The corporate drive for supply chain efficiency is as strong as ever, but has taken a new twist in terms of network reconfigurations. In the past, these reconfigurations resulted in smaller networks with fewer facilities; today we’re seeing many companies adding facilities to their networks.
Supply chain executives face unrelenting competitive pressure to increase inventory turns, improve delivery times and accuracy, and shrink costs. To meet these challenges, companies dedicate considerable resources to analyzing, reconfiguring and streamlining their distribution networks.
Companies typically review and redesign distribution networks every few years, although some tweak almost continuously. In the past, network redesigns were focused exclusively on shrinking the number of facilities to the bare minimum needed to fulfill supply chain objectives.
As a result of these network redesigns, companies were able to ship more freight as full truckload instead of less-than-truckload, achieving substantial cost savings since LTL pricing typically is three to four times higher than truckload rates. Such network consolidation has been one of the main drivers behind the substantial improvements in supply chain efficiency over the past 15 to 20 years.
In the past year or so, however, many companies have shelved network consolidations plans and focused instead on the merits of network expansions. Indeed, the recent run-up in oil and fuel prices sent supply chain professionals scrambling in search of ways to mitigate the impact on their companies’ operating costs. The consensus among experts is that higher fuel costs will impel some, but not all, companies to add one or two distribution facilities to their networks.
The additional facilities, companies are finding, reduce the average distance traveled between shipping points andfinal customers, economizing on freight miles and fuel consumption. “As outbound transportation becomes more expensive,” MIT engineering professor David Simchi-Levi points out, “it becomes increasingly important to minimize the distance of the final leg” of supply chains.