Tuesday, February 19, 2013

Designing a network for effective distribution

Designing a network for effective distribution

Network designing plays an important role in all type of  industries when delivering, sourcing and operations are crucial activities. Whether company is planning an alternative structure, establishing a new plant or going global, it is imperative to have strategic designing to improve performance at each link of supply chain.  A trade-off is required among various factors like warehousing cost, inventory carrying cost, transfer freight, delivery freight and service costs to secure competitive advantage.

Dispersed and less harmonized network  - hampers optimization of throughput and lead times to customers
Trouble in simplification of network  due to corporate guidelines-  troubles smooth material flows
Uneven capacity allocation – cause bottleneck, over investment in asset and low utilization rate

To address the above challenges , a "cradle to grave" approach is needed to understand geographical and functional scope of company and to have sustainable operation in long run. A structured sequence planning is mentioned to enable potential iteration –

 (1)    Objective – Identify all relevant target location , rank them according to relevance, investigate the trade-offs for successful network design
(2)    Analysis – An in-depth and future focused analysis is needed to understand stakeholders, strengths and weaknesses for refinement
(3)    Scenario generation-  Alternative business scenario can be created to understand optimal facility location and capacity level   
(4)    Scenario evaluation – Planning a validation and prioritization process is critical to finalize structure
(5)    Selection of design – Business case and implementation plan is essential for final selection

 The above analysis can help to design a network strategy but it didn't consider changes in topology, transportation spend and working capital. If the distribution system is centralized then it must have been realized beforehand that holding cost of inventory is more than that of transportation cost. If inventory placement and material flow is not a big concern then it is wise to keep warehouse at economical place and have distributed transportation network. Considering the business drivers and performed simulation test, it is possible to understand complexity and inventory optimization. Accordingly, holistic design and change management activities are required  to have an agile, adaptable and aligned supply chain logistics network.

Source: Supply Chain Management Logistics & Distribution

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