Network Optimization: When Is the Right Time to Reevaluate Your Network Design?

Designing an optimal network strategy is an essential element of supply chain management and can have a significant impact on a company’s bottom line. In addition to minimizing costs and increasing customer service levels, having an efficient, resilient network is critical to remain competitive and overcome disruptions.

While there are obvious drivers for redesigning your distribution network, such as outgrowing your current capacity or adding new facilities, below are five other scenarios that may require companies to reevaluate their network design.

5 Scenarios That Companies May Require to Reevaluate Network Design

1) You Were Recently Part of a Merger or Acquisition

Growth through mergers or acquisitions can leave many companies with disparate networks and redundant facilities, processes, products, and customers. Conducting a network analysis can help companies integrate and consolidate their supply chains to improve flow, reduce costs, and increase service levels.

2) You’re Experiencing an Increase in Sales or SKU Volumes

In addition to mergers and acquisitions, companies may experience growth in sales and SKUs, especially when introducing new products or brands. The increased space requirements and carrying costs of adding new SKUs can greatly impact a company’s network and profits, especially when many retailers are still dealing with excess inventory. A supply chain network study can help companies determine the right inventory levels and locations to meet customer demand and reduce costs.

3) Your Lease or 3PL Contracts Are Coming to Term

Companies approaching the end of their lease agreements or third-party logistics (3PL) contracts are prime candidates for a network analysis. While it may be tempting to stick with short-term commitments due to the dynamic landscape and frequency of disruptions today, many companies may be able to increase cost savings, consistency, and capacity by investing in their distribution network.

4) You’re Implementing New Distribution & Fulfillment Strategies

To create flexible, resilient supply chains, many companies are exploring new fulfillment strategies and sales channels, such as adding new retail locations or implementing ship-from-store. At the same time, the ongoing rise in online sales is further straining labor and space resources at distribution centers that were originally designed to handle store replenishment. Before making any changes to your fulfillment and distribution operations, it is important to conduct a facility and network analysis to ensure your supply chain is capable of accommodating the new strategy.

5) You Haven’t Evaluated Your Network Design in Over 3 Years

Even if you haven’t recently experienced a major business change or disruption, today’s dynamic environment requires companies to reevaluate their network every three years. It ensures their logistics operations are capable of meeting changing demands. New trade laws, regulations, incentives, technological advancements, and other external factors can also impact your logistics operations and warrant an updated network strategy.

What Affects Network Optimization?

Let’s break down the key aspects that can impact your network’s performance and optimization –

1. Cost Considerations – Transportation, warehousing, labor, and inventory holding costs can be balanced to have an optimal network. If these costs increase, your network design can change to keep the business profitable.
2. Customer Service Levels – Customer expectations for speed of delivery and higher customization keep changing. Your network design would have to deliver on these service levels without harming efficiency or inflating costs.
3. Regulatory Changes – Changes in trade policies, tariffs, and environmental regulations can impact your supply chain operations. Keeping your network design aligned with current regulations is essential to avoid legal complications and maintain smooth operations.
4. Supplier Reliability – The reliability and performance of your suppliers can greatly affect your supply chain. If a key supplier becomes less dependable, it may necessitate finding alternatives and adjusting your network accordingly.
5. Environmental and Sustainability Goals – As sustainability becomes a priority for many companies, optimizing your supply chain to reduce carbon footprints and waste is increasingly important. This might involve reevaluating your network design to include more eco-friendly practices and suppliers.

Long-Term Network Optimization Benefits

Everyone wants their network to run faster, but it’s important to remember the business benefits of optimizing your network. Here’s how optimizing your network can help –

1. Cost Reduction – An optimized network minimizes unnecessary costs by improving efficiency in transportation, warehousing, and inventory management. This leads to better profit margins and a stronger bottom line.
2. Improved Resilience – A well-optimized network is better equipped to handle disruptions, ensuring continuity in operations even during unexpected events. This resilience can prevent costly delays and maintain customer satisfaction.
3. Enhanced Flexibility – An optimized network allows greater agility in responding to market changes, customer demands, and other external factors. To remain competitive in today’s rapidly changing business environment, it is essential to maintain this flexibility.
4. Sustainability and Compliance – Aligning your network design with sustainability goals and regulatory requirements can enhance your company’s reputation and reduce the risk of legal issues.
5. Customer Satisfaction – An efficient and responsive supply chain network can lead to faster delivery times, better product availability, and improved customer service, all of which contribute to higher customer satisfaction and loyalty.

Just like a facility assessment can identify inefficiencies in your warehouse design, a network analysis can help companies uncover any immediate opportunities for improvement while also providing a roadmap for long-term success. Contact us today to learn how our experienced team can help you optimize your distribution network to minimize costs, maximize savings, and gain a competitive advantage.