WDC: 6 tips for optimizing your distribution network
Transportation, warehouse and logistics professionals can’t seem to get a break. Just when we thought that the economy was finally experiencing a slow albeit unsteady upturn, fuel prices began creeping higher, forcing freight rates back on the front burner.
According to the U.S. Freight Rate Index—an indicator tracking the average cost per mile of land transport in the U.S.—the double-digit increase in the price of fuel has pushed the average cost per mile from $2.22 in 2010 to $2.39 in 2011, up 7.7%. That means a manufacturer with an annual transportation operating expense of $100 million in 2010 can expect to add $7.7 million more for 2011.
And there’s more bad news: Many are predicting the cost per mile to get even worse with the global demand for oil increasing and the availability of truck drivers decreasing. To help us sort out how these factors are affecting America’s distribution networks, we turn to four network strategy experts from three leading supply chain and logistics consulting firms.
According to Marc Wulfraat, president of Montreal-based MWPVL International, the key question many companies are now evaluating is: At what point does it make economic sense to add more distribution facilities to reduce inbound and outbound miles?
Paul Evanko, senior vice president of York, Pa.-based St. Onge Company, agrees with Wulfraat’s question. “Many are making the move toward smaller distribution centers located close to major markets, to ports, and to inland-intermodal logistics centers.”
But it isn’t only the price of fuel that has shippers rethinking their distribution networks. The implementation of new business strategies has also been another major driver. “Almost every company that we’ve helped with logistics strategy in the last two years is reengineering their logistics network to either enhance customer service or to help launch a new customer channel,” says Todd Soller, retail strategist for global firm Kurt Salmon.
Mike Jones, president of St. Onge, is also seeing the same changing business strategy scenario play out in many of the studies that his firm is doing. “Recent network studies have not only been initiated by ongoing mergers or acquisitions, but also by corporate edicts looking for cross-divisional synergistic opportunities,” says Jones. “With the latter, while the individual businesses may operate with great autonomy, the corporate parent still wants them to look at opportunities to share distribution and supply chain resources.”
Whether driven by reducing costs or by new business strategies, rethinking your distribution network has now become more relevant than ever. With typical cost savings of 15% and more, these studies also result in allowing companies to service their customers more quickly. “This can make a huge difference with how a company is perceived by its customer,” notes Soller.
“The ability to get product to market in one to two days when the competition can only deliver in three to five days is considered to be a serious weapon,” says Wulfraat. “It may be worth it to spend more to buy more market share.”
Which begs the question: Is your network up to par? In the next few pages, our experts share six essential tips for network modeling success. With a combined 83 years of experience and more than 150 network studies under their belts, you might want to heed their advice as you optimize your network.