operations, here are eight factors to consider when designing an optimal network:

  • Network structure impacts revenue. The network structure impacts customer service, which in turn drives revenue. In addition to proximity to customers, companies should also evaluate locations based on distance from other links in the supply chain, including suppliers, manufacturers and modes of transportation like railways and airports.
  • Optimize for profits, not cost. Many network designs are centered on cost reduction. While minimizing costs is important, today’s network designs should focus on maximizing profits.
  • Start with the strategy. An optimal network design delivers value by supporting the overall business objectives. The first step is to develop the business and operations strategy which will drive the network design.
  • More than just data. In addition to data, companies must also have a thorough understanding of the flows-material, information and cash-that occur in the supply chain and the business rules needed to run the network before beginning the optimization process.
  • Cycle times are important. While customer service times are critical for driving revenue, cash-to-cash and order-to-cash cycle times should also be evaluated and factored into the overall network design.
  • DC operations and design reviews are necessary. Utilizing a model based on non-optimal facilities can lead to poor network designs. An in-depth analysis of economies of scale, process improvements and new technologies is necessary to properly account for capabilities, capacities and costs.
  • Labor limitations and costs. An important element of any network design is labor. Unemployment rates, skilled labor availability, unions and costs must be included in all network scenarios.
  • Don’t forget about incentives. An often overlooked but substantial element of network analysis is financial incentives offered by state and local governments. Be sure to check if your business qualifies for grants, tax credits, rebates or other financial assistance.

While this process may seem overwhelming, Tompkins is here to help. Contact us today to learn more about how to optimize your network to minimize costs, maximize profits and deliver a better customer experience during these uncertain times.

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