What is Logistics Network Design ?
Logistics process planning starts with the supplier and takes into consideration the entire logistical chain, all the way up to handover of the final product to the customer. Both the complete material flow and the flow of information are planned logistically. This includes upstream logistics functions such as distribution center management, WOW (warehouse on wheels), container yards, trailer yards, consignment stores, transshipment points, hubs, and consolidation centers as well as all stages of the material flow — from warehouse planning, picking, and sequencing to intra-company transportation, production supply, packaging, and shipping.
Of course, logistics process planning also allows you to benefit from a systematic approach — following the line-back principle and to use tried-and-true tools for fast and efficient processing. Here is a summary of the most important steps
- Exact task description and project definition
- Needs analysis
- Definition of the supply chain and standard forms of delivery
- Supplier selection based on functional, logistical, and financial considerations
- Provision planning for part families in line with production requirements
- Definition of internal transportation and transport frequency
- Definition of the warehouse and picking concept
- Definition of the information flow and IT requirements
- Space and resource planning, including an economic feasibility study
- Process descriptions for each standard delivery process
The result of all these steps should be an individual concept that offers the desired level of granularity — general or detailed planning, in other words. With this in mind, the following aspects are of particular importance as regards content
- Defined standard forms of delivery for part families
- Descriptions of processes and information flows
- Definition of technology for three areas: warehouse, transportation, and the provision of information
- Economic feasibility and utility study
- Implementation
Logistics network design is concerned with the purpose of the number and site of warehouses and manufacturing plants, allocation of customer demand, distribution of warehouses to production plants. The best configuration must be able to deliver the goods to the customers at the least cost (commonly used objective) while satisfying the service level needs. In most logistics network design models, the customer demand is exogenous and defined as a consistent quantity for each product. Such a uniform demand value does not take advantage of the possibility that different customers have different sensitivity to delivery lead-time.
Network design is a strategic subject for businesses. It calls for in-depth study to orientate crucial decisions such as:
- siting, sizing the right number of factories, platforms and warehouses
- defining the physical flows between the various links in the supply chain and distribution flows
- specializing (or otherwise) factory production lines
- stocking items in the right place for the best customer delivery terms
- outsourcing certain activities such as distribution.
Developing a powerful logistics network is a competitive advantage in the current economic context where competitive pressure is rife, the market volatile and globalized and raw materials costs are rising. An optimized logistics network makes for lower costs, a grip on logistics flows and providing excellent customers service.
The primary driver for evaluating a logistic network design is sometimes an effort to reduce cost, sometimes an effort to improve service, and often, both. The right network design optimizes transportation, distribution operations, and inventory investment to strike the ideal balance of cost and service.
