Balancing infrastructure investment and outsourcing of your distribution network
Do you see any of these characteristics in your business today or in the future?
· High or significantly increasing volumes
· Steep, upward growth projections
· Complex product storage requirements
· Products that are critical to your business operations
· Strong legislative requirements
· Increasing environment responsibilities
Then you need to review your investment plan...
The importance of distribution is often misunderstood. A well-designed distribution network has the potential to drive a significant competitive advantage, yet many businesses are reluctant to invest in it. Instead, companies often find themselves with an outsourced solution that does not meet their specific business requirements. Decisions regarding investment in distribution are often misaligned with the overall corporate strategy, missing the opportunity to add long-term value. This article will help you understand how to make good distribution investment decisions to position your business for long-term success.
Distribution Outsourcing
Businesses commonly cite the following reasons for outsourcing their distribution operations to third party logistics providers (3PLs):
· Our volumes are too low to justify doing it ourselves
· We do not have the necessary in-house expertise
· We outsource to meet peak requirements
· We mitigate risk by outsourcing when moving into new markets or channels, or when introducing new brands
Outsourcing can add real value to a business and is often an appropriate part of a distribution solution. As your business grows and future requirements change, you should re-evaluate whether you have invested correctly to meet your long-term goals. A standard “cost centre” distribution solution may have suited you well in the past, but how can you turn your distribution solution into a competitive advantage right now and into the future?
Intelligent Investment for Long-term Success
While many executives view material handling and distribution simply as a means of moving product around, today’s leaders look at it as a means to move their businesses to new levels. In order to make intelligent decisions about investing in your distribution network, you need to differentiate between the short-term and long-term elements that enable you to add the most value to your business.
Short-term enablers in your business generally include contract staff, ancillary services (e.g. system maintenance and upgrade, cleaning services, security etc.), and movable assets (e.g. mobile equipment). Although these are important elements in the daily operation of your business, it is possible to outsource without compromising the long-term goals of the business.
Distribution infrastructure is often highly specialized and can be regarded as a key long-term enabler of a business. Investing in your own primary distribution infrastructure - being physical infrastructure and systems infrastructure - will have the following benefits:
· Facility design and systems functionality customized for your business
· Longer cash flow horizon for investment business case
· Increased flexibility in choosing service providers
· Systems will provide information critical to meet:
· Industry specific requirements (e.g. batch control in pharmaceutical)
· Route to market requirements (e.g. direct to consumer, retail, etc.)
· Reduced risk from 3PL contractual obligations
· Depreciating expenses will provide tax benefits
Investment in distribution infrastructure must be diligently planned and based on data analysis and future growth expectations, not on past practices and gut guesses. Throughout the design, the Supply Chain team should consider the quantitative and qualitative criterion required to build a strong business case for the investment. The Supply Chain team should have a clear understanding of the overall corporate strategy as the distribution system needs to support it in order to realize lasting benefits. Only once a business is prepared to change the distribution infrastructure status quo - with business case justified investment - can they expect to gain a true competitive advantage.
Summary
As a Supply Chain Leader, it is your responsibility to ensure that your distribution network provides the necessary support to position your business for long-term success. Although outsourcing is often a useful solution to meet specific distribution needs, you need to invest for the future to meet your business goals. Intelligent investment into your own distribution infrastructure will ensure that you have a facility that is designed to meet your business needs, supported by IT systems that provide the required efficiencies and controls. This will add long-term value to your business and allow you to be in control of your own destiny.
Contributed by Fortna
