Logistics – network configuration
An internet retailer requires a distribution network in order to fulfil customer orders and deliver his goods to the end user. The required distribution network will be uniquely tailored to the type of business the retailer conducts and the type of goods it ships as a single size does not fit all.
The design of the distribution network will be influenced by factors such as type of goods fulfilled, transportation costs, location of customers, availability and costs of labour, supplier delivery points and other such business factors. A fundamental basis for designing an effective distribution network will be the network configuration, often regarded as the “backbone” of the retailer’s distribution system. The network configuration will play a critical role in operational and strategic decision-making by management. World beating retailers such as Wal-Mart and Amazon have developed innovative distribution networks through the clever use of network configurations.
The objective for a retailer to develop an optimum network configuration is to maximise profits by reducing fulfilment costs. Some of the factors that influence and determine a company’s network configuration include:
- The number, size and location of warehouses holding stock for fulfilment.
- Inventory flow: the allocation of product lines and inventory across warehouses.
- Order flows: the sourcing of inventory from warehouses to fulfill orders.
- The methods of transportation employed (air, sea, rail or road).
Fulfilment costs can be driven by a combination of all or some of these factors and management must be cognizant in getting the mix right in arriving at an optimum network configuration.