Logistics network planning

Logistics network planning refers to the class of tools required to analyze the trade-offs among inventory
quantities, number and location of warehouses, and transportation costs to most profitably support a
desired level of customer service. LNP is a proven scientific method for analyzing the required cost and
service levels that warehouses need to meet specified customer service objectives.

Network Logistics Planning and Strategic Design

Network Logistics planning and design involves building transport, inventory and location strategies
around your customer service goals, ensuring the total package achieves the best service at the lowest
cost. Companies often devote considerable time & expense in ‘optimising’ only one element of the
network, failing to notice the negative cost effects this may have elsewhere.

The crucial element in any Logistics Planning and Network Design Strategy is building all the constraints
and variables into a single dynamic business model. The team at SCCG are highly experienced at
developing these types of models and have the skills to not only build the data model quickly, but to
then produce an optimised solution using various programming techniques, and of course, experience,
expertise, and some common sense.

Importance of Network Planning

• Which location arrangement best meets our current and future demands in terms of procurement and
distribution.

• How do various structures and tiers effect our logistics network.

• What effects do changes in freight volumes and shipping patterns have.

• How do new relations effect our service level and total costs.

• How can we improve capacity for transports in various regions.

• Which tariff is overall more economical for customer delivery directly from the central warehouse:
door-to-door tariffs or shipment consolidation at a hub

THE ROLE OF NETWORK DESIGN IN THE SUPPLY CHAIN

•Network design decisions have a significant impact on performance because they determine the supply
chain configuration and set constraints within which the other supply chain drivers can be used either to
decrease supply chain cost or to increase responsiveness.

•Facility location decisions have a long-term impact on a supply chain’s performance because it is very
expensive to shut down a facility or move it to a different location.

•In contrast, a poorly located facility makes it very difficult for a supply chain to perform close to the
efficient frontier.

•Capacity allocation decisions also have a significant impact on supply chain performance

•Network design decisions must be revisited as a firm grows or when two companies merge.
Supply chain management network design decisions

Network design decisions have a significant impact on performance because this decision determines
the composition of the supply chain and the accompanying set of constraints in the supply chain of
other triggers can also be used to reduce supply chain costs or to improve its response. All of these
network design decisions impact on each other and should be a consideration.

Framework for Network design decisions :-

Phase I: Define a supply chain strategy / design

The objective of the first phase is to define the organization’s high-level supply chain design
characteristics, such as determining the stages and whether functions are going to be outsourced or not
Based on the organization’s business strategy, analysis of global competition (and its likely evolution),
and internal constraints, managers must determine a high level supply chain design.

The six major types of distribution networks can come in handy in this phase.

Phase II: Define the regional facility configuration

The second phase aims at defining the regions for facility location, their roles, and approximate capacity.

The second phase starts with aggregated demand forecasting(the topic of the next lesson). Such a
prediction should include the demand’s characteristics in demand variability and stability of customer’s
requirement.

Then the manager can identify opportunities for cost reduction using economies of scale or scope. Such
information should be used to determine capacity allocation decisions.

Managers should also consider macroeconomic, political, and competitive factors (as we previously
saw).

Phase III: Select a set of potentially desirable sites

In Phase III, we identify some potentially desirable sites within each region defined in Phase II.

For each region defined in Phase II, we define a list of potential sites based on the infrastructure
availability and other ”soft” factors:

 Available infrastructure: accessibility to suppliers, transportation services, communication,

utilities, and warehouse facilities.
 “Soft” factors: availability of skilled workforce, community receptivity.

Phase IV: Choose the locations

Finally, we select the precise location and capacity allocation for each facility.

 From the preliminary list of potential sites defined in Phase III, we pick those that are more
suitable to the organization’s needs and define the capacity of each one.
 Here we add in the cost components into our decision model, such as labor, materials, site-
specifics, transport, inventory, and coordination costs.
Factors affecting the network design decisions

Here’s a variety of factors that influence decisions in the supply chain network design.

1. Strategic Factors :- A company's competitive strategy has a significant impact on decisions in the
supply chain network design. Companies that focus on cost leadership will try to find or create the
lowest cost for facilities manufacturing. Companies that focus on response rate tends to place a facility
that closed in the market and may choose a location to high cost if they meet the company's choice to
react quickly to changing market needs.

2. Technological Factors :- Characteristics contained in production technology have a significant impact

on network design decisions. If the production technology displays economies of scale are significant,
few high-capacity sites will be more effective. Unlike the case with fixed-cost facilities is lower, many
local facilities are prepared because this will help lower transportation costs.

3. Macroeconomic factors :-

These factors include taxes, customs duties, exchange rates, and other economic factors that do not
exist within the company. This factor has a significant impact on the success or failure of the supply
chain network.
4. Political Factors :-

Political stability in a country is of paramount consideration because it has a significant impact on role in
the choice of location. Companies prefer to place the facility at a location or state which has a stability
that provide clarity in terms of trade rules and ownership.

5. Customer response time and local presence :-

Companies that have targeted customers who can respond in a quick time to put the facilities that are
closed to the customer. If the company sends its products to customers, it means that transportation
should be slightly built and continue to increase response time is short. This choice resulted in an
increase or increase in transportation costs.

6. The cost of logistics and facilities :-

Logistics and facilities costs that occur in the supply chain can undergo changes such as the number of
facilities, location and capacity allocation. Companies should consider, supplies, transportation and
facility costs as the company's supply chain network design

Factors Influencing Facility Location

If the organization can configure the right location for the manufacturing facility, it will have sufficient
access to the customers, workers, transportation, etc. For commercial success, and competitive
advantage following are the critical factors:

Customer Proximity: Facility locations are selected closer to the customer as to reduce transportation
cost and decrease time in reaching the customer.

Business Area: Presence of other similar manufacturing units around makes business area conducive for
facility establishment.

Availability of Skill Labour: Education, experience and skill of available labor are another important,
which determines facility location.

Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturing facility by
providing incentives in custom duties and levies. On another hand free trade agreement is among
countries providing an incentive to establish business, in particular, country.

Suppliers: Continuous and quality supply of the raw materials is another critical factor in determining
the location of manufacturing facility.

Environmental Policy: In current globalized world pollution, control is very important, therefore
understanding of environmental policy for the facility location is another critical factor.
Hub and Spoke Model

The hub and spoke model refers to a distribution method in which a centralized “hub” exists. Everything
either originates in the hub or is sent to the hub for distribution to consumers. From the hub, goods
travel outward to smaller locations owned by the company, called spokes, for further processing and
distribution.

Maximize Freight Efficiencies

As part of the hub-and-spoke model, hubs are positioned no more than 300 miles apart from one
another. Here’s how it works:

Driver A leaves from his origin hub and meets Driver B at a switching point. They then exchange trailers.
And while Driver B continues to the next switching point, Driver A heads back to his originating hub. This
sequence of events keeps products in continuous motion and allows drivers to return home each night.

Hub and Spoke Model benefits :-

Continuous movement for loads :- thanks to centralized handoffs.

Reduced lengths-of-haul :- which improve scheduling, reduce transit time and help drivers comply with
hours-of-service regulations.

Consistent on-time performance :- which enhances service levels and ensures products arrive in the
right place at the right time.

Improved driver recruiting and retention :- Drivers are able to return home each night, thus
experiencing an improved quality of living. This produces additional benefits, including higher tenure,
route consistency, increased transit dependability and performance, and improved safety.

Reduced costs and enhanced productivity :- thanks to Penske’s economies of scale (larger loads reduce
per-unit costs) and the elimination of the need for team drivers.

Lower carbon footprint :- because few empty miles driven reduces wasted fuel and emissions.

Consistent pricing mitigates the risk of third-party carrier price fluctuations.

Just-in-time doesn’t have to mean high costs. By partnering with Penske and leveraging our hub-and-
spoke system, you can strategically use your transportation resources and steer a course toward
efficiency.
logistics distribution centre / warehouse

A distribution centre is any logistics building, space or construction designed to receive and ship
different types of goods, performing the function of storing them between one or other process.

In short, the distribution centre acts as an intermediary in the supply chain; it receives and stores goods
before they are shipped and distributed to wholesalers, retailers, factories or other warehouses.

Its purpose is to streamline and optimise the distribution process in the last mile, ideally storing the
goods for the shortest possible time and distributing them to nearby points to avoid unnecessary travel.

Therefore, to reduce transport times and costs, logistics distribution centres are normally located on the
outskirts of cities and major industrial areas and in logistics parks. They must be in very well-connected
areas, close to main roads, and generally well connected to ports, airports and duty free and loading
zones, too.

Advantages of distribution centres / warehouse

The main advantages of distribution centres revolve around optimising times and costs for companies:

Reduced delivery times :- Strategically located close to major cities and logistics and industrial areas,
they help to greatly reduce times from when the order is received until when the goods are delivered.

Optimisation of costs :- Centralising the product reception and shipment tasks in the last mile helps to
optimise a company’s costs, reducing unnecessary storage and transport expenses. The product spends
less time in storage, less time travelling unnecessary distances in transit and therefore saves costs.

Service flexibility :- Distribution centres, as supply chain intermediaries, give the company flexibility and
the responsiveness to meet the needs of companies with very short order and product marketing
deadlines.

Service quality and reliability :- Distribution centres are key components in supply chain efficiency. They
help to avoid errors and ensure a reliable and quality delivery within the estimated timeframe.

Objectives and functions of warehousing and distribution centre

Logistics distribution centres are responsible for the reception and shipment of a company’s goods in
the shortest time possible, so these types of warehouses have a high product rotation.

Their objective is to maintain a minimum stock or inventory level; they normally operate with high
demand products, giving priority to the service and immediacy.

To understand therefore how a distribution centre works, its functions :-

1. Storage

The primary function of a warehouse is to provide storage space for equipment, inventory or other
items. It offers appropriate facilities to the enterprises for storing their goods when they aren’t called for
a sale. This helps prevent wastage of stock and ensure its protection and safety.
2. Safeguarding of Goods

A warehouse offers protection to goods from loss, theft, or damage due to unfavourable weather
conditions like heat, wind, dust and moisture, etc. A warehouse can make particular arrangements for
different products catering to their nature. For example, it can hire security staff to prevent theft,
arrange cold storage facility for perishable goods, use insecticides for preservation, install fire-fighting
apparatus to avoid any fire accidents.

3. Movement of Goods

It consists of the following-

 Inbound activity– It means unloading of goods received by the warehouse.

 Transfer to storage– It refers to transferring the goods from the inbound area to the storage
area.
 Order selecting–It means choosing the item in the storage corresponding to the order to be
shipped and moving it to the shipment area.
 Outbound activity– Lastly, we have ‘outbound activity’, which means inspecting and loading the
goods for shipment.

The movement of goods inside a warehouse must be as seamless as possible to ensure uninterrupted
orders. Hence, the infrastructure of the warehouse, as well as the software systems used by it, should
be upgraded regularly.

4. Financing

Financing is another one of the diverse functions of a warehouse. Warehouse financing is a type of
inventory financing that involves a loan provided by a financial institution to a manufacturer, company,
or processor. In this case, goods, inventory, or commodities are deposited in a warehouse and used as
collateral for the loan.

5. Price Stabilisation

Warehouses play a crucial role in the process of price stabilisation. They help control violent fluctuations
in prices by –

 Storing goods, when their supply exceeds demand in the market.

 Releasing goods, when the demand gains pace.

When there is excess demand in the market, the extra inflow of goods may further decrease their price
and lead to losses for the business owners. Hence, in this case, the warehouses hold the stock back until
the demand for such goods rises again.

6. Information Management

Warehouses keep track of information about goods and materials sent into the warehouse, stored and
shipped out. In addition to that, any other information regarding the warehouse is recorded. It allows
the warehouse managers and other concerned personnel to get accurate insights to ascertain the
availability of stock, stock processing and stock replenishment requirements.
Types of warehouse

In its simplest definition, a warehouse is a large building where goods and materials are temporarily
stored before being sold or exported. A large variety of companies and businesses might need access to
warehouses, especially larger companies that have grown enough to need more accommodating space
for their products.

Types of Warehouse

1. Public Warehouse :- A public warehouse is a warehouse owned by governmental entities that are
available to private sector companies. These types of warehouses can be rented out for business or
personal use. Key factors of public warehouse :- • Accessible to the public • An affordable option for
new businesses • Great for seasonal businesses • Ideal for short-term storage

2. Private Warehouse :- Another popular warehouse option is a private warehouse, oftentimes referred
to as proprietary warehousing. While a public warehouse is owned by a government body or a third-
party, private warehouses are owned by a company division. Key factors of private warehouse :-
• Increased control over building facilities • Great for companies that need a significant long-term
presence in a specific region • Provide a more exclusive location for business operations

3. Smart Warehouse :- An increasingly popular warehouse option is a smart warehouse, which is a

warehouse where the storage and fulfillment processes are automated with AI, such as robots and
drones. The AI is responsible for packing, weighing, transporting, and storing raw materials, with many
incoming orders being automated to be fulfilled immediately. Key factors of smart warehouse :-
• Inventory management is more accurate • Automated functions decrease human error and save on
labor • Increase safety and security within the facility • Provide insight into overall business efficiency

4. Cooperative Warehouse :- A cooperative warehouse is a warehouse owned by multiple organizations

or businesses. These companies tend to work closely together and access to the cooperative warehouse
can save money for both companies. Key factors of cooperative warehouse :- • Great for groups of
businesses with similar inventory types. • Fairly accessible due to combined investments • Can save
businesses money on reduced rates for multiple tenancies

5. Consolidated Warehouse :- Consolidated warehouses are warehouses that collect small shipments
from numerous different suppliers into one geographical location to combine them into a bigger, thus
more economical, shipping load to one area. Key factors of consolidated warehouse :- • Economically-
friendly and time-saving • Lower shipping costs for warehouse tenants • Doesn’t require high inventory
levels • No capital investments are necessary for low-risk use

6. Distribution Centers :- Distribution centers are built around the premise of taking large quantities of
inventory in for the purpose of moving it out to retailers and merchants relatively quickly. Products
move within a distribution center much more than a typical warehouse. Distribution centers are
different from fulfillment centers, as fulfillment centers are typically used by third-party logistic
companies rather than businesses or companies. Products stored in a distribution center are moved
around quickly within a supply chain. Key factors of Distribution centre :-

• Generally affordable to utilize for companies selling to wholesalers • Designed to increase overall
efficiency for inventory management • Less money is wasted on long-term storage of product
Cross docking

Cross docking is a logistics procedure where products from a supplier or manufacturing plant are
distributed directly to a customer or retail chain with marginal to no handling or storage time. Cross
docking takes place in a distribution docking terminal; usually consisting of trucks and dock doors on two
(inbound and outbound) sides with minimal storage space. The name ‘cross docking’ explains the
process of receiving products through an inbound dock and then transferring them across the dock to
the outbound transportation dock.

When is cross-docking used?

The process of cross docking will not suit every warehouses needs, it is therefore important to make an
informed decision as to whether cross-docking will increase the productivity, costs and customer
satisfaction for your specific business. Cross docking can advance the supply chain for a variety of
specific products. For one, unpreserved or temperature controlled items such as food which need to be
transported as quickly as possible can be benefitted by this process. Additionally, already packaged and
sorted products ready for transportation to a particular customer can become a faster and more
efficient process through cross docking.

Some of the main reasons cross docking is implemented is to:

 Provide a central site for products to be sorted and similar products combined to be delivered to
multiple destinations in the most productive and fastest method. This process can be described
as “hub and spoke”
 Combine numerous smaller product loads into one method of transport to save on
transportation costs. This process can be described as ‘consolidation arrangements’.
 Break down large product loads into smaller loads for transportation to create an easier delivery
process to the customer. This process can be described as ‘deconsolidation arrangements’.

Types of cross docking

Pre Distribution Cross-docking :-

With Pre-Distribution, products are unloaded, arranged, and repacked as indicated by pre-decided
distribution directions. The customers are listed down at the end of the day before the products leave
the seller’s hub.

Post-Distribution Cross-docking

In the Post-Distribution cross-docking, the arranging of products is kept on hold until the customers are
listed down. That implies that the products are kept in the distribution centre for a longer amount of
time. The process helps the sellers make smarter and informed decisions regarding shipping, inventory,
sales forecast and trends.
Advantages of Cross Docking

Cross-docking holds quite a several advantages for business, and some of the major ones are listed
below.

Easy material handling

Material handling becomes a lot easier and smooth. Cross-docking increases operational efficiency, and
highly improves productivity. It also allows better functioning for in-motion labelling and weighing, label
verification, destination scan, etc.

No warehouse requirement

Warehouses are often replaced by cross-dock office, which is simpler to build and requires less area.
Henceforth, it gives both variables and fixed resource cost investment funds for an organisation. When
utilising a 3PL for cross-docking, especially for a startup, most often go for the dedicated cross-dock
distribution centre.

Reduces the packaging and storage cost

Since the products are stored for significantly less time, the inventory and storage cost reduces
significantly.

Reduced transportation and distribution cost

Since all products are shipped to be dropped off at the endpoint, the trucks don’t need to make multiple
halts. This drives down the transportation cost altogether. The trucks are fully loaded, and all the
products going in the same direction are shipped together. Lesser fuel is wasted due to minimised miles
and thus brings down the total transport and distribution cost.

Efficient Product Screening

Products will be screened more efficiently with the application of streamlining and automation at the
terminals, and this can significantly be reduced the time parcel spend in shipment.

Faster product delivery

As a positive side effect of the efficient screening measure, there will be a high turnover of things which
suggests that products would now have the option to be delivered faster to the customer.

Fewer Risks for Inventory Handling

Since a warehouse is not needed, the risk of inventory handling is shallow. Products are much safer and
don’t have the risk of getting stolen or damaged from the warehouse.

Less expensive :- Cross-docking terminals are much less expensive to set up than a building or to lend an
average warehouse.

Reduced labour cost

Since there is no warehouse involved, the number of labours for product handling is also reduced. This
brings down the overall labour and shipment cost.
type of products is suitable for Cross-docking

Cross-docking is highly beneficial for natural and fresh products, crowdfunding fulfilment and high
demand products. Take a look at the detailed explanation below.

Inventory of perishable items

Cross-docking is helpful for perishable items. The products that follow the First out or last in first out can
use Cross-docking for their business. For example, the products like fresh foods (milk, fish and meat) are
delivered first. The non-perishable items like biscuits, soaps and packaged products are delivered last.

Products with high demand

Certain items like phones and clothes (especially during sales and offers) are always in high demand and
go through significantly less storage time. These products can be included in the Cross-docking business
model. This can effectively reduce costs. But make sure you analyse the accurate data before going
forward.

E-commerce flash sales

The eCommerce platforms that run black Friday or the clearance sale campaign often receive a massive
order fulfilment to cater to. Cross-docking is useful for such a situation when you need to deliver faster
with a reduced cost.

Risk of Cross-docking

A lot of attention, consideration, time and arranging are essential to make Cross-docking work viably.

Setting up the Cross-docking terminal constructions would take a considerable amount of time and
funding, to begin with.

A few providers would not have the option to deliver client-ready items to the Cross-docking terminal.

An adequate number of transporters are needed for the Cross-docking warehouse to run efficiently.
Hence the whole process depends on trucks.

A high volume of an item that is stored needs to be cost-effective.

Understanding the advantages and disadvantages of cross-docking and identifying how they fit with
your business or organ essentials is important. It is a significant factor for assessing and increasing
productivity in the network cycle.

So make sure you comprehend these critical factors. For instance: High Volume products, fast selling
items, and Perishable goods are a perfect fit for Cross-Docking.
The Importance of Packaging in Logistics

One of the most crucial, but often under-recognised, steps is packaging. Packaging no longer refers to a
simple cardboard box; nowadays it is a complex, coordinated system of ensuring goods can move safely,
cheaply and efficiently through the entire supply chain. Packaging not only ensures smooth travel from
the final distribution hub to the consumer’s doorstep but also plays an irreplaceable role at all other
stages of the logistics process.

Here are a few reasons why packaging is so important in logistics:

1. Makes Transportation Easier :- There are many items that would be very difficult to transport without
the right packaging. Think of something as common as construction screws. Could you imagine trying to
transport these without first putting them in some kind of box or container? The right packaging allows
you to transport your goods most conveniently.

2. Protects Your Goods :- Products that become damaged or marked during transport are expensive.
Not only do you lose the cost of the item itself and the money you paid to transport it, but you may also
have to send a replacement. Even worse, if this happens too frequently it could cost you customers or
damage your professional reputation. Logistics packaging helps to ensure that your items arrive
undamaged at their end location, saving you time and money.

3. Provides Important Information :- Logistics packaging also provides important information to those
transporting your items as well as to the end customer. Some of the information may be as simple as
“fragile” or “this side up” but other information can be more detailed such as instructions to store the
item at the certain temperature or detailed handling instructions.

4. Makes Storage More Convenient :- Will your items be spending some time in a warehouse or storage
facility at some point between their initial shipping and their end customer? If so, having the right
packaging helps to make storage much easier. No matter the shape of your product, the right packaging
can make it easy to store the product on shelving or pallets.

5. Helps Sell Your Products :- Did you know that your packaging can be a sales tool? By selecting retail-
ready packaging, it means that your products arrive at the retailer ready to be displayed on store
shelves. Packaging that is designed with your colours, graphics, and brand help to attract customers’
attention and may result in increased sales for you.

6. Avoid Delays Due to Non-compliance :- Depending on what you are shipping and where you are
shipping it to, there may well be regulatory issues you will need to consider with your logistics
packaging. For example, if you are shipping to the EU, there are some very strict guidelines when it
comes to transporting palletized items and if you do not meet their standards, your shipment will most
likely get held up at customs. It may even get rejected at the point of entry.