Sometimes topics come at you in coincidental waves. For instance, I’ve had several business leaders from different industries ask me about network studies and redesigns over the past month.
I wanted to share the feedback that I provided to these colleagues.
Q: From a retail executive: “I know a network study would help us minimize costs, but how can I be sure that it will grow revenue, since sales and revenue are what I need to focus on now?”
A: By optimizing the location of distribution and fulfillment facilities, network studies do help grow the company’s revenue. Fulfillment center location and order cycle time speed will drive sales and help grow your business – not just optimize costs. However, most retailers are not getting this correlation between network design and revenue. An improved service level will lead to improved sales and revenue. So if you do get this correlation and react, then you are already ahead of your competition.
Q: From a supply chain director in a consumer goods company: “How can I justify a network study and potential redesign? I have multiple priorities that it would need to cover to even get it approved.”
A: Fortunately, the Tompkins Supply Chain Consortium has gathered data on why organizations conduct network studies. The major factors or goals impacted by network studies, as cited by member companies, include:
- Cost minimization
- Customer service improvement
- Profit maximization
- Reduced capital outlay
- Revenue maximization
- Change / disruption minimization
- Risk minimization
And from the answer to the retailer’s question in #1, we know that sales and revenue growth is also a great (although frequently overlooked) justification for network analysis and redesign.
Q: Manufacturing executive in partnership with a logistics service provider (LSP): “How often do we need to do these studies? I don’t want to feel locked into a network design and I want to include my LSP, so how easy is this process, really?”
A: Manufacturers that depend heavily on their LSP networks are especially vulnerable to becoming inflexible, expensive, and people-dependent within a few years. And much of this has become event-driven, such as with a merger or acquisition. In fact, LSP-driven networks can have unique advantages that make it easier to evaluate how they are laid out and redesigned for flexibility. The smartest companies are doing network studies every one or two years, or even better, continuously.