The design of a logistics network is one of the most in-depth strategic decision problems that require to be optimized to support efficient long-term operations. For the creation of optimal network design, the steps taken will include;
Customizing the process
This first step includes identifying the objectives and the scope of the network. This identification of the network's limits will help establish the overall framework of the network and the expected outcomes of the network design. For each of these objectives, there must be a clear definition of the necessary inputs, tools, techniques, and outputs (Ghane-Ezabadi et al., 2016). Generally, this is essential to ensure that the design process is related to the organization and logistics chain strategy. Clear objectives will also ensure that the needed time and resources will be properly described.
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Determine the Need for Design
An evaluation of existing designs is essential to identify why a one-warehouse network design is necessary. One of the main drivers of change for this design is the establishment of competitive advantage. The creation of competitive advantages requires considerable organizational changes, from obtaining new information to the application of new systems.
Assess Aspects of the Network
In this step, there will be an evaluation of the costs, lead times, and other service parameters that will be included in the network. This evaluation will include the collection of data and business information and mapping the potential system. This step will also involve the description of the network’s primary activities and functions and generating tactical plans to close any gaps that are identified.
Assessment of Network Alternatives
Various modeling techniques can be implemented for the assessment of network alternatives. This step's primary objective is to identify a system with optimal cost efficiency within the selected strategic service levels (Xu et al., 2017). There has to be a comparison of different alternatives to various objectives to ensure that it can address the goals. The result should include a consideration for the number of facilities and their overall objective and location.
Plan Facilities
The planning of facilities within the network will take place. This will include quantitative analysis and qualitative factors, and then continue to narrow down the list until some specific location alternatives can be identified. This may include the scouting of locations based on the identified selection criteria and analysis results.
Develop the Implementation Plan
The implementation of plans will involve several processes, such as the acquisition of new facilities and the modification of existing ones. Each of these processes will require specific funding and a timeline.
Information Needed
A wide variety of data related to a centralized warehouse strategy needs to be collected. This information will be crucial for designing the right logistics network, as most of the decisions will depend on warehouse location and distribution factors. The two main forms of data include the relative locations of several aspects of the logistics network and the rates and costs of logistics activities.
Locations
One of the main forms of data to be collected includes the locations of consumers, retailers, and varying distribution centers. Identifying consumers' locations in relation to retailers and distribution centers will help establish the best location for the centralized warehouse. This is because the warehouse's size will be critical for deciding the level of inventory to be held, the costs that will be associated with the entire logistics network, and the different actors involved in the network (Ghane-Ezabadi et al., 2016). By identifying the consumers' geographic location, there will be a better understanding of what site would be most appropriate to locate a warehouse. This understanding will facilitate making a decision that supports the most efficient provision of products and services to the customers.
Rates and Costs
Rates and costs associated with the logistics network should also be a primary consideration. This includes handlings costs, fixed costs, and storage costs incurred once the logistics network has been set up. Handling costs refer to the labor that is associated with the network. These costs include labor, such as the employees and administration members that will be involved in the process. Fixed costs refer to costs that are proportional to the yearly flow by the warehouse. This refers to the capacity of the warehouse, while storage costs will include inventory holding costs (Lee et al., 2010). A proper understanding of these forms of costs is critical for finding a central warehouse. Some of the rates to be considered involve the transportation rates from the warehouse and any other rates associated with the products distributed across the logistics network.
Strategy to be used
The strategy identified as most appropriate for the logistics network is a centralized warehouse strategy. A centralized warehouse strategy is a system in which the retailers or suppliers maintain a single and central warehouse as opposed to having a variety of services spread out to cover a territory (Ding et al., 2019). The aspects of the strategy will include;
Operation costs
The centralization of the logistics network will result in a reduction of several costs. A centralized warehouse strategy will mean that fewer facilities will be included within the logistics network. There will be fewer buildings and facilities to be owned or rented as the inventory and distribution activities will be controlled from the central warehouse. Due to the smaller number of facilities, the associated utility expenses will be lower, and the labor costs will also be significantly decreased (Zhang et al., 2020). A smaller number of employees will be needed as a majority of the activities will be conducted through one channel. These cost advantages will help retailers set pricing techniques and help achieve high-profit margins across the logistics network.
The costs of distribution operations will also be decreased. This decrease will show that centralized warehousing will contribute to lower inbound distribution costs. The distributor will save on shipments from manufacturers as it takes in considerable quantities in a primary location. This form of distribution is more affordable as compared to having shipments going to several locations. The customers and retailers will then receive better value from the distribution services.
Customer and Retailer Relationships
With centralized warehousing, the logistics network will focus on obtaining the best employees, equipment, and inventory systems concentrated in the network's appropriate aspects (Ding et al., 2019). This will benefit both customers and retailers in the logistics network. Having the most efficient system, as allowed by the strategy, will mean that the network will have a greater focus on its consumers' needs. The retailers' needs will also be met, as opposed to the focus on the coordination of inventory shipments. The relationship between the distributors, retailers, and logistics network managers will be significantly developed by providing concentrated inventory storage. This centralization will support efficient warehouse and distribution management while ensuring that the needs of those involved will be supported.
Based on the information collected and the identified steps, the centralized warehouse strategy is the network's best strategy. The centralized warehouse strategy presents several advantages for the network, mainly centered on the increased efficiency of operations and reduced costs.
References
Ding, S., & Kaminsky, P. M. (2019). Centralized and Decentralized Warehouse Logistics Collaboration. Manufacturing & Service Operations Management .
Ghane-Ezabadi, M., & Vergara, H. A. (2016). Decomposition approach for integrated intermodal logistics network design. Transportation Research Part E: Logistics and Transportation Review , 89 , 53-69.
Lee, D. H., Dong, M., & Bian, W. (2010). The design of sustainable logistics network under uncertainty. International Journal of Production Economics , 128 (1), 159-166.
Xu, X. F., Hao, J., Deng, Y. R., & Wang, Y. (2017). Design optimization of resource combination for collaborative logistics network under uncertainty. Applied Soft Computing , 56 , 684-691.
Zhang, Y., & Swaminathan, J. M. (2020). Warehouse Location in An Emerging Country: A Win–Win Proposition?. Production and Operations Management .
