Building a successful logistics network
By Nick Testa
Building a successful logistics network of transportation and warehousing is essential to managing the movement of goods between the point of origin and the point of consumption. Variables such as security requirements, new trade agreements, shifting labor rates, space costs, supplier and customer locations, new carriers and products, lane congestion and fuel costs all play significant roles in network logistics. The most efficient logistics networks are designed to minimize inventory carrying, warehousing and transportation costs, all while satisfying customer and product requirements along the way.
The three basic pillars to a successful logistics network of transportation and warehousing are as follows:
1) Internal business architecture
2) Products transported and warehoused
3) External business architecture
Internal Business Architecture
First, the structure of who will be working with whom within the network will need to be set up. Once these points have been defined, start discussing what both sides will do to ensure that transportations between those points runs smoothly.
Next, select a logistics network model by identifying end customers and what their needs are, working backward to strategically build out this network. For businesses offering online media, like Amazon, having a single location may work — as customers may be willing to pay more in shipping for a high-quality product from a source they can trust. For those dealing with perishables, it is probably more practical to have localized hubs near customer endpoints. Businesses should weigh the impact of having a regional center versus local delivery warehouses, settling where the least amount of money will be spent while preserving the ability to continue providing the best service.
Within any business or industry, it’s a common assumption that 20 percent of customers will cause 80 percent of the impact on an organization. In the case of logistics networks, this means that ease of distribution should focus on the needs of that 20 percent. For the remaining 80 percent, accelerated delivery or similar perks can be offered to make up for the lack of a closer point of delivery or additional requirements each customer may have.
Products Transported and Warehoused
Next, attentions should be turned to the products that need transporting and/or warehousing themselves, as the choice of logistics network model will also depend upon the product’s transporting or warehousing needs, like refrigeration or safe handling.
Look to validate supply chain performance in a quantifiable way. The more critical the product is to the life of the user, the more important the performance will become for that supply chain. For example, pharmaceutical and medical device supply chains are built more carefully than those designed for non-critical items, such as clothing, because health and safety require a solid and secure logistics network.
External Business Architecture
Finally, consider what the external architecture of the logistics network will include with a successful balance of supply and demand in mind. Though having enough to fulfill customer needs is crucial, having excess or unnecessary inventory can ultimately sink company profits. Truly successful logistics networks operate at the lowest costs possible, while providing the best customer service available.
When building a logistics network, businesses need to observe the reasons for transportation and warehousing compared to where their customers and resources are located. The ultimate goal of any established network is to make moving raw materials from their source(s) through various transportation media and warehousing locations to the end customer simple, while maintaining a solid balance of supply and demand to meet the needs of every customer.
Formal education is necessary to plan for and build an effective and cost-efficient logistics network. Learn useful information about best practices and resources for building a logistics network by taking Supply Chain and Logistics Management courses at Brandman University’s School of Extended Education. Visit brandman.edu/exed or call 1.800.632.0094 for more information.
About the author
Nick Testa is an instructor at Brandman University’s School of Extended Education and the founder and CEO of Acuity Consulting, Inc., a firm that provides supply chain, process improvement, and systems implementation as well as business consulting. Testa served on the American Production and Inventory Control Society (APICS) board of directors for eight years and held the title of president in 2006. He has held additional APICS positions such as International Conference Chairman and President of the Orange County Chapter. Testa instructs at both the college and graduate level and is an internationally known speaker. He holds his Master’s in Business Administration from the University of Southern California as well as accreditations including APICS’s CFPIM, CSCP and CIRM; CSUF Certificate in Production and Inventory Control; and Goldratt Institute Jonah.
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