The Design of the Logistics Network

The design of a logistics network is a very important project for any business. Ever since I started the path towards specializing in this area, I have always understood that the logistics network is much like the spine of a business. Studying to get to know it and understanding how to take care of it to improve it is key.

As a definition, the EAE Business School in Spain (EAE Business School, 2021) mentions that the network "refers to the steps that a product follows from when the supplier delivers it until it is made available to the customer." But in fact, the network goes much further back, starting from the extraction, felling, collection, or harvesting of the components themselves, because the selection of suppliers is also part of the entire chain, and the main factors that determine the structure of the chain will have an impact on the final product.

The company Innovation Equality Services  (Servicios de Innovación Equality, 2020) expands this understanding when it highlights on its official site, "There is a need for an in-depth study focused on making crucial decisions such as: Location, Factory Size, Warehouses, Platforms, and Defining the physical flows in the supply chain, because the development of a studied logistics network is a competitive advantage; especially in the current context where the market is volatile". And on this last point, there is no doubt that businesses today are living in a VUCA world, full of Volatility, Uncertainty, Complexity, and Ambiguity, that makes it necessary for all companies to conduct rigorous analyses of all aspects related to the total supply chain of their business from a holistic approach. Not only focusing on primary processes but also giving importance to support activities so that, in the end, the proposed value that the business offers to the market is integral, coherent, and relevant to the consumer and their environment.

The same article from EAE tells us, "The network plays a key role in the profitability of a company, as it has a direct and significant impact on cost and consumer experience." (EAE Business School, 2021) And if we delve into its details, we will understand why and perhaps share the vision of the chain as the very spine of the business. To achieve network design, we need to systematically resolve critical moments such as:

1. Defining the specific requirements of the network.
2. Designing possible network alternatives.
3. Identifying current and future demands.
4. Determining necessary capacity and distance.
5. Obtaining transportation costs.
6. Evaluating product availability.
7. Establishing storage and order handling systems and their costs.
8. Evaluating response times and distances.
9. Verifying order visibility.
10. Designing customer experience.
11. Establishing the ability to return or recover the product.

Javier Vera Ruiz, in his article for LinkedIn, considers narrowing these critical moments: (Ruiz, 2020) "Companies must work on the design of their structural network with the sole objective of generating solution strategies." And this can be understood as if the decision-making criteria that should carry the most weight when designing the logistics network are:

1. The ability to meet customer needs.
2. The investment needed to achieve it.

Seems like a very simplistic way to reduce it, but we need to think “what are we hiring this product for?” and think about what specific need the product is satisfying first, and then expand on the value adding characteristics that this need fulfillment could have to make the experience better, at the best cost for the company.

Because ultimately all efforts are focused on the customer, their experience, and their need, the network design becomes a complex project that requires a deep level of study, analysis, and cohesive strategic decision-making that allows both to achieve consumer satisfaction and the efficient use of resources, the creation of competitive advantage, and the continuity of business life.

The positive and negative repercussions or effects of caring or not caring for network design can be seen in the following comparative table:

Positive Effects	Negative Effects
Operating Conditions
Harmonious flow, with few wastes and rework.	Atrophied, inefficient flow. Constant failures, avoidable waste.
Synchronized operation flow, free of delays.	Delayed operation flow. If raw materials don't arrive on time, the product isn't ready on time for shipment.
Intelligent production planning, based on demand.	Reactive production planning, producing only what's already sold, always with service failures.
Control of demand "peaks" or "smoothing", reducing inventory levels and having flexibility.	Sales are denied or lost because the product isn't available.
Allows for a quick response.	Demand peaks take us by surprise, with no possibility of reacting, raising inventory levels.
The flow is visible and understandable. It can be measured and evaluated.
Infrastructure
Network infrastructure supports product flow activities and generates value.	Network infrastructure activities clash and hinder the flow. The size is inadequate.
Activities are coordinated and oriented towards a common goal.	No delineated processes or standards.
There is a shared vision, the flow is transparent. It can be measured and evaluated.	Confusion in the flow and frequent problems.
If a problem occurs, it is easy to identify, correct, and provide an effective solution at low cost.	Problems take a long time to investigate because there is no visibility.
	A lot of money is spent correcting errors or providing hasty, ineffective solutions to "get by."
Environment
The process is efficient, does not use excessive resources, and does not unnecessarily pollute the environment.	An inefficient network pollutes a lot by traveling long distances by road, with long waiting times, or reworking the product.
The network allows for the safe return or recovery of the product once its use is over.	No conscious waste management.
The entire network (suppliers and customers) is aligned towards sustainability goals.	No return or recovery processes for the product at the end of its use.
	No clear objectives or efforts towards sustainability.
Impact on Society
The network allows collaboration, transparency, alliance, loyalty.	Poor communication.
Talent is developed throughout the chain.	No loyalty, leading to high turnover of employees, customers, and suppliers, resulting in a perpetual learning curve with many failures.
Robust and long-lasting relationships are created, jobs are preserved for a long time.	Organizational jealousy. Best practices and talent are not developed or shared.
Opportunities to enter the chain are easily created.
There is an impact on the lives of final consumers. The name of your product is "part of the family."	It is not easy to enter the chain. There are mafias or unethical practices.
	No lasting impact on the lives of consumers.
Labor Availability
The chain is located at a reasonable distance.	Chaos and poor communication generate disgruntled network members.
Cooperation among members.	Talent is undervalued, and feedback is not listened to.
Shared objective and vision throughout the chain.
Labor is valued, and talent is developed.
Continuous improvement is a way of life.	High turnover, low loyalty.
Costs
Costs are efficient when:	A lot of money is spent throughout the chain because the best inputs or transport are not selected. No good response time, leading to inadequate inventory levels.
Distances are correct and short.	Errors in order processes and no good system for product return or recovery to correct them.
The transport method is adequate.
Response times are optimal.
Tariffs are fair.
Synchronization in the chain.
Each step adds value to the product.
Efforts are focused on solutions.
Service
The product is always available on time at the necessary station.	The product fails to be available where required or arrives, but not in adequate quantities.
The customer always finds it, and its price is accessible.	Stocking or quality errors, and the customer does not know whom to contact.
Problems are solved easily and quickly.	No support/no response/nothing can be done.
Communication is easy and pleasant.	Corporate image is hostile, generating an unpleasant experience.
Quality is guaranteed.
In general, the experience is harmonious and good.
Profitability
Costs are efficient, allowing competitive or even low prices and a good profit margin.	Costs are the lowest, but still, there are service failures.
Strategic growth and investment objectives can be met.	Service failures force us to incur additional expenses affecting the margin.
Expansion and demand increase.	Prices are directly impacted by failures.
The international market can be explored.	Sales/customers are lost.

 

All the effects seen in the table represent sensitive areas of the entire value flow of a business that extends from its suppliers, and their suppliers, to the end-user of a product or service. Each of these areas has an intimate relationship with cost structure, information flow, product existence and well-being, and the satisfaction of a specific need. Thus, the value chain or logistics network cannot be limited to transportation and warehousing.

Many authors use different names to segment and separate the supply chain, distribution chain, logistics network, logistics, and value chain, but they are all actually a piece of a whole. All these chains at some point are united and become one; and if there is no synchronization and care among them all, we are neglecting a vital part of the business.

At the beginning, I shared my vision of the chain as the spine of the business, and I share it because it is the part that supports the most processes in a company. In this area, much time, money, intellect, tools, systems, and effort are concentrated to ensure that the product reaches the hands of those who need it and is received with satisfaction.

I end this thought with this quote from Jon Chambers, leader of supply chain synchronization development for P&G UK (SCL HUB, 2020): "We live in the best time in history to be involved in the supply chain." This phrase had a great impact on me because it made me reflect that there is so much we can do in this area to improve the performance of a business, and many times the solutions do not have to be as costly as robotic machinery or as sophisticated as the implementation of the Internet of Things. Often, it is worth taking a step back to appreciate the landscape objectively, to detect simple and creative solutions that can make all the difference, and that derive from the careful design of a logistics network.

Contributor: Ericka Tijerina

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About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North America, Europe and Asia and Allyn regional headquarters are strategically located in Fort Myers FL USA, Shanghai P.R. CHINA and Prague, CZECH REPUBLIC. For more information, go to www.allynintl.com

 

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EAE Business School. (16 de Marzo de 2021). EAE Business School. Obtenido de Diseño red distribución, los factores que más influyen: https://retos-operaciones-logistica.eae.es/el-diseno-de-una-red-de-distribucion/

Ruiz, J. V. (4 de Mayo de 2020). LinkedIn. Obtenido de DISEÑO DE LA RED ESTRUCTURAL - LOGÍSTICA ÚLTIMA MILLA-: https://www.linkedin.com/pulse/dise%C3%B1o-de-la-red-estructural-log%C3%ADstica-%C3%BAltima-milla-vera-ruiz/?originalSubdomain=es

SCL HUB. (14 de feb de 2020). P&G Supply Chain Keynote Presentation. Londres, United Kingdom: https://www.youtube.com/watch?v=-O0YtDDUdrk&ab_channel=SCLHUB.

Servicios de Innovación Equality. (4 de Febrero de 2020). Obtenido de DISEÑO DE REDES LOGÍSTICAS: https://www.equality.es/diseno-de-redes-logisticas/