INEVITABLE AND EFFECTIVE FACTORS IN DISTRIBUTION NETWORK DESIGN TO CREATE COMPETITIVE ADVANTAGE:

In this article, I am revisiting the topic with a more holistic approach, focusing on six factors that can make the difference between an optimal and suboptimal distribution network design.

The information I am sharing here will be of particular value if you are (or will be) involved in designing a new network or upgrading or expanding an existing one.

1. Quality and Detail of Data and its Analysis

In some of our earlier posts, we’ve stressed the importance of simplicity in distribution network design, and we will return to that topic later in this article. However, the one thing you have in your favour today, which would have been much harder to benefit from in the past, is the capture and analysis of data to inform your design.

?1. Quality and Detail of Data and its Analysis

In some of our earlier posts, we’ve stressed the importance of simplicity in distribution network design, and we will return to that topic later in this article. However, the one thing you have in your favour today, which would have been much harder to benefit from in the past, is the capture and analysis of data to inform your design.

It would be folly not to take advantage of data availability and accessibility. So, while simplicity of design is a worthwhile goal, investment of time and resources in comprehensive and detailed data analysis can never be a waste. Indeed, careful attention to data in the preparation stage is indispensable for delivering a simple yet optimal design.

As a primary requirement, it’s necessary to understand the range of data types requiring collection and interpretation. It’s not a short list, so we’ll set it down here as a summary to help you with plans for analysis.

Essential Data for Effective Distribution Network Design

The Data types that you should consider critical for analysis in distribution network design include:

• Customer locations: The geographical distribution of your customer base.
• Customer order history: Historical customer order volumes and frequencies.
• Service requirements: Customers’ service level and delivery lead time expectations.
• Product attributes: Product sizes, weights, and other relevant characteristics.
• Demand variability: The patterns of demand for each product.
• Supplier locations: Geographic locations of your suppliers and their lead times.
• Supplier performance: Reliability and on-time delivery rates of each supplier.
• Inventory levels: Current or expected inventory levels at various locations.
• Inventory turnover: Inventory turns for each SKU.
• Transportation options: Costs and lead times for each available transportation mode.
• Transportation costs: Freight rates, fuel and labour costs, and other transportation expenses.
• Route data: Transportation routes, distances, and transit times.
• Warehouse capacity: The storage capacity and utilisation of existing facilities.
• Throughput rates: The processing capacity of distribution centres.
• Labour productivity: Efficiency and productivity of picking, packing, and shipping activities.
• Market conditions: Data relating to market dynamics, demand shifts, and emerging markets.
• Competitor intelligence: Distribution strategies and network designs of your competitors.
• Regulatory/Legal Compliance: Customs regulations, safety standards, and labour laws.
• Sustainability goals: Evaluate options for eco-friendly distribution processes.
• Fixed costs: Distribution centre fixed costs, such as rent, utilities, and equipment.
• Variable costs: Relating to transportation, labour, and inventory management.
• “What-if” data: Scenario simulation to assess the impact of design options under various conditions.

2. Clarification of Design Objectives

While the need to start a distribution network design project by focusing on objectives may seem obvious, you might be surprised at how many companies either omit this step or settle for defining an overarching objective such as cost reduction or geographic expansion.

To do so is a mistake because a successful and future-proof distribution network design will typically need to meet several objectives. While there may well be a single primary goal for the network, such as expanding into a new region, other factors will likely merit serious consideration, too.

?3. A Focus on Simplicity

In an earlier paragraph, we mentioned the importance of simplicity and that it would feature as a topic in this article. As promised then, we’ll look now at the need to minimise design complexity, focusing on some of the possibilities to keep your distribution network as simple as feasibly possible.

?

Process Standardisation

It’s not only the physical network, as in the location of distribution centres and warehouses that you must consider in the drive for simplicity. It’s vital to think about your processes, too. By standardising distribution processes across your network, you can simplify operations for economy and efficiency.

Order picking, packing, transportation processes, and inventory management practices and procedures are all worthy targets for standardisation

4. Built-in Scalability

"Any substantial increases in distribution volume can lead to capacity bottlenecks, potentially requiring the addition of new warehouses to serve as overflows for your existing facilities."        

This topic makes an appropriate addendum to the discussion about the simplicity of your network because one of the factors that often drives increased complexity is business growth.

However, additional warehouses add complexity to the network, not only because they exert more pressure on your shipping and transportation operations but also because they increase the inventory management burden.

The good news is that there are ways to avoid network complexity arising from business growth. One approach is to design your network to be scalable. So, let’s move on now to look at how you can do that.

Flexible Facilities

To allow for future increases in warehouse capacity, it can pay to design your facilities to be flexible. There are several ways to do so.

One possibility is to develop expandable infrastructure and acquire facilities with plenty of yard space. That will afford you the option to expand the physical dimensions of the warehouse if (or when) it should become necessary.

Of course, this can be costly, but comparatively less so than retroactive warehouse leasing, purchasing additional warehouses, or relocating an entire DC operation to larger premises.

Design for Partnership

Another way to build scalability into your distribution network is to design it in partnership with one or more 3PL providers, or to design with the express intention of working with 3PLs in some geographic regions or locations.

5. Consider the Inventory Impact

Network design projects often neglect to plan sufficiently for inventory deployment into a new distribution network. It’s an oversight we recommend that you avoid since the success of a network depends on how well you factor inventory management into your design.

6. Design for Sustainability

Sustainability’s Impact on Cost, Efficiency, and Service

Sustainability benefits are not limited to corporate marketability. There are operational wins to be had, too. A primary goal of sustainability in a network is to reduce resource consumption and waste, which can result in cost savings.

"After all, the distribution network is only a means to an end for just about every business, so it would be folly to focus on maximising sustainability to the exclusion of every other consideration."        

Eco-friendly distribution is a judicious goal for a new network design and a noble justification for reviewing and adjusting an existing one. It’s also a goal that, when achieved, significantly contributes to overall network success.

Does this mean that you should disregard all other network design goals? Not at all.

Nevertheless, we’re recommending sustainability as a success factor to consider because of the many ways in which it can benefit your organisation, aside from the obvious contribution to the war against environmental degradation.

Stakeholders Look for Sustainability

Let’s look at the reputational benefits first, because a clear commitment to reducing the environmental impact of your distribution network is a strong selling point in any area of commerce and industry.

For example, a positive reputation for sustainable practices can bring your company to the attention of an increasingly large sector of society concerned about our planet’s future. That includes environmentally conscious customers, giving them a reason to choose your company over competitors that score lower in the corporate social responsibility stakes.