Four key trends impacting the design of supply chain networks
Supply chains are changing as they adapt to the new realities of consumer demands and e-commerce. As companies re-think their supply chain strategies they are making different choices on where and how they design and operate their distribution facilities. This according to a report by DHL titled “The New Landscape of Supply Chain Real Estate.”
The report asserts that there is a major shift in how businesses are deploying real estate to support their supply chain strategies. The report identifies four trends are driving this change and transforming distribution center (DC) networks. They include:
–The e-commerce revolution
–Globalization and right-shoring
–Mergers and acquisitions
The e-commerce revolution
The high service expectations of e-commerce are having a “bleed-over” effect in more traditional industry sectors like technology, consumer products, heavy industry and life sciences. Companies in all sectors now face the same service expectations as e-commerce retailers, putting tremendous pressure on supply chains. As customer require shorter and shorter lead times, firms are revisiting their supply chain networks and re-thinking their strategy to meet these expectations. E-commerce is also changing the last mile strategies of many firms. For example, some firms who traditionally relied on distributors and moving to more direct shipments to customers.
Globalization and right-sourcing
Corporations have found that outsourcing manufacturing 8,000 miles away from their customers no longer makes business sense in most cases. For many products lead times, risk, and responsiveness outweigh the benefits of outsourcing such as lower labor costs. As a result, firms are moving away from long-distance supply chains to “globally local” supply chains by sourcing and manufacturing closer to the final customer-a strategy DHL calls right-shoring. Right-shoring is providing better customer service, lower inventory costs, improved sustainability and faster recovery times from supply chain disruptions.
Mergers and acquisitions
Mergers and acquisitions (M&A) force supply chains to blend. Leading companies take this opportunity to upgrade and rationalize their supply chain operations during this blending process to drive M&A value. They take this opportunity to re-think their supply chain, eliminating facilities that don’t fit and adding new facilities and new equipment and systems that support a more efficient, merged supply chain.
Technology allows firms to be more predictive and proactive and it’s a growing priority for leading firms seeking to differentiate themselves when it comes to service and responsiveness. These digital technologies are changing distribution center (DC) location strategies to position inventory more strategically based on demand analytics. Additionally, they are changing the equipment and systems that are going inside the four walls of a facility. Robotics, sensors, augmented reality wearables, vertical lift modules, AGV carting, vision picking and other innovations can produce higher efficiency, greater sustainability and lower costs.
These four trends are leading to new supply chain facility footprints that include smaller facilities that are closer to the customer. While many firms still operate large mega-regional DCs, they supplement them with smaller DCs positioned closer to the customer to reduce lead times. Firms are also increasingly locating facilities closer to trade zones and national and international transportation hubs to enable next-day delivery.
For those who see the multiple-facility strategy as cost-prohibitive are looking to reduce risk and cost through shared distribution center networks or by leveraging third party logistics firms (3PLs).
The goal of all these trends is to create agile supply chains that don’t just save money, they drive growth.
To learn more about the impact of the Internet of Things on manufacturing and supply chain operations, download the “2017 MHI Annual Industry Report: Next-Generation Supply Chains: Digital, On-Demand and Always-On.”