A recent article in Logistics Management on Warehouse and DC Management: 6 Tips for Optimizing the Distribution Network provided a number of great tips for optimizing the distribution network and reducing logistics costs which are expected to quickly surpass the 2008 high (on the US Freight Index) as oil prices increase and availability of qualified truck drivers decrease. The following three tips are particularly pertinent.
- Ask the Right Questions
What are the perceived service level requirements? What impacts will changes in delivery lead-time have on revenues in a given market? What are the baseline operating expenses, inventory assets, and capital investments? How do these compare to alternative scenarios? Should the company home-source, near-source, or global-source? Remember, Supply Management must deliver value and balance costs and lead times against revenues and demand times in its redesign.
- Use an Effective Network Modeling Tool
Effectively modeling a network in home-grown spreadsheets and databases is impossible for an average enterprise with more than half a dozen locations and global sourcing requirements. Not only does an organization have to effectively model a network and proposed alternatives to identify the best network designs, but it needs to monitor what’s happening with the network, which is not possible if all the organization has is a simple spreadsheet or database tool.
- Perform an Inventory Optimization Study
While adding more Distribution Centers (DCs) may reduce transportation costs, it will also increase inventory costs, on average, as more inventory will generally be necessary to meet default stock levels. However, if not all distribution centers service locations with the same service level commitments, then inventory can often be varied to minimize carrying and holding costs. However, a careful analysis, supported by an appropriate toolset, will be required.