With the changing landscape of distribution in the U.S., today’s supply chain manager must be able to think strategically to minimize risk and maximize efficiency. Proactive planning should include both a situational assessment as well as a plan for adapting to the evolving environment. Two areas of this planning process should include the following.
Distribution Network Analysis permalink
When properly developed, distribution networks are designed to balance many types of costs and service considerations within the network: inbound transportation costs, distribution operating costs, inventory costs, outbound operating costs, product constraints, customer constraints, various plant costs, etc. There are always changes in the various cost elements in the network. However, with the levels of changes in distribution we are seeing from the pandemic, it is critical for companies to consider an evaluation of their distribution networks in order to optimize the cost structure against the changing demand that likely will be a factor over the next several months and even in 2021.
When changes occur on the scale of what is happening today, a distribution network analysis can provide significant return on investment. Companies that frequently evaluate their distribution networks create agile, adaptable networks that position them to better respond to changes. These companies are then able to address competitive positioning in a proactive manner while mitigating cost and risk. Many major third-party logistics providers (3PLs) are responding to market growth and changes fueled by electronic commerce by adding facilities to fill in their network as companies determine that additional distribution locations are required. This additional capacity can provide the 3PLs’ customers a way to reallocate their distribution. These customers are then in a better position to 1) optimize their distribution network costs, 2) mitigate carrier risks by allocating their shipping volume over more locations, based on the particular market selected, and 3) respond to rapidly increasing customer expectations of both fast and flexible response.
Built-in Flexibility for the fast-paced distribution environment permalink
It’s vital to evaluate the need for flexibility. Given the changing consumer expectations and technology impacts, including the Internet of Things (IoT), as well as major changes in demand patterns caused by the pandemic, companies need to carefully weigh the tradeoff between cost and agility. Companies are increasingly finding that investing in agility is worth the cost over the long term. Many distribution facilities are beginning to be designed with this type of flexibility in mind through omni-channel facility design as well as shared facilities. For example, in the high demand world of cold storage, firms are designing and building refrigerated warehouses with maximum flexibility to provide a range of solutions for years down the road. Building designs can now offer high functionality and capabilities, such as quick-freeze, quick-chill and thaw capabilities, along with other multi-temperature capabilities. The need for flexibility is not only for multiple temperature configurations, but also for shorter-term commitments. Dry distribution space can be designed with flexibility for ceiling height, flat-floor systems, number of doors, configuration, etc. Perishables and dry product distribution may even be consolidated. Even though this flexible approach may cost more on the front-end, it is more than made up as the building can be adapted to multiple types of uses as the market requirements change.