Shippers, Producers and Manufacturers can often experience a major and sudden growth to their distribution network. New volume, new markets, new customers all create increases in volume that can change your existing distribution network significantly.
Adding many customers to your network in a short time frame can lead to the complexity of your operation to increase dramatically, with more product SKUs and more locations for delivery. To be successful a seamless integration is required by all touch points in the supply chain so that service remains consistent at the lowest cost possible. Below are some of the major challenges that occur when implementing this type of strategy:
Receiving an order can become highly complex as your network grows. Even with a smaller network, organizations need to handle orders through different communication channels including email, fax, phone, EDI/API or an online ordering portal. When you increase the number of customers that you work with, you may add additional layers of complexity such as different lead times between products and different IT systems that need to talk to each other.
Having this fragmented information can have impacts upstream as well as downstream. Mistakes in ordering can lead to over-production or over-stock, while downstream, mistakes could cause issues such as missed sales due to incorrect product being delivered or not having sufficient inventory on hand.
With warehousing, the obvious impacts are that you will have higher volumes and more product SKUs. You may also find that the way you treat products may differ. For example, if you are handling food, a new line of products may require freezer storage where previously you only required refrigerated space.
The higher the volume you have inventoried within the warehouse, the more your fees will be. It’s important to understand the impacts that increased volume has on your warehouse storage costs, capacity, and inventory turnover.
It’s also important to understand what the operational impact is to the warehouse. Do they have capacity to take on your incremental volume? As an example, if you have limited dock doors available for shipping and receiving then optimizing the delivery schedules for all your suppliers is crucial.
Trucking is the predominant way to deliver products to a store. In an industry with tight margins, this component must be highly optimized to ensure costs are kept low. One of the largest challenges that arises with additional volume is scheduling. Most stores will have regular weekdays where they receive orders from suppliers. When integrating new volume, you may find that you have requests to deliver to certain locations more frequently than is actually required, and the receiving location may not have the capacity internally to manage or store the incremental volume. Consolidating shipments by location can help to reduce the amount of trips made to deliver product and reduce your overall transportation costs, but you also need to consider the needs of the receiver to ensure that they can manage the change in volume
The load planning and routing also plays into the cost of your transportation network and will be highly dependent on the schedules agreed upon with your end customer. While optimizing the routes, you need to look at time, distance, unloading capability, receiving hours, and storage capacity. These factors impact the ability of your customer to manage their operation.
Implementing a shared distribution strategy, where multiple product types are delivered to stores, can be highly beneficial due to the cost advantage gained by consolidating freight. On the other hand, if the right systems are not in place to manage the complexity, you may find that your costs increase relative to sales.
At Triskele Logistics, we have successfully implemented this strategy through:
Project Management: Strong project management is crucial to ensure all stages are considered and completed when onboarding a new supplier. Integration must be done at many different levels including sales, accounting, pricing, inventory, production and logistics.
Supply Chain Planning: This involves having an excellent understanding of the end-to-end supply chain and optimizing to minimize costs while maintaining the required level of service.
Technology: Technology enables the management of many data points and the automation of various tasks and processes. This allows you to take on a more complex network without significantly increasing your costs.