Industry professionals know about the volatility in emerging markets, how focus is on mitigating global supply chain risk, and the overall quest to limit supply chain overall costs with customer satisfaction and profitability strategies. Distribution network optimization is key to re-imagine these days, be it with new strategy or cost reduction.

Distribution Network Optimization’s Importance

Cost reduction and capacity crunch aside, new company strategy is being put into place in most firms and is a key driver in the optimization battle.  Most businesses are reengineering logistics networks to launch new customer channels like e-commerce and enhanced buyer service; particularly ones interested in logistics areas like multi-channel or omni-channel.

Also see: Great LinkedIn Group discussion including GREAT info on Omni-Channel vs multi-channel in the supply chain. (To view, simply join group)

New acquisitions and mergers have initiated network studies recently along with edicts from firms wanting multi-division opportunities for synergy. Some individual companies can have much autonomy but the corporate owner desires synergy so they will cut costs within their supply chains by sharing resources and distribution networks. Whatever the drivers, distribution network optimization is a relevant area to explore. These studies are saving 15% or more and improving buyer service.  Your business’ public perception can be improved significantly with new abilities like rapid market delivery. Your firm will deliver “just-in-time” while competitors max out with three to five day delivery. This is a major advantage in the battle for customers. Investing in a distribution network optimization study will gain additional supply chain insight and market share, along with your logistics departments. Not only will the investment be worth it, improvements in your distribution strategy helps define how to deliver products to market. This benefits every size company who is part of the global supply chain.  For ROI improvements and a competitive edge, contemplate how you can do an in-house distribution network optimization study, or even out-source it to a service provider who already operates optimized distribution centers.

Distribution network optimization defined:

A company’s system to deliver units from manufacturing to retailers is a distribution network. The speed of and reliability of your distribution network is vital to success. Buyers need timely access to services and products as well as replacement parts.  To gain a thorough overview of inherent trade-offs, use Distribution Network Optimization to ascertain the best level of operating expenses for an optimal network and level of turnaround for your customers. This balances working capital with operating expenses through Distribution Network Optimization instead of Service Level (or requirements) versus Costs.

14 Areas to Prepare For a Distribution Network Optimization Study

You need involvement by top management and, a project plan, a team leader and potentially a cross-functional group of key workers for your Distribution Network Optimization study. Expect around three to six months to complete the study based on how available or complex your data is. Some key drivers to note to optimize the service level:

• Company Growth
• Downsizing
• Pressure by Competition and reduction of operating expense by increasing
• Working capital reduction
• Optimizing inventory assets
• Buyer demand changes
• Changes in Supplier or Customer base
• Fuel or transportation cost increases
• All additional drivers

Many departments will need to be tapped for your firm’s distribution network optimization study. Areas like Importing, Sourcing/Supplier, Procurement channels, Transportation and Distribution. 14 areas will need data gathered during your study:

1. Analysis of customers: Detailed order shipments and buyer demand history; transportation history; demand volumes by customer point.
2. Supplier(s): Purchase Orders history; points of origin and ports of entry; paid inbound transportation/transfers history on, and ports of entry by containers (TEU).
3. Product(s): One year movement inventory history by SKU by distribution location; cube/weight data by distribution location by SKU; product and inventory assessment.
4. Key Financials: Logistics related financials; knowing your money/cash flow; working capital investments, inventory (DC inventory allocations, inventory accuracy, inventory management, inventory turns, inventory reduction, non-moving inventory management, optimum inventor, and potential inventory slotting), building equipment; obligations: leases, Third Party Logistics (3PL) contracts/commitments.
5. Overview of process: Business assessment and data collection; Baseline and Modeling; transportation planning and implementation
6. Software applications can be used in this optimization study: Examples: IBM iLog Visualization/Optimization Software System; CAST Network Optimization Software; and Monte Carlo Simulation Software with excel.
7. Optimization of network: Pros and Cons: measuring various scenarios, like a Foreign (Free) Trade Zone (FTZ).
8. Key Challenges: Obtaining accurate data for baseline scenarios and inbound and outbound transportation paid.
9. Top Deliverables: Potential, new scenarios mapped against baseline.
10. Transportation Geography: % of market-where? Best case lead time DC vs. population how many DCs: 1, 2, and 3 4, 5, 6, 12, and 20? The more DCs, the more inventory?
11. Looking ahead: Transportation Costs are rising causing distribution networks to expand closer to their markets and reducing miles; analyze US freight index.
12. Key take a ways of Study: analysis of Service Level, extensive effort to gather, cleanse, and organize: customers, Suppliers, Investments and transportation data.
13. Increase in Transportation Costs Analysis
14. Brainstorming round table and final decisions as to what direction benefits you financially, and the decision’s effect on your customers.

Did your firm conduct a distribution network optimization study? What was your preparation and execution strategy? Want assistance with your next supply chain strategy? Contact Flash Global today.