Within two years, approximately 78 percent of omnichannel companies will use multiple DCs, Saddle Creek’s recent survey of omnichannel companies shows. They’re recognizing that a multi-node network can help to control costs and improve service to customers.
Establishing a strategic distribution network can be easier said than done, however. Our new whitepaper explores a few of barriers to implementation – and the role a 3PL can play in addressing them.
Following is an excerpt from the 2018 Distribution Network Trends Report…
Common DC Network Challenges
While the ROI for network reconfiguration can be significant, distribution model changes can be challenging and costly to implement for a number of reasons.
- Space. Warehouse space is at a premium today, thanks to the rise of ecommerce. The 2017 national industrial vacancy rate was about 5 percent for all product types, according to industry analysts. Needless to say, that’s driving up the cost of quality space in prime locations.
- Staffing. Even if affordable space is available, it can be difficult to find – and keep – dependable, skilled warehouse workers. In fact, the average turnover rate for warehouse workers is 36 percent, according to the U.S. Bureau of Labor Statistics. And with the labor shortage driving up median wage rates, labor costs can represent as much as 50 to 70 percent of the average company’s warehousing budget.
- Inconsistent order volume. Business fluctuations, forecasting challenges, seasonal promotions can be difficult to plan for – in terms of both space and staffing. To prevent potential service failures or delivery delays, you must be prepared for peak volume even when there is a lull in the action. Paying for idle space and hands can make a serious impact on profitability.
- Technology. A multi-site network requires more sophisticated technology. Companies need to have the ability to see inventory across their entire enterprise. It is also critical to determine which fulfillment source to pull from to ensure the fastest and most affordable service. While a robust OMS can accommodate these needs, a state-of-the-art system can be costly to implement and maintain. WMS and TMS systems, demand-planning software and fulfillment automation are other valuable but costly technology investments.
- Lack of expertise. For many companies, fulfillment and logistics are not core competencies, and the problem is compounded when multiple facilities are involved. As a result, the need to focus on these practices often diverts attention from business-critical functions such as brand-building and strategic planning.
Taking Advantage of Outsourcing
To overcome barriers like these, many companies turn to third-party providers. Experience and understanding of best practices allow 3PLs to offer strategic counsel and recommend the best network configuration to meet current and future needs.
Often, companies take advantage of a shared-space warehousing environment in which a third-party provider manages multiple-client operations in a single facility with room for expansion.
“Shared space gives companies a creative way to enhance operations while increasing flexibility and controlling costs,” Patterson explains. “It allows them to accommodate the ebb and flow of their business and adapt more quickly to changes in the marketplace. Not only do clients avoid the fixed cost of leasing more space than they need on an on-going basis – they also save on operating, personnel and other management by sharing those costs with others.”
With a distribution network already established and staff in place, a third-party provider offers the ability to select DC locations that are closer to your customers, reducing transit times and controlling shipping costs without adding to your overhead expenses. If you prefer, a 3PL usually can open a new DC to meet your specific needs.
A third-party provider will invest in the latest technology, so you don’t have to – from advanced solutions such as OMS, WMS and TMS to automated fulfillment and material handling solutions.
In addition, an experienced 3PLs third-party provider will pay careful attention to solution design and utilize proven processes to keep your logistics operations running smoothly. They’ll incorporate continuous improvement initiatives to improve and reduce waste on an on-going basis. In fact, 73 percent of 3PL users say that 3PLs provide new and innovative ways to improve logistics effectiveness, according to the 2018 Third-Party Logistics Study.
As companies continue to refine their distribution network design and management for optimal performance, they’re wise to explore the advantages that third-party providers can offer – convenience, flexibility, efficiency, visibility and cost savings.
To learn more about strategic network configuration, Download the 2018 Distribution Network Trends Report.