Why and How to Optimize a Logistics Network?
The optimization of a logistics network is concerned with determining the number, location, and size of stores most suitable for each business, taking into account a wide range of supply chain constraints. That is, from raw material suppliers to end users, it is best to find the best tank combination needed to cover the whole supply chain.
Logistics occurs mainly in three areas – procurement, supply and sales. Typically, the optimization of the logistics network is the supply and sale of finished goods, but sometimes it includes the supply of raw parts or materials. Ultimately, the aim of optimizing the logistics network is to find the best combination of the various warehouses that best suit the needs of the customer.
Of course, the factories can be part of a logistics network as the factories are located in their own warehouses and temporary warehouses. However, when building a factory, the main priorities are usually less important for the location of the facilities, while the logistical factors are less important, but in terms of site factors, tax benefits, political risks, market size or conditions and conditions. personnel conditions.
Why is it needed and what to expect?
The network optimization is a high level strategic project in logistics. It is also a crucial issue on which senior leaders need to make decisions because it affects a company’s investment in infrastructure and the whole supply chain. Below you will find the main reasons why the network needs to be optimized. .
– Add new sales channels to the country
– Increase / decrease in demand (based on product and / or geography)
– Changes in production capabilities (displacement / opening / closing factories)
– Changes in retail channels (small, medium, large scale retailers or using their own retail network)
– Changes in marketing strategies
– merging and procuring new initiatives
– Integration and closure of branches in business
– Changes in competitor network strategy.
After all, what we expect from network optimization is to reduce costs and develop services. While the level of severity between these two may vary depending on the purpose of optimization, optimizing the network at the end involves finding the best combination of repositories to provide a desirable service at the lowest possible cost under certain constraints.
Due to the natural changes between cost and service, we may need to compromise a little. However, by analyzing and evaluating many different scenarios, we can find the best possible combination.
2. Types of Logistics Networks and Project Methodology
Point to Point and Hub & Spoke
In recent years, the industry has gone from a point-to-point model (P2P) to a hub and speak model (H & S). In the H&S model, each center in different areas is responsible for providing services to customers in the region. However, in a P2P model, one facility responds to customer needs in different areas. The experience has also proved that H & S provides for better and more efficient use of limited logistics resources.
In a P2P network, one production facility serves orders from all customers, often resulting in long delivery times and difficulties in reflecting different customer product mix. In particular, in case of low demand for products, making production and transport plans becomes much more difficult. To respond to this, if you are creating supply chain sales centers such as in the H & S network, you can get a quick and efficient response.
However, this does not mean that the H & S network is always better than the P2P network. In some cases, applying P2P may be more effective. For example, if you transport goods directly from customers to a production facility, the P2P network is a better option. Indeed, it is still highly recommended, as it offers a number of benefits, such as reducing logistics costs, reducing lead times and reduced costs for warehouses.
From a supplier’s perspective, orders such as Full Container Load / Full Load (FTL Full Load) are required to reduce total logistics costs by taking the MTO (Make To Order) approach to as much load as possible, orders or adequate delivery times. guaranteed. You also want to make the most of goods supplied directly using large ships and CPFR2. In this case, the best solution would be to use the H & S network as the main network strategy and bring the P2P network together if necessary.