Micrologistics Enables Shift from Hub-and-Spoke to Smaller Regional DCs

By 2017, 50% of manufacturers will explore the viability of micrologistics networks to enable the promise of accelerated delivery for select products and customers, according to a new report from IDC Manufacturing Insights. 

Micrologistics network refers to the expansion of the distribution network beyond the centralized DC model, where manufacturers leverage multiple forward inventory stocking locations, closer to the customer, enabling localized inventory segmentation strategies as well as more rapid response capabilities to customer demand. 

“It is no secret that the supply chain of today is vastly different from the supply chain of the past,” said John Santagate, research manager, Supply Chain, IDC Manufacturing Insights.  “The customer today has much more power in the buyer/seller relationship, as compared to the past, due to the abundance of information available and an increasingly competitive environment.  This fact is driving manufacturing firms to identify additional sources of competitive advantage by which to better satisfy an increasingly demanding customer.” 

“We believe more manufacturing firms will embrace a shift from the traditional hub and spoke distribution network approach to a distribution network built around an increased number of smaller regionalized warehouses, helping to bring a greater variety of product closer to the customer,” Santagate added.  

The impact of the omni-channel revolution is being felt across every element of business today including warehousing and fulfillment strategies, the group explains.  The fundamental shift in the manufacturing industry can be characterized as a move from a manufacturer dominated environment where the firm decides what to make, stock, and sell, to a customer dominated environment in which the customer now dictates to the manufacturer what to make, when to make, how to stock, and how to deliver the product into the hands of the customer. 

This evolution is forcing manufacturing firms to rethink, retool, and reposition their supply chain strategy in order to ensure the capability to meet increasingly complex consumer and customer demands, maintain a competitive position, and drive profit and growth for the firm. 

Micrologistics networks are important, says IDC, because they enable manufacturing firms to better position inventory (finished goods and assemble to order components) closer to the customer, and therefore help in reducing delivery costs, improving inventory strategy, and driving a layer of agility into the fulfillment network. 

Moving inventory closer to the customer provides a variety of benefits to the manufacturing firm including:

Improved Responsiveness – Keeping the right inventory at the right nodes in the network enable inventory strategies that can be more tailored to the specific profiles of a variety of customer markets. 

Reduced Delivery Times – Rapid delivery is no longer a nice to have, it is a requirement.  Customers have come to expect next day (in some cases same day) delivery of product that they have ordered or have gone into a store and purchased (but cannot walk out with). 

Reduced Delivery Costs –It becomes economically beneficial to keep inventory as close to the customer as possible so as to reduce the costs associated with shipping. 

Improved Product Mix Management – A more dispersed series of inventory stocking locations in the network enables the manufacturing firm to leverage product/geo location segmentation to improve the mix of products maintained in a variety of markets. 

Flowpath Optimization –The implementation of a micrologistics network introduces a greater number of potential sites from which to ship, therefore creating greater opportunities to optimize the product flow from distribution center to the customer. 

In the new report, IDC outlines the key elements required to achieve the micrologistics vision:

• Start with product segmentation
• A deeper level of market insight
• Evaluate the fulfillment approach. 
• Comprehensively map out distribution and logistics network and costs
• Simulate network performance
• Be strategic
• Collaborate internally and externally