Logistics networks play a critical role in ensuring the efficient and timely delivery of goods. Customers increasingly expect fast, reliable delivery from their suppliers, and any delays or problems can lead to dissatisfaction and lost business. On the other hand, very high delivery costs can also lead to the loss of customers. This means that the logistical networks for product distribution need to be planned and optimized considering the trade-offs between service level, seeking to meet customer demands, and cost, being cost-effective for business.
Next, we'll discuss some of the key challenges associated with planning and optimizing logistics networks and explore some strategies for overcoming them.
- Frequency of revision of the logistics network
Network projects normally involve high investment costs in implementation as they involve opening new facilities, relocating or decommissioning and, therefore, are strategic decisions that are not frequently evaluated. Despite this, several situations may make it necessary to carry out a new planning, such as market expansion, launch of a new product family, changes in the availability or price of raw materials, demand growth, technological changes, new service level requirements. , mergers or acquisitions or changes in tax incentives. In the Brazilian scenario, the tax issue has always been a strong guide for logistical decisions. PECs 45 and 110 of the tax reform, prepared in 2019, will be processed by the Chamber and the Senate in 2023 and, if approved, will have major impacts on supply chains. Medium and long-term planning is essential, as if these different situations are resolved in a timely manner, it is likely that the network will accumulate many inefficiencies over the years. In addition, the gains of a project can be significant even in situations where there is no opening of new facilities in the logistics network, such as, for example, by reallocating existing points of sale to customers.
- Holistic and integrated view of the logistics network
An integrated view means considering the logistics network as a whole, rather than focusing on isolated segments or levels of the supply chain. This requires collaboration and coordination between different departments and stakeholders, both inside and outside the company. By taking an integrated approach, companies can better understand the interdependencies and trade-offs between different logistics functions. For example, decisions made in transportation planning can have impacts on inventory levels and warehouse utilization. By considering these impacts upfront, companies can make more informed decisions that lead to improved overall network efficiency and customer satisfaction. Furthermore, an integrated view allows companies to identify optimization opportunities that may not be apparent when looking at individual functions in isolation. For example, by optimizing only the distribution, some gains can be made regarding the reallocation of points of sale to customers. However, these points of sale are not necessarily in the best possible location and, if we consider transfer and supply costs, the gain could be greater.
- data collection
One of the biggest challenges in planning and optimizing logistics networks is collecting and integrating data from multiple sources. Network optimization involves mathematical models that seek to perform the trade-offs between raw material acquisition, production, storage, transfer and distribution costs, seeking the lowest cost and meeting demand and service level restrictions. In addition to the data referring to these costs, information about the production capacities, reception and dispatch of the facilities, the desired service level, stock levels and the order cycle are also important. It is essential to have a comprehensive and accurate view of this data in order to make informed decisions about the logistics network, as the quality of the result will depend on the quality of the information available. To overcome this challenge, the collaboration of the various areas of the company in obtaining and validating data is essential. Technology can also help companies gain a better understanding of their operations data through established systems such as TMS and WMS, as well as other burgeoning or embryonic technologies.
- Uncertainty of demand and supply
Variability in customer demand and supply availability is a major challenge for optimizing logistics networks. Fluctuations in sales, supplier capacity and transportation availability can cause delays, bottlenecks, low facility utilization and other disruptions in the logistics network. Investments in facilities usually take a long time to pay for themselves, and future demand must be able to sustain the operation of the new network to bring gains to the company. In this way, a well-prepared demand forecast reduces the risks perceived in the high investments of a logistics network. The use of more data than historical series, the analysis of different possible scenarios, the collaboration between sales, marketing and operations teams and the flexibility and frequency of planning updates are some good practices in demand forecasting.
Knowing these challenges, it is possible to face them properly and prepare to carry out projects to review the logistics network. One of the consulting projects most demanded by ILOS clients involves optimizing the company's logistics network, in which changes in location and sizing of installations that best suit the demand and service level of clients are identified, minimizing costs. O Forum ILOS 2023 will have “LOGISTICS NETWORK DESIGN AND OPTIMIZATION” as one of the main topics, where this subject will be discussed in greater detail.
References:
- Considerations on the location study of facilities - ILOS
- Logistics network planning in the national context - ILOS
- Cunha, CB (2006) Contribution to the modeling of problems in logistics and transport. Thesis (Livre Teaching). Polytechnic School of the University of São Paulo. São Paulo.
- : Furlanetto, BVR, Marins, FAS, Silva AF, & Defalque, CM (2020). Optimization of a logistics network considering allocation of facilities and taxation aspects. Management & Production, 27(4), e4918.
https://doi.org/10.1590/0104-530X4918-20
- https://oglobo.globo.com/economia/noticia/2023/04/governo-quer-reforma-tributaria-aprovada-na-camara-ainda-no-primeiro-semestre-afirma-haddad.ghtml
- https://aws.amazon.com/pt/blogs/supply-chain/supply-chain-network-optimization-cutting-through-complexity-to-maximize-efficiency/
