Importance of logistics network design

Logistics network is a key component of the supply chain that links manufacturers, suppliers, wholesalers, retailers and consumers. The efficiency of this network determines the health of your supply chain and contributes to effectively handling customer demand. To handle their logistics operations, companies often establish a well organised  logistics network design to ensure that the finished products reach customers on time and at minimal costs to the company.

What is logistics network design?

Logistics network design involves devising transport, inventory and location strategies, keeping in mind the customer service goals, ensuring the total package achieves the best service at the lowest cost. The best design must be able to deliver the goods to the customers at the least cost while satisfying the customer’s needs.

Example of logistics network design:

Imagine you are exporting yarn and your client is in France.  The logistics network design could look like:

production plant >> warehouse >> port of loading >> port of destination >> warehouse >> customer

The key to design is the process flow set between each link in the chain to ensure timeliness of transport.

Importance of logistics network design

The importance of logistics network design is that it compares customer demand points to warehouses, and the flow of products from production plants to warehouses.

A common trend in logistics is that companies are outsourcing their logistics function to third-party logistics (3PL) firms so they can focus on the core competencies. These logistics companies are put in charge of creating a logistics network design that is cost-effective to the company.

While designing a logistics network, all data points related to the supply chain are taken into consideration. Based on these data points an optimised solution is found that satisfies budget targets as well as service targets.

While creating a logistics network design these are the questions that needs to be answered:

• What are the core areas where the customer demand is concentrated?
• Where are my warehouses located and how close are they to my customers?
• How to design a network that can deliver the required service at the lowest possible cost?
• How to determine the number of products required and inventory to be maintained to meet anticipated customer demand?
• Once a network is designed and a distribution strategy is defined how to best use the available transportation resources?

Objectives of logistics network design

A company employs logistics network design to boost its supply chain efficiency. Here are some of the important objectives of logistics network design:

• Decrease the distance driven
• Decrease the overall delivery time
• Reduce the number of routes used to deliver products
• Reduce logistics costs

Processes involved in creation of logistics network design

Logistic network design processes allow the supply chain to function like an automated machine committed to satisfying the customers by sticking to delivery timelines and satisfying the company by staying within the budget limits.

Here are some of the processes involved in logistics network design:

• Capacity assessment of distribution centres
• Assessment of fleet capacity
• Logistics network scenario modelling
• Warehouse to customer alignment
• Fixing transport routes
• Optimising the network design and budgeting logistics costs
• Determining the workflow
• Optimising inventory deployment

How to assess your logistics network design?

Once you create a logistics network design strategy you need to analyse the performance of the network:

• Total costs incurred including facilities, labour, transportation, and inventory
• Customer satisfaction levels
• Overall value proposition
• Current gaps between strategy and actual capacity

Once you assess the strategy and find gaps in the plan, generate alternative tactical plans for closing the gaps. This will contribute to further cost reduction and better handling of customer demand leading to better logistics management.

If you are looking to outsource your logistics functions to a logistics partner, visit Tata nexarc’s Logistics to find trusted partners for all your supply chain needs.