In the fast-paced world that we’re living in, online shopping is the new convenience, and speedy, efficient delivery is the biggest criteria for customer delight. To satisfy customer demands in a pandemic-hit world, numerous online shopping options and distribution models have evolved. A solid distribution network is a must to successfully operate an omnichannel supply chain and ensure the timely fulfillment of every customer order.
Simply defined, a distribution network is a structural framework on which an entire supply chain runs. The network design/structure determines the locations, number, and size of warehouses and distribution centers through the supply chain to ensure a smooth flow of goods. It is a fundamental building block for distribution and delivery operations, and therefore network planning is a decision that requires strategic forethought.
COVID-19 caused some huge shifts in consumer shopping behavior. Online shopping of essentials and non-essentials has skyrocketed since the outbreak, and same-day, next-day delivery, and convenient drop-offs have become essential demands. Although the world has now come to a certain level of normalcy, experts believe that the online shopping and delivery trends that have surfaced during the pandemic are here to stay, and will continue to shape the future of supply chains.
But why is supply chain network planning so crucial, especially during uncertain times like this? Let’s try to understand this with the help of a real-world business situation. A customer orders groceries online and expects the delivery within a two-hour time window.
Within these two hours, the delivery business has to pick the ordered items from the nearest distribution center, package them, and assign a delivery executive to fulfill the order. If there is even a slight error - missing items in the delivered package, delayed delivery, or lack of order visibility- it will impact the customer’s buying experience.
But, what does network planning have to do with successful last-mile delivery? Network planning is the string that connects all the important dots in the supply chain, right from the point of manufacture/sourcing to the point of consumption.
In the modern-day omnichannel scenario, network planning helps in determining the accurate location of each supply chain node - manufacturing units, company warehouses, regional warehouses, micro-fulfillment centers, dark stores, sourcing retail outlets, etc.- so that items can be picked from a distribution hub nearest to the customer’s delivery address.
Once picked and packaged, it can be quickly assigned to a suitable delivery partner who can fulfill the two-hour delivery promise. A well-planned network design helps a business carry out hundreds of such daily orders, with a standardized distribution process, and smooth last-mile fulfillment.
However, the reality is that despite the growing importance of network planning, most businesses still depend on manual planning to come up with a supply chain network design and fail to consider real-world business constraints or unforeseen events (like a global pandemic). Many established supply chain enterprises rely on distribution networks that were set up years ago, which may now be inefficient and not optimal for current-day operations. As a result, supply chains lack flexibility and agility, which is crucial for navigating through challenging times.
COVID-19 has taught us that a lot can change in just a year - work conditions, day-to-day lifestyles, shopping patterns, business operating models, and what not! In these rapidly changing times, and growing uncertainties, businesses cannot rely on rigid, outdated supply chain networks. Enterprises have to relook at network design planning as a frequent activity, instead of a one-time strategy or a 5-year plan. To remain flexible, and cope efficiently in times like these, frequently updating network designs, revisiting warehousing strategies, and smart route planning between supply chain nodes is a must.
Due to the remarkable impacts caused by the COVID-19 pandemic on supply chains, businesses have come to understand the importance of a well-planned supply chain network and are therefore emphasizing the key elements of a network design:
- Location of manufacturing units/ sourcing markets,
- The number, size, and placement of distribution centers/ warehouses,
- Inventory levels across each distribution hub, and
- The routes connecting these distribution centers to end customer locations.
Digitization is the way to go for delivery businesses to achieve the best results from their supply chain networks. Network optimization powered by data science, Machine Learning, the Internet of Things (IoT) and Artificial Intelligence is helping companies redesign and restructure their supply chain networks to suit these uncertain times and build more agility and resilience towards such events in the future.
Of late, digital twin technology has emerged as a breakthrough network optimization model and is gaining popularity among several supply chains, including FMCG, retail, food delivery, e-commerce, healthcare, and 3PL for greater supply chain network efficiency. A digital twin is typically a virtual replica of a real-world supply chain that mirrors supply chain assets, processes, transactions, and third-party relationships on a virtual screen, offering a clear comparison between actual and optimal network performance.
With AI-enabled digital twin simulations and what-if scenario analysis, digital twin enables supply chain decision-makers to visualize their existing supply chain network versus an optimal network design and minimize inefficiencies substantially. What-if analysis is a data-intensive simulation performed to predict variables such as consumer behavior, market trends and demand volumes, etc. based on different situations, known as scenarios.
Real-time data analytics converts day-to-day business information into actionable insights for better decision-making. It could be eliminating longer routes and planning shorter more optimal distribution routes between each point in the network, or it could be shutting down under-utilized warehouses across the supply chain.
Live visibility solutions allow managers to closely monitor distribution operations and take preventive measures to avoid delays and errors. Efficient network planning also breaks down silos in supply chain networks and boosts a logistics business's overall flexibility and resilience.
From cost-effective warehousing and distribution to faster last-mile fulfillment and enhanced visibility throughout the supply chain, strategic network planning and optimization is the key to strengthening a supply chain from the core, in testing times like these and beyond.