The typical strategic logistics network design problem considers the number of warehouses required, customer service delivery requirements, the inventory investment required under alternative network configurations, inbound and outbound freight costs, and facility (i.e., warehouse) costs. Facility costs include labor, land, construction, taxes, and other regional location variables.
Developing the optimal network design strategy and configuration requires that a firm evaluate appropriate trade-offs between all pertinent cost and service variables. For example, the number and location of warehouses in a network (e.g., a domestic U.S. network) will impact the cost of inbound freight versus outbound freight. Typically, a network with many warehouses will have lower outbound customer delivery freight costs than will a network with one or a few warehouses.
On the other hand, inbound freight costs from plants and other supply points to warehouses may be higher in a network with many customer-facing DCs than in a network with one or two DCs located in close proximity to the major supply points. A good network study and strategy must examine these and all other trade-offs.
One key trade-off in logistics network studies and strategies that frequently does not receive enough scrutiny concerns the level of technology and automation planned in warehouse operations. The authors’ experience over several decades in logistics management suggests that too frequently firms approach a logistics study with either a “pre-determined” view of the type of warehouse to be employed in the network, or alternatively just a general concept of the capacity planned for a new warehouse.
The Pre-Determined Approach
The size of existing distribution centers and the technologies used in existing centers often shape this “pre-determined” view. Logistics planners first determine the basic facility layout, capacity and technology that represent their “standard” configuration for each...
Please join StudyMode to read the full document