Published October 11, 2022
While previously a network analysis may only be performed after a major business change, such as a merger or acquisition or new product launch, today’s dynamic landscape requires companies to continually evaluate and optimize their distribution network design to minimize risk and maximize revenue.
According to the Council of Supply Chain Management Professionals (CSCMP) 2022 State of Logistics Report, United States business logistics costs rose 22.4% in 2021, totaling $1.85 trillion—8% of the country’s gross domestic product (GDP). This is at a time when companies are already dealing with unprecedented supply chain disruptions and challenges, from excess inventory to space and labor shortages and a slowdown in consumer spending.
Below are six factors to evaluate to ensure a successful network design.
The first step of any network design project is to define the business objectives. Is the goal to optimize the network to accommodate growth, maximize profits or improve service? While network optimization is an ongoing process, it is important to model your network for your current requirements and a five-year planning horizon. An optimal supply chain network will balance cost, efficiency and service levels to ensure long-term success.
Prior to consolidating or expanding your distribution network, it is important to look within the four walls of your facilities to determine if there are any opportunities for immediate improvement. This includes updates to processes, flows, warehouse layout, material handling equipment, technology solutions and any other improvements that can increase performance, capacity and space utilization.
The location of your warehouses has a major impact on your distribution network. While proximity to customers, suppliers and stores is always a priority, real estate and labor availability and costs, local taxes and incentives, and existing industry and competitors are also important factors to consider when evaluating your warehouse locations. A network analysis can help you identify the optimal size, number and location of distribution centers to meet your company objectives and customer demands.
With the current rate hikes, labor and capacity constraints and other disruptions, transportation still remains one of the most challenging and costly components of network optimization. Performing a network analysis enables companies to identify the best processes, carriers, modes and any other potential opportunities to reduce transportation costs and times.
One ongoing challenge for supply chains is inventory planning and management. Many retailers that were afraid of running out of stock during recent disruptions are now stuck with excess inventory and the associated storage costs and space requirements. In addition to warehouse location and transportation, a network analysis also helps companies determine the optimal inventory levels and locations to meet customer demand, maximize warehouse space and minimize costs.
Incorporating Software into Your Network Design
Designing an optimal distribution network requires comprehensive and accurate data. Advanced software solutions can monitor your current warehousing, labor, inventory and transportation processes and provide recommendations to help you achieve greater efficiency, service and cost savings. Additionally, with access to real-time data and end-to-end visibility across the entire supply chain, companies can quickly identify and react to potential bottlenecks or disruptions within their network. With an abundance of options on the market today, an experienced supply chain consultant can help you determine the best software solution for your unique needs and objectives.
In today’s constantly changing environment, it is important to regularly evaluate your distribution network to ensure your supply chain is flexible and resilient enough to overcome disruptions and continue to meet customer demands today, tomorrow and in the future. At Tompkins, we act as your trusted supply chain advisor, working with you every step of the way, from strategy development and design to implementation and training for your new network. With more than 45 years in the supply chain industry, we leverage our expertise and relationships to ensure you receive the optimal network design for your unique requirements and objectives. Contact us today to learn how to optimize your distribution network and gain a competitive advantage.