Customizing The Logistics Network in SCM

Customizing The Logistics Network in SCM

February 11, 2015 0 By Aval Sethi

Companies have traditionally taken a monolithic approach to logistics network design in organizing their inventory, warehouse, and transportation activities to meet a single standard. For some, the logistics network has been designed to meet the average service requirements of all customers; for others, to satisfy the toughest requirements of a single customer segment.

Neither approach can achieve superior asset utilization or accommodate the segment-specific logistics necessary for excellent supply chain management. In many industries, especially such commodity industries as fine paper, tailoring distribution assets to meet individual logistics requirements is a greater source of differentiation for a manufacturer than the actual products, which are largely undifferentiated.

One paper company found radically different customer service demands in two key segments – large publishers with long lead times and small regional printers needing delivery within 24 hours. To serve both segments well and achieve profitable growth, the manufacturer designed a multi-level logistics network with three full-stocking distribution centres and 46 quick-response cross-docks, stocking only fast-moving items, located near the regional printers. Return on assets and revenues improved substantially Thanks to the new inventory deployment strategy, supported by outsourcing of management of the quick response centres and the transportation activities. This example highlights several key characteristics of segment-specific services.

The logistics network probably will be more complex, involving alliances with third-party logistics Providers, and will certainly have to be more flexible than the traditional network. As a result, fundamental changes in the mission, number, location, and ownership structure of warehouses are typically necessary. Finally, the network will require more robust logistics planning enabled by “real-time” decision support tools that can handle flow-through distribution and more time-sensitive approaches to managing transportation.

Aval Sethi