Rethinking Your Distribution Network Optimization

Distribution Network Optimization

Whether you are a small business owner or a corporate logistics manager, it’s crucial to stay attuned to the most innovative ways to optimize your distribution network. Individually-owned businesses can operate with great autonomy and fast reaction times.

It’s imperative for corporations to achieve the same capacity to react to market demands by improving their distribution efficiencies.

Corporate parent companies are trying to create cross-divisional synergistic opportunities, allowing their businesses to share distribution and supply chain resources.

The market demands it, and the customer expects it.

The move to re-evaluate your distribution network may be driven by the need to reduce costs, or perhaps you are launching a new business strategy.

Whatever the motivation, reassessing your distribution network optimization is an absolute necessity.

Today’s customer is accustomed to the “buy it now” mentality. The demand for an immediate and efficient supply chain trickles up. If the customer wants it now, the network has to meet the request. This demand is not a question exclusively for the direct-to-consumer market.

The bar has been raised, and even the business-to-business supplier is expected to meet this new market standard.

Distribution Network Optimization Is More Relevant Than Ever

The discussion begins with a cost-benefit analysis of the tradeoffs between an optimal network to control operating expense and an ideal customer service level, or turnaround time.

Distribution network optimization is essentially a balancing act between operating expenses and working capital, as opposed to service level requirements. If a cost-benefit analysis sounds expensive and time-consuming, simplify the question.

Consider the need for service-level improvements versus the cost of doing business. Ask your team what the competition is doing and begin to crunch the numbers.

The depth of the dive requires another cost-benefit analysis. What is at stake? What can be achieved? Where do we begin?

No matter the size of your company, and regardless of whether you are business-to-business or direct-to-the-consumer, your distribution network affects your bottom line.

If you are looking to grow your business, or are responding to competitive market pressure, finding ways to reduce your logistics operating expense, while improving efficiencies, is crucial to staying competitive.

The conversation has to include optimizing inventory assets, reducing working capital, addressing customer service fulfillment, and, most integrally, improving transportation, storage cost, capacity and last-mile efficiencies.

Transportation costs are rising, causing distribution networks to move closer to their markets to reduce last-mile costs.

Bring your entire team on-board, and start at the end. Where does your product need to be, and how fast does it need to get there? Is the response time achievable and the order response rate sustainable? Is the capacity available?

The understood benchmark is set by your competition initially, but you must surpass it.

The key question is: “What will give your business a competitive edge?”

Without a doubt, an optimized distribution network will.

About the Author
Sean Henry, Founder and CEO of STORD, Sean has a background in Lean Management and Supply Chain Optimization. Featured in Forbes' 2018 30 Under 30 List in Manufacturing and Industry.