Leveraging a distribution network analysis to mitigate increasing freight costs

By - May 10, 2018

Freight costs continue to increase for consumer and industrial product providers throughout the world due to capacity issues and a growing economy. It is often difficult to pass on increased freight costs to customers – as a result, companies are directly feeling the effects within their net margins.

Consider taking a direct approach to addressing the challenge of increased freight costs by reevaluating your supply chain network strategy. Adjusting your network strategy can reduce costs and improve service levels. Reduced costs found through network refinement can significantly overcome the effect of increased freight costs internally, with the added benefit of better serving your customers. Below are four scenarios and questions that a supply chain network analysis can help solve in order to reduce supply chain costs:

  • Scenario 1: Customer demand has shifted since the development of our business. Recent historical shipments indicate that a facility in the southeast is currently fulfilling significant west coast demand as it is our cheapest node to fulfill from. In addition, significant inbound supply originates from the northeast and central regions. Transfer shipments are also occurring at a significant rate between additional facilities and 3PLs within our network. Are our facilities in the right locations?
  • Scenario 2: Customer demand is growing and current capacity is constraining our ability to grow. We are leaning towards an expansion of one of our current facilities in the southwest. However, significant long and expensive shipments are occurring from this facility to other parts of the nation. Do we need an additional facility located closer to our customer base? How should we adjust corresponding facility footprints and capacities?
  • Scenario 3: Freight costs out of Facility A are lower than Facility B for a specified order. Both facilities maintain service levels within our defined service level agreement. However, handling costs at Facility B are significantly lower than Facility A with nearly equal inventory levels at each facility. Which facility should we fulfill the order from?
  • Scenario 4: Our company is looking to acquire a competitor in order to increase market share. Strategically, our go-to-market strategy targets customers searching for higher quality product that are willing to pay more. The target company is viewed as our closest competitor in terms of quality and pricing. As a result, our regional market shares vary significantly from theirs, but we overlap in larger markets at the outbound demand and facility level. How can we structure our combined network in order to unlock the greatest value from the acquisition?

Each of these scenarios comprise critical components and strategic decisions within a supply chain network. The answer to one question alone may change the entire outlook of the network and drive a significant amount of value, but capturing maximum value requires all questions to be considered. To find out more about how RSM can assist you with your supply chain network analysis or additional business needs, contact RSM’s management consulting professionals at 800.274.3978 or email us.


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