SCM Awareness: Distribution Planning

Better Planners make Better Plans.

SCM Awareness: Distribution Planning

Cargo Containers

This is concerned with the transportation and storage of raw materials and finished products.  It should still fit into the strategic plan but I’m going to separate it out on its own because it is often overlooked at this stage in the big picture and only addressed in more short term planning when it is often too late to make proper plans. 

So why is this a problem if it is neglected in the long-term plans and instead left to the short-term planning process. Well in the short term the planner will be required to ensure stock levels are appropriate to meet the needs of the customer, that there is capacity to store all the inventory, that the transportation (trucks, couriers, haulage companies, ferries, flights, ships etc) are all arranged. Sometimes elements of this function can be outsourced to third party Logistics 3PL and 4th party logistics 4PL companies but at the end of the day it is up to the planning and supply chain teams to make sure everything is in place. 

But these functions do not simply turn on and off like a tap.  They often take weeks or months to put extra capacity in place.  Long term plans could involve the purchase or rental of warehouse space. Establishing relationships with distribution centres and 3PL/4PL companies, perhaps even the purchase of trucks or vans.  The idea is when the short-term plans need the distribution capacity the long-term plans will make sure it is there.

The key is Distribution and logistics requirements, and contingency, must be factored into the strategic plan for the business at an early stage.  If for example your company’s strategic plan is to grow by 50% in the next 5 years and your warehouse is at 80% capacity, then you will need a plan as to how to make up that shortfall in capacity.  The assumption often comes down from senior management that there are inefficiencies in the warehouse, and you will simply have to make it run better.  And that can often be the case.  But increasingly modern warehouses are already operating “Lean” principles and do not have that much waste to eliminate. 

One business I worked with had to store packaging along a corridor because the warehouse was under-speced for the size of the business.  The whole facility was 3 years old and operated lean principles from day one.  The warehousing capacity was set incorrectly from the very beginning.  This was now severely limiting the ability of the facility to grow.  It would have cost a relatively small amount extra to build a large enough warehouse at the very beginning but 3 years later it was going to be a multimillion-dollar undertaking.  

In contrast another company I worked with had a good forward plan in relation to logistics and distribution of its products.  When they entered a new market from the very beginning, they opted for a rather expensive 3rd party logistics provider.  However that 3PL provider had a track record of dealing with the target customers, an extensive fleet of trucks and distribution routes, large warehouses with enough capacity to deal with forecasted peaks, and plans to purchase and convert an additional two warehouses based on growth forecasts from both suppliers and customers.  As part of the strategic plan to enter the new market the long-term distribution needs were addressed upfront. This meant the company was in a position to exceed their 5 year growth projections. 

Warehouse
Warehouse

So distribution is as critical to the long term plan as every other element of the strategy.  There is no point in making it if you cannot store and move it.  

  • What are your warehousing and storage requirements for raw materials and packaging? And not just the overall capacity. Have you enough of the different types of storage what is needed (for example Temperature controlled, Humidity controlled, contamination risks etc). 
  • What is the delivery intake capability of your warehouse?  If the warehouse has only been designed with one delivery bay, then it probably doesn’t matter how big the warehouse is because you can’t get stock into it.
  • In a similar way to raw materials and packaging you will need to know what the storage requirements are for your product and that you have enough suitable capacity that meets those requirements.
  • What are the logistics requirements to reach your customer? For example some customers will have very tight security and tracking protocols (especially in the electronics and food industries) and the existing local guy with a truck that you have always used may not be able to provide that level of service.

And this looks like it will even more critical over the next 5-10 years as uncertain external and economic elements such as trade disputes and low carbon supply chains impact on the strategic plans of organisations. 

For example Apple recently announced it has a goal to be 100% carbon neutral by 2030.  Given that Apple outsources most of its production this will no doubt have a significant impact on any supplier in the Apple Supply Chain. 

So things to look at as part of your strategic distribution plan

Once you know all those elements then you need to compare the growth projections for the business vs your actual logistics capability.  It isn’t a disaster now if your 5-year plan shows you need an extra warehouse in 3 years’ time. It is a disaster if you only realise that in two and a half years’ time.

And finally, you need to look at trade disputes and other external risks. For example, if you are based in the UK or Ireland then there is no point in ignoring Brexit and hope it just sorts itself out. The best companies started making contingency plans immediately after the referendum and started activating those plans as Brexit came closer and closer.

So that is distribution planning as part of the Strategy plan.  Does it deserve a chapter by itself?  Probably not.  But it is the one area that most often gets neglected in the strategy plan so it is worth calling it out here in the hope that when you reach senior management level you will remember to avoid this particular pitfall.

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