The goal of network optimization is to successfully analyze, validate, and recommend an agile logistics network that provides the highest customer service at the lowest possible cost, under the widest range of business conditions. Outdated and complex distribution network structures can contribute to over-sized inventory levels, unnecessary costs, a strain on service, and overly complex inventory deployment. Network optimization is crucial to overcome these challenges and achieve sustainable improvement.
What Does Logistics Network Optimization Involve?
Data: Requiring data integrity and data-driven decision making, highly tactical and analytic
Voice of Customer: Aligning network and cost models with external lead time and service level expectations, as well as internal inventory and working capital objectives
- Multiple Scenarios: Including both Greenfield and Brownfield models to achieve the lowest cost, highest service level, minimal number of facilities and inventory levels, minimized fleet and transportation costs, hub and spoke design, and various transportation strategies
- Optimization: Optimizing the logistics network as defined by warehousing, transportation, and inventory cost to accomplish a desired fill rate and optimal customer service levels
- Customization: Selecting the optimal design that improves inventory positioning, service levels, and transportation and facility costs
- Goals: Achieving the right inventory in the right locations, with right transportation modes.
The Business Case for Logistics Network Optimization
There are several factors in today’s market that necessitate the need to focus on network optimization:
Revenue growth is more difficult to achieve, costs are increasing, and margins are shrinking.
Shortages in carrier capacity and materials are driving excessive expedites and inter-company logistics.
Complexities in market, channel, supply networks, and distributed facilities has added difficulty to supply chain planning and decision making.
Changes in customer expectations, industry evolution, and future uncertainties require a responsive and dynamic network.
Incremental and ad-hoc “quick fixes” have created a sub-optimized network lacking the right inventory, in the right distribution points, moved with the right transportation modes.
Maintaining competitive advantage requires a focus on improving customer fill rates, and reducing the costs of warehousing, distribution, transportation, and carrying inventory.
Economic and environmental risks have caused excessive redundancies and/or gaps in the supply chain.
Logistics Network Optimization Tools and Methodology
When deploying network optimization, your team (or third party provider) should use a comprehensive set of tools - leveraging the right tool for the situation. This allows for robust assessment of shipment consolidation, mode shifts, pool distribution, route planning, and load balancing. A methodology rooted in disciplined project management, collaboration, and frequent milestones reviews will ensure understanding of VOC, quality data inputs, and transparency of progress and findings. Starting with a detailed gap analysis from current to future state, total logistics cost summary, and implementation road map will ensure an efficient and thorough implementation.
The Results of Logistics Network Optimization
In summary, the results of logistics network optimization include:
Increased Revenues: Customer On-Time, In-Full (OTIF); Lead Time Reduction; Customer Satisfaction; Improved Potential Customer Coverage and Accessibility
Reduced Operating Costs: Distribution Facility Cost Reduction; Transportation Cost Reduction
Working Capital Improvement: WIP and Finished Goods Inventory Reduction
Reduced Lead Time: Improved Customer Coverage; Last-Mile Distances Minimized
Supply Chain Performance: Minimized Stocking Locations and Maximized Acessibility; Increased Velocity of Material Flow
Supply Chain Stability: Static Designs with Dynamic Flexibility; Delivery Networks Aligned with Voice of Customer
Posted by LeanCor Supply Chain Group
LeanCor Supply Chain Group is a trusted supply chain partner that specializes in lean principles to deliver operational improvement. LeanCor’s three integrated divisions – LeanCor Training and Education, LeanCor Consulting, and LeanCor Logistics – help organizations eliminate waste, drive down costs, and build a culture of continuous improvement.Facebook LinkedIn Twitter Google+