Logistics network optimization helps shippers achieve better costs and higher customer satisfaction. Discover ways to enhance these outcomes with software.
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5 minutes to read
Introduction
In this modern age of instant gratification and convenience, customer expectations are high. For instance, not providing free shipping and fast delivery can easily be a deal-breaker for customers – whether they’re businesses or consumers. If you don’t offer it, someone else will.
While it’s important to deliver the type of purchasing experience customers expect, it isn’t always easy to understand your costs. The freight logistics environment is increasingly expensive and complex.
The success of shippers and third-party logistics providers (3PLs) depends on complete data visibility, great cost management, and good partner relationships. All three are important parts of logistics network optimization.
Tackling this type of optimization can be challenging, though. After all, your logistics network probably includes these elements and more:
Your company’s network of facilities
Your carrier network
Your customers
Your consignee network
Your suppliers
It’s a lot.
In this article, we’ll dive into how to optimize the network of your company’s facilities.
What is logistics network optimization?
Logistics network optimization is the process of determining the optimal number, location, and capacity of warehousing and distribution centers. These logistics hubs may include external warehouses and point-of-manufacturing warehousing.
What benefits can you expect from this process?
Lower transportation costs: Logistics network optimization improves shipping speed by keeping inventory close to your customer base. This reduces the cost of shipping goods to the consumer while improving the customer experience.
Validated landed cost: Warehousing and other expenses that contribute to high landed cost can make only reducing logistics expenses counterproductive. More comprehensive network optimization balances out total costs.
Increased sales: You can pass on the money you save to customers through reduced or free shipping. The perceived increase in value makes customers more likely to buy from you. As a result, you may see a boost in financial metrics like customer acquisition and average order value (AOV).
Faster inventory turnover: Increasing sales and satisfaction means products move off the shelves faster. This reduces holding costs and capital tied up in stock. In turn, you can restock and quickly respond to changing consumer preferences.
You’d no doubt welcome all of the above. However, building an optimized network has more benefits than just cost savings.
Unlocking long-term success in logistics
Consider some of the long-term benefits of network optimization:
Efficiency improvements: You can create efficiencies in many ways. On the warehousing side, closer proximity to suppliers, customers, and a sufficient labor pool helps to fulfill orders faster. On the transportation side, the same goes for optimizing routes and transportation modes based on factors like distance, cost, and delivery speed.
Improved cost to serve (CTS): Your total expenses to fulfill customer orders – including transportation, warehousing, and handling costs – are known as your cost to serve. Improvements like streamlining order processing and expediting shipping times make it cheaper to deliver a great customer experience.
Stronger communication with carriers: Carrier partnerships are the backbone of highly effective supply chain management. Mutually beneficial, long-term relationships with your carriers can help you improve shipping schedules, reduce delays, work through challenges, and boost service quality.
Decreased delivery cycle time: Order-to-delivery measures the time an order takes to arrive at the customer’s door. Logistics network optimization shortens delivery times by storing goods in the optimal locations and then sending them via the most efficient transportation routes.
Customer retention and acquisition: Modern buyers carefully weigh trade-offs between item price, shipping cost, and service levels. Customers are more likely to keep coming back and recommend you to others if you offer fast shipping, lower prices, and smoother service.
Better supplier performance: For inbound freight specifically, you’ll have more inventory on hand and be able to meet sales order demand if you manage supplier performance and shipping patterns. This is true whether shipping raw materials to a manufacturer or finished goods to be resold by a retailer.
How can you gain these advantages?
5 key practices for logistics network optimization success
Data visibility and process improvement empower you to deliver on every aspect of customer satisfaction. They help you identify your best options for improving how you store and deliver goods. In addition, they allow you to optimize your facilities network with cost and consumer needs in mind.
Implement these five key practices for improved logistics and supply chain network optimization:
1. Centralize and clean your logistics data
Your supply chain data is spread across fragmented sources. These probably include paper documents, emails, JPEGs, PDFs, and modern electronic data interchange (EDI) formats.
Bringing all relevant data – both physical and digital – together is the first step of a thorough network analysis. Next is standardization.
Supply chain data is messy, so careful data management is a must. Case in point: Every facility and carrier uses different nomenclature. If you don’t have a way to make sure your data is standardized across facilities and stakeholders, your data won’t be usable. You can’t make smart supply chain decisions if you have a half-complete or disjoined picture of the state of your network.
On the other hand, lean, centralized data will help you create informed strategies, as well as allocate resources and costs better. You’ll be able to make your logistics network more agile and resilient overall.
2. Run transportation network analysis
Supply chain network design involves planning and implementing all of the following to streamline operations:
Facility center locations
Efficient transportation routes
Transportation modes
Packaging types
Carrier relationships
Successful network design starts with analyzing your current logistics plan and setting a baseline. What are the most and least expensive methods for delivering your goods to customers?
Use your current shipping data to find the answer. Then, figure out how to keep the most cost-effective methods working for you and cut costs on the others.
Additionally, use your past performance data to accurately forecast your logistics needs, identify bottlenecks, and find more efficient routes.
There are a few ways transportation and logistics teams can assess potential networks:
Route simulation: Use software to model and analyze potential transportation paths for goods. Simulation assesses factors like distance, cost, time, and environmental impact to determine the most efficient routes.
Network modeling: Create a detailed map of a supply chain network to analyze and optimize the flow of goods, information, and resources. This helps you account for different scenarios and constraints while still reducing costs and finding the best methods of product distribution.
Scenario analysis: Similar to “what if” planning in finance, logistics scenario planning examines planned and unplanned scenarios. For instance, switching carriers or shifting inventory to other facilities could affect your supply chain operations and margin. And so could conditions like strikes and natural disasters. In any case, assessing risks ahead of time will help you make smarter decisions when crunch time comes.
The common thread here is having data to help you understand performance and cost impact so you can plan accordingly.
3. Establish collaborative partnerships
Supply chain network analysis highlights your best warehousing and carrier partners so you can strengthen those relationships.
If a carrier knows you’re a loyal customer who pays on time, they’ll be more willing to work with you to ensure optimal routing or otherwise match service level to cost.
Another example: You may notice that your shipment volume with a particular carrier is steadily on the rise. If you have a reliable forecast of expected volume, you could use that information as leverage to unlock discounts.
Additionally, network analysis can help you choose warehousing solutions wisely by giving full visibility into current and future needs. Leverage flexible options like Stord and Flexe. These will give you access to on-demand resources, allowing for better scalability. (You can also work with 3PLs for final-mile distribution if you prefer.)
Either will help you adapt to fluctuating demand, particularly in major metro markets where speed and efficiency are essential.
4. Improve processes continuously and adapt your network
Both the shipping landscape and consumer needs are changing. In turn, your network and processes need continual improvement to keep up.
High-performing logistics teams focus their optimization efforts on four key areas:
Spend analysis: There are many supply chain costs to keep up with – from direct spend on raw materials and transportation to indirect spend on overhead. While it’s helpful to review freight analytics, for example, to spot spending patterns that result in lost capital, you need to take it a step further. Understanding your total costs is an important part of cost reduction and risk mitigation.
Carrier performance: You depend on your carriers for business continuity. So you should regularly evaluate carriers’ reliability, speed, cost, disruption handling practices, and quality of service. Setting standards for carrier risk and performance will help you select the best partners. Likewise, such expectations will inform you when the need to switch from a current carrier arises.
Key performance indicator (KPI) monitoring: It’s easier to measure performance when you have KPIs based on your shipping goals – improved price performance, for example. The more granular these insights, the more useful they are for fine-tuning your supply chain strategy. This is why Loop tracks KPIs down to the SKU, shipment, and lane level. Since Loop’s analytics are self-serve, you can easily access this data at any time and create custom reports to make analysis simple.
Monitoring network trends: Constant disruptions and global events happen. But this means you have to look beyond just what’s happening within your network. You need to monitor external factors and make decisions based on the current risk in the global supply chain.
Using these methods can help you maintain visibility and flexibility in your shipping operations. They will also inform further refinement of your logistics network.
5. Integrate intelligent technology solutions
Without technology, transportation teams have to sift through mountains of data to inform their network optimization decisions. This is grossly inefficient and leaves room for human error, which can negatively impact decision-making.
This is why modern technology is crucial for an evolving supply chain. Many companies commonly use these solutions for supply chain design and network optimization:
Alteryx
Tableau
Power BI
Fivetran
Coupa Llamasoft
Blue Yonder
Optilogic
anyLogistix
These platforms enable advanced logistics planning:
Demand forecasting
Warehouse facility location analysis
Inventory planning and management
Transportation management
Network resource coordination
Platforms like Loop further enhance the effectiveness of these tools. Our platform uses artificial intelligence (AI) to give you full visibility into your supply chain and spend data, so you can strengthen your network design over time. That includes spotting opportunities to reduce costs and widen your profit margins.
Leverage Loop to boost your logistics network optimization
Implementing the practices above gives you the data and flexibility to stay competitive, reduce spend, and optimize your transportation network – even in tight markets. Loop supports you in doing it all. It offers the added benefits of financial control, informed strategy, and streamlined supply chain optimization.
Loop frees up your finance and logistics teams to tackle high-priority challenges and drive innovation instead of putting out fires.
Try Loop today to access the insights you need to optimize your logistics network and control transportation spending.
