What does it mean? The search for efficiency characterizes our decade. In the context of high competition in local, national, and international markets, distributors want to deliver their products offering the best possible customer service while minimizing related costs. The role of the strategic distribution network analysis is to reconcile these objectives which appear to be contradictory. In the past, companies distributed their products without caring for their performance or the best practices of their industry. About ten years ago, companies began to realize that their development and sometimes even their survival depends on efficient distribution methods. Before products reach the consumer they are stored and dispatched in a distribution network. This concept integrates physical movement of goods between the network points (plants, distribution centers and customers) by ways of transportation (road, rail, sea, or air). The strategic distribution network analysis is a total approach reviewing the character of the actual distribution center network and developing suggestions of alternatives which could improve customer service while reducing related distribution costs. This analysis can bring responses to the following elements:
What are the optimal number of distribution centers ?
Where is the best place to locate distribution centers ?
What are the opportunities for distribution center consolidation ?
How should customers be assigned to distribution centers ?
What should be the size of distribution centers ?
What inventory quantity should be maintained ?
What transportation modes should be used ?
What are the possibilities to reduce costs (EDI, Outsourcing, Just-in-time, etc.)
With more distribution centers, storage costs are higher but transportation costs are lower. Of course, if the number of distribution centers decreases the contrary applies. The analysis of scenarios allows us to identify the appropriate number of warehouses minimizing the total cost while keeping an excellent customer service level. Against common opinion, a larger number of distribution centers does not mean a better performance. In fact, too many transfers between different distribution centers increases product handling and therefore its costs. To meet the demands of tomorrow's market, the strategy should be to lower costs for physical movement of goods. The new configuration of the distribution network is therefore twice as beneficial for the customer — not only does he get improved service but he also saves money. Steps to follow Step 1 - Characterization of Actual Network The first step allows us to identify how current customer service demands are met. First we review the tasks related to the customer service, such as cycle times, delivery precision, costs of ordered products, return management and capacity for modifying orders in real time. Then, a complete data gathering helps us determine the two main components of actual distribution costs : The operational costs of the distribution center (fixed and variable costs of buildings, inventory, equipment, etc.); Applicable transportation costs (estimated on a unit per kilometer base from statistics on number of customers, their geographic location, service frequency and volume of demand for each product). Step 2 - Benchmarking At this stage of the study, site visits of companies in the same activity field or other markets may be scheduled, to define the best practices of the industry concerning the applied technology, manpower productivity, customer service and other aspects related to distribution. These visits will enrich the prior developed delivery scenarios. Step 3 - Construction of a Reference Model The tangible result of this step is the development of a model representing the actual situation which, once validated, will serve as a reference for the elaboration of the different scenarios. Step 4 - Analysis of Scenarios During this step, we will define the strategic orientation of the new network considering the actual market's new tendencies, the development of future markets, competitor's delivery terms, etc. This new strategic orientation will define, among others, the demands for customer service, particularly the delivery cycle times. As a team, you and The GCL Group will develop the scenarios (WHAT-IF's). These alternatives or solutions, could represent the following:
Reconfiguration of the logistics chain;
Relocation of distribution centers;
Optimization of pick up and delivery of goods;
Implementation of new delivery concepts;
Privatization of vehicle fleet;
Outsourcing of distribution activities;
Logistics programs and partnerships;
Efficient Consumer Response (ECR);
Just in time, etc.
According to your requirements, our experts will then simulate the different scenarios by modifying the required parameters in order to generate the most profitable, but practical, solutions. Step 5 - Analysis of Results Once all questions have been addressed and developed, they will be analyzed in order to determine the strategic impact to the network reorganization, such as :
Impact on customer service through consolidation of distribution centers;
Distribution center's capacity to handle an increased volume of transactions;
Necessary investments;
Impact on labor and union relations;
Identification of new delivery modes;
Outsourcing, etc;
Distribution Network Strategic Optimization