Optimizing Your DC Network
Establishing an efficient distribution center network requires careful planning and frequent updates. Nathan Beene, director of logistics engineering for Chattanooga, Tenn.-based logistics provider Kenco, offers these tips for building and maintaining an optimized DC network.
1. Do your homework. Start with a thorough optimization study. Use network optimization software to plot the pattern of inbound products coming from manufacturers and suppliers, and outbound shipments to all delivery ZIP codes. Analyze transportation, warehousing, labor, and real estate costs.
2. Explore opportunities to consolidate shipments and increase routing efficiency. For both incoming and outgoing shipments, find ways to pool less-than-truckload loads into full truckloads to maximize trailer capacity. Ask customers with defined delivery dates to consider small adjustments that optimize routing, or add shipments with more flexible delivery dates to regularly scheduled loads to fill trailers.
3. Shop parcel rates on every order. Standardizing all outbound shipments to one delivery method may seem efficient, but you also can cut costs by being more selective. Don't use expedited shipping if another mode would serve just as well. Work with an independent parcel solutions provider to determine the lowest delivery cost for each shipment.
4. Minimize the average mile-to-customer rate. Locate DCs near high-demand customer areas, and use regional shipping centers for other areas. Be sure to maximize loads for DCs with longer shipping distances.
5. Evaluate the cost of using West Coast vs. East Coast ports. West Coast ports and East Coast customers can inflate your domestic shipping budget, but so can holding more inventory while waiting for goods manufactured in Asia to arrive on the East Coast. Look for the most cost-effective arrangement for the goods you handle.
6. Use standard metrics. Determine what you are going to measure, then do it consistently. Have standard metrics for factors such as cost-per-unit shipped, average miles to customer, and average cost per pound. If you don't have a good understanding of what and how to measure, you won't know when and where you need to improve.
7. Frequently review carrier contracts. There are some advantages to having contracts with dedicated truckers, but make sure you aren't paying more for those benefits. Evaluate carrier costs at least quarterly, and shop rates whenever possible.
8. Look for localized tax breaks and incentives. Check to see if local governments or development authorities offer reduced inventory taxes, training grants, streamlined construction permits, or any programs that can lower your overall operations costs.
9. Go green to save green. You can find a lot of cost savings on the road. Most tractor-trailers get only six miles per gallon, so any efforts to improve fuel economy will likely help your bottom line. Also look for ways to reduce idling, or streamline truck aerodynamics.
10. Balance your inventory. Analyze whether you have the right amount of safety stock in each location. Evaluate processing lead time, on-time delivery rates, and any special deliveries made outside the planned schedule. Having the proper inventory on hand will help reduce those exceptional out-of-network shipments.