Building a world-class distribution network in the “disruptive decade”

Supply chains have faced massive disruptions due to unpredictable and massive global events like Brexit, Covid-19 and the ongoing war in Ukraine. The optimisation of distribution networks has been jeopardised during this “disruptive decade” as a result, reiterating the need for robust and flexible distribution network models to be implemented to help businesses thrive despite these trying times.

CACI’s Paul Dawsey and Louise Etherden, who work in the Logistics and Supply Chain and the Customer & Location Strategy areas of the business respectively, presented five necessary and innovative steps for businesses to take to build and maintain a world-class distribution network that will succeed in the “disruptive decade” at the Retail & Supply Chain Logistics conference on 1 March 2023.

What are the five recommended steps to create a world-class distribution network?

Optimising the end-to-end customer journey means developing an innate understanding of customers’ demands at every point of the supply chain. Once you understand demand, you can build an effective model based on intricate methodology to simulate your supply chain.

The five steps that will help you deliver high-quality, reliable and effective services to customers while maximising profit through a strategic distribution network are the following:

Step 1: Understand the consumer

In order to truly understand what matters, what you need to improve upon and what challenges need to be addressed, you must first focus on better understanding consumers.

Different consumers present different logistics challenges, so understanding the differences and why they present unique challenges will be integral. Paul and Louise suggest starting with generating customer profiles by channel, service and category to begin to better understand customers. Once you have gained this knowledge, obtaining additional contextual data into their lifestyle, shopping habits, location and property type, product preferences, and whether they shop with convenience or price in mind will help bring this visual to life.

Customer profiles are vastly different depending on the retailer, so utilising any available data on consumer spending data to gauge existing and future spending patterns will also be immensely helpful.

Step 2: Quantify and locate demand

Understanding where your current customers are located and how they interact with your products and services to accurately gauge your business’ share of opportunity is the next recommended step to take in building a future-proofed distribution network. Paul and Louise suggest asking yourself the following questions to better understand this:

Where is the demand now?

This can be assessed through an analysis of your current customers’ engagement with different product categories, ranges and services to understand where there are other potential customers, as well as your share of the opportunity. If you have stores, determining whether there is also an online halo and what it means for the demand and your share of demand by channel will be integral.

Where is the future demand?

What population growth patterns are arising? What does the current growth of online presence mean for my business in the future? How impactful are my business’ rapid delivery solutions, and where could there be demand for new solutions in the future? What is my business’ headroom and what are our target groups?

How do customers want to shop?

What is the role of online? How does my business have to deliver to certain customers? What needs to be offered and where? Where should we trial initiatives? Answering these questions will help you understand how your business must evolve.

Step 3: Build the baseline network model

The next critical step is to build a supply chain model that will help you get to the “as is” of where products hit your supply chain to understand where the customer is located versus where your product or service needs to get to.

The model should provide a detailed idea of how much it costs to transport products from one location to the next, capacity at store locations and required capabilities to store certain types of goods in certain ways. Designing an optimised network model with this criterion in mind will help you measure against the peaks and pitfalls of your existing model and determine where you must re-focus efforts, where the headroom for growth is, and so on.

Step 4: Develop strategies through a “what if” simulation

Next, you should ask yourself the following questions that apply your methodology and use data and tools to ensure you are developing an effective simulation. These questions include:

• How can we maximise efficiency?
• How much will it cost, and save?
• Where are the bottlenecks?
• How do we ensure it is robust?

Answering these questions will help you test a wide range of potential changes backed by strategic insights. You will be able to apply these answers to various test scenarios such as change demand, new products/services, sales increases through marketing, store network changes, capacity changes and more. Your insights will help you understand the impact of any proposed change and compare it to the baseline, if it is worth implementing. This approach to modelling will facilitate data-driven decisions which will instil confidence in all stakeholders.

Step 5: Keeping it live

To maintain the effectiveness of this approach, the baseline must be kept up to date. This includes ensuring a periodic refreshment of customer understanding and working actual network changes into the model.

If you lead with the customer in mind, you will find that you are able reduce costs while offering the services that will deliver sales and growth and remain robust. Ways of effectively leading with the customer include:

• Tailoring your solutions and strategies to the market and your business partners
• Focusing trials and investments where there is greatest opportunity
• Optimising your toolkit to support logistics operations
• Dynamic planning for future demand, services and growth
• Communicating with your customers about deliveries.

Get in touch with our team of experts to find out how to optimise your distribution network.