So how many warehouses do you need in your distribution network? That's a very
common question and I'm going to explain how you derive that coming right up.
okay, So it's a very common question that I get from a lot of our consulting
clients is our distribution network right. Do we have enough warehouses in
the network and of course the consequences of getting that wrong are
you know very high costs and probably poor service so how do you work out how
many warehouses you need in a distribution network or a supply chain
network? It's very simple, it comes down to your customer service offer.
Absolutely, So if you think about your supply chain networkers as being almost
like elastic bands or I often think of them as bookends. We've got customers at
one end and you've got suppliers at the other end. Think about the service offer
that you are offering to your customers in terms of lead time. Quite simply, if
you had a lead time of let's say a month, so from me placing the order to you
delivering the order to me. You've got 30 days, you probably wouldn't need a
warehouse. You could probably drop ship directly from your suppliers or your
factories or whatever, but that's not the case
people want products a lot quicker. So let's move things forward a little bit.
So I'm based in Australia I'll use some examples from Australia. Let's say
that we have a seven-day lead time, so I've got 7 days from the time you place
your order to get the delivery to you. In Australia I get away with one warehouse
now we got a big country and a very spread out population, but I can get
anywhere by Road within seven days. So, I could actually get away with one
warehouse what normally happens in Australia you very often end up with a
minimum of two, because we have Western Australia which is way over the
side of the country not much in between and so we very often end up with an East
Coast warehouse and a West Coast warehouse. A lot of other countries
you know when you look at their population densities have similar issues
like that. I do a lot of work in Thailand. You've got Bangkok sort of in the centre
of the country. Lots of demand there that's all the
warehouses are and then you've got these provincial capitals like Chiang Mai and
so on. and you know if your service dictates it
you sometimes need to have satellite warehouses in those provincial capitals.
Every country has similar issues around distribution. So, customer service is the
key thing and what I was explaining at our conference last week is, if you
change that customer service offer to your customers you are changing your
network. You are changing how you deploy inventory, so I had an example a few
years ago where the delivery was going to be next day so the promise the
service promise was next day delivery. In Australia that generally means you need
about six to eight warehouses to be able to reach everybody you know within a
certain number of hours. So the next day delivery you've got to be within six or
eight hours drive off them. The managing director of that business said. No, I
want to get a four hour delivery, so how many warehouses do you think that might
have required to reach everybody within Australia. Okay, national distribution how
many warehouses do you reckon? or in the US or Canada or wherever you are
how many warehouses do you think you'd need to be able to reach every single
customer in the country within four hours? Well we worked it out it was 76
and so you can imagine the huge additional cost in facilities and an
inventory and so on. So it clearly wasn't viable they actually ended up with about
20 warehouses at this particular company that they'd started off with 40 and then
we round it back to it to about 20. So why am i rabbiting on about this because
the customer service offer directly impacts how many facilities you have and
how your inventory is deployed. So let's look at this diagram I'll stick a
diagram up and there's really three key elements that dictate how many
warehouses you have and where they are. So first of all it's your customers
where are they located, because you've physically got to get the product to
them and number two that service offer. It's all about the service offer and if
you think about odd it's also important to be close to our suppliers and the
customer they're sorry the supplier lead-time, it's not as important it
doesn't have as bigger impact on the network as your customer
locations and customer service offer. Why because your inbound supply is in bulk
it's in container loads, as in ship loads as you know truck loads very often your
deliveries out the customers are in much smaller quantities and therefore it's a
much higher cost per unit delivery. So, that distance that your customers
offering the warehouses has a massive impact, lesser impact is the distance
from your suppliers. So the location and service level to your customers on the
other side of the diagram. Yeah! suppliers do have an impact depending on the mode
of transport and then water quantitie,s lead times and so on. That's going to
have a slight impact on where you have facilities but for example here in
Australia if we're bringing an imported product it's not difficult to bring it
in directly into Brisbane to Melbourne, to Sydney to Perth. You know so that the
lead times and so on are not that critical. They're similar all over the
country big impact over the customers. and then finally down the bottom of this
diagram the last part of the decision process is where to put the facilities
and what type of facilities. So, what do I mean by what type. So, if you have a very
broad product range hopefully you've had a look at ABC classifications. So the
fast movers are slow movers and you've determined do we actually need the whole
range in every warehouse? or do we have fast range in these warehouses and
slower range maybe in fewer more centralized warehouses. and again that
all comes down to the service offer. So simple triangle
how many warehouses do you need in your network? Quite simple depends on your
service offer to your customers. So, if you want some more information on this
topic there are more videos on the channel here I'll make sure there's a
link to our blog below there's lots of articles about it
it's a topic that I talk about a lot. it's a topic that we we help clients are
lot within our consulting business. So there's lots of information about.
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