Many industry players are struggling to meet customer demands in the era of digital commerce. New delivery standards may require significant investments in staffing, facilities, and technology—and such an endeavor is not always an option for most businesses. The rapid development of e-commerce has taken many organizations by surprise. Now, logistics companies are largely unprepared to adapt their operations to meet expectations in terms of quality, capacity, and speed.
Author Radiana Pit | Copperberg
However, there is a solution to meeting delivery expectations at the lowest cost possible: optimal network and warehouse design.
Logistics network and warehouse design is mainly concerned with delivering goods to customers and satisfying their needs with limited resources. This is why coming up with an optimal design holds great strategic value. But devising an optimal model is no easy feat, especially since most models stop short at minimizing costs. However, logistics professionals aim at optimizing their networks in a way that maximizes not only profit but also speed and sustainability. In order to achieve such objectives, comprehensive designs must take into account the number, location, role, and size of your facilities, which plant/vendor should produce which product, the raw materials and finished products that flow between facilities, and more.
Location—the key issue in facilitating optimal design
Determining the right number and size of your warehouses and/or plants is challenging enough, but getting the location wrong can be extremely detrimental.
However, the secret to getting the location right is to think of it as the only way to close the gap between your company and your customers. The closer the location is to your clients, the faster your goods will be delivered—and that’s what today’s impatient society expects from you.
So, start your design process by considering your location objectives and then identify the key factors that can make or break your network.
So, what makes a warehouse great?
According to Rudolf Leuschner, Associate Professor at Rutgers Business School, what makes a warehouse great is:
- Speed or the ability to ship out as much product as possible by ensuring the shortest distance between the product and the shipping dock;
- Redundancy, which consists of multiple checks built into your distribution system to ensure that the right products are delivered to your customers;
- Productivity or the ability to push out as much product as possible out of your distribution network.
With these goals in mind, you can create a seamless warehouse flow process that consists of the following essential steps:
Unloading → Storing → Picking → Packing → Staging → Loading
Each step should be accurately timed with the help of a reliable warehouse management system.
But beyond warehouse management software, you should also think FAST. If you’re not already familiar with it, the FAST concept is a layout design solution that will help you to ensure that your locations are close enough to each other to enable seamless workflows. However, placing your activity-locations too closely can clutter your processes and result in highly inefficient outcomes.
So, when it comes to FAST, you should focus on:
- Flow to ensure a logical sequence of operations within your warehouse based on the location of each of your activities;
- Accessibility to be able to receive and issue products in pallets, batches, or truckloads;
- Space to make optimum use of the cubic capacity within your warehouse;
- Throughput to reduce inventory risks such as bulk, security, compatibility, and more.
These best practices for warehouse design will definitely help you come up with a proper layout that enables the rapid and seamless handling of products. But when it comes to network design, what are the most important aspects that ensure perfect order and superior performance?
In other words, what makes a logistics network great?
According to Edward Frazelle, President and CEO at RightChain Incorporated, an optimal network design/redesign process should consist of the following 10 steps:
- Evaluate your current network;
- Design and populate your network optimization database;
- Create network design alternatives, such as more or fewer hierarchies, multi-commodity flows, pooling opportunities, merge-in-transit, direct shipping, cross docking, and supply-flow optimization concepts;
- Develop your network optimization model;
- Choose the right network optimization tool;
- Implement your network model in the chosen tool;
- Consider alternative network designs;
- “Practicalize” recommended network structures;
- Compute reconfiguration costs;
- Make go/no-go decisions.
To make the most out of this process, you should engage all stakeholders so that everyone is on the same page when you decide to jump-start your design initiatives. You should also enlist your stakeholders’ help when looking for alternative network solutions, modeling transportation, comparing services and costs, and analyzing risks.
Combining the efforts of those involved with data insights will help you accurately review model outputs and look at your options from a fresh perspective.
Creating the perfect logistics network
It goes without saying, but creating the perfect logistics network takes time and effort. However, you can set yourself up for success by aligning your logistics network with your business model and focusing on answering the following questions in a way that makes the most sense for your company:
- How will a more responsive network enable growth?
- Will network investments lower operating costs?
- If operating costs increase, will the sales volume warrant the investment?
By taking your time to reach the right conclusions, you will be able to find the ideal strategy to derive the greatest business value from your design initiatives.
Last but not least, you will also need accurate data to kick-start your initiative. So, before you start designing or redesigning your network, list all of your products, stock points and sources regarding customer locations, set customer service goals, order processing costs and patterns by frequency, size, season, and content, and establish transportation rates and warehousing expenses.
Are you ready to kick-start the design process?
Although your old logistics network design might still be reliable, over time, it will become fragmented. This usually happens because territories change and ordering patterns alternate, which causes the network to lose its efficiency.
So, it’s vital for your company to review your network periodically and ensure maximum service in the most cost-efficient manner.