Logistics managers must be capable and more responsive to redesigning distribution networks more frequently to operate at the lowest costs while providing the best customer service.
“As recently as the 1990s, a company would review and restructure its distribution network once every five to 10 years,” says Edward Frazelle, founding director of Georgia Institute of Technology’s The Logistics Institute and president and CEO of Logistics Resources International of Atlanta. “That’s no longer the case as the issues affecting the network configuration are changing so fast that they have to be monitored much more frequently, and in some cases, on a daily basis.”
Security requirements, new trade agreements, shifting labor rates, space costs, supplier and customer locations, new carriers and products, lane congestion, and fuel costs play significant roles in network logistics, Frazelle says.
Optimal network design/redesign minimizes inventory carrying, warehousing, and transportation costs while satisfying customer response-time requirements, according to Frazelle. Specifics include the network’s distribution levels and centers, location and mission of each facility, assignment of supplier and customer locations to each center, and inventory deployment.
To create an optimal network design/redesign, Frazelle recommends a 10-step logistics network design process:
1. Assess/evaluate current network.
2. Design and populate network optimization database.
3. 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.
4. Develop network optimization model.
5. Choose network optimization tool.
6. Implement network model in chosen tool.
7. Evaluate alternative network designs.
8. “Practicalize” recommended network structure.
9. Compute reconfiguration cost.
10. Make go/no-go decision.