WDC: 6 tips for optimizing your distribution network
Tip 1: Traditionally, in many DC projects, business owners and stakeholders don’t get involved until the very end when they give their approval on the overall output. But in a network strategy study, our experts agree that engaging high-level management early on is a must.
“Don’t have them show up on the 15th week of a 16-week study and start throwing curve balls and challenging the assumptions,” explains Jones. “Get them involved from the beginning to establish your assumption sets.”
Soller also recommends involving managers from sourcing, product development, merchandising, and sales to get all of their perspectives for inclusion in the overall solution design. “These managers bring perspectives to the table that make the overall result much more effective; it also ensures buy-in and belief that the new network is a good decision for the business.”
Soller cites, for example, how a sales manager can bring to light specific needs of individual customers, allowing you to address them within the network, rather than creating a one-size-fits-all solution for all customers.
Tip 2: A good distribution network redesign encompasses a number of key areas of the business that all need to be considered and questioned.
Wulfraat lists some of critical questions that need to be answered: What are the storage and throughput capacity constraints associated with my existing distribution network? What perceived service level requirements are required for major markets being served in order to be competitive? If the delivery lead-time is changed then what is the anticipated impact on sales revenues for a given market?
What are the logistics operating expenses, one-time expenses, inventory assets and capital investments required for the baseline scenario? How do these compare to alternative scenarios?
Evanko then points to a few questions concerning different forms of sourcing: Should you be sourcing your products locally, importing or returning manufacturing to the U.S. or to countries closer—also known as near-shoring?
Our experts agree that despite the buzz, near-shoring is not imminent. In fact, they expect most companies to continue to outsource the manufacturing of low-value items such as toys and clothes to China. “As labor becomes more expensive in China, then manufacturing isn’t moving back here. It will move further south in Asia into Indonesia, Malaysia, Vietnam and India,” says Evanko. “Those countries still have a labor cost advantage over China.”
Tip 3:Up to a certain scale, modeling your network in house using home-grown spreadsheets and databases can get cumbersome—if not impossible. Choose one of many commercially available network modeling tools.
“These tools can help a company develop a very robust initial solution and build the capability within your organization to continually monitor what’s happening within the logistics network,” explains Soller.
Wulfraat cautions, however, against solely depending on these tools to optimize the network. “A software tool will help to figure out a small but important subset of the overall information that is needed for a study,” he says. “But truthfully, the CEO does not care if you used a hammer or a drill for the job. The CEO wants to understand the financials, customer service impacts, and risk sensitivities.”
What’s the consensus? In any good network model redesign, you need both. “It’s important to involve the business owners within the organization in conjunction with using the analytics available in the tools,” concludes Soller. “The business owners help you ask the right questions and the tools assist you in developing more sophisticated answers to those questions.”
Tip 4:According to St. Onge’s Evanko, one of the most overlooked areas in many network designs is inventory. While adding more DCs may reduce transportation costs, it also requires you to carry more inventory—and many times this inventory is far from optimal. “But it can be made optimal by coordinating an inventory optimization study with the network design study,” says Evanko.
After the modeling tool identifies the number of facilities needed and roughly where they should be located, Evanko suggests using algorithms to determine the right amount of inventory to achieve a specific level of service that can be customized for each of the facilities.
Jones points out that how you deploy inventory becomes more and more important the more facilities you have: What products are you going to stock? Where are you going to stock them? “We’re getting customers wanting us to supplement the network study to answer more tactical level questions,” says Jones. “It’s not just how many facilities and where they’re located, but how am I going to deploy the inventory, route my trucks, and in some cases look at the design of the facilities themselves.”
Tip 5:Certain areas have become hotbeds for distribution primarily because of their proximity to the U.S. population.
Evanko points out, however, that these popular areas that companies gravitate toward means that there could be fierce competition for the labor force. Turnover rates become high because workers would rather work down the street for another DC that’s offering 25 cents more an hour.
He recommends analyzing the local labor market of the candidate locations to determine not only if there’s an adequate labor supply, but also to determine if socio-demographic characteristics are amenable to jobs in light manufacturing and distribution.
Tip 6:Depending on the complexity of the network, the availability of the data, and the experience of the project team, a typical network study can take up to six months.
“I’m amazed at how many companies are making big, multi-million dollar decisions, but for some reason don’t spend the time to do it right,” says Jones. “They have to do it in five to six weeks. Most of these studies rarely take less than three or four months to do right.”