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Strategic Planning: How to Design an Optimal Distribution Network

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strategic plan of distribution sena

Published June 29, 2021

Distribution network planning is one of the main areas in which strategic planning is applied. A company will develop a strategic distribution network plan to implement business objectives over a given planning horizon. A good plan will determine the optimal network to provide the customer with the right goods in the right quantity at the right place and the right time to minimize the total distribution cost. As the number of warehouses increases, delivery costs decrease but warehouse costs increase. This is shown in a simplified manner in Figure 6.1. The opposite is also true-as the number of warehouses decreases, delivery costs increase but warehouse costs decrease. To minimize total distribution costs, it is important to find the best balance between warehouse and transportation costs.

Figure 6.1: simplified distribution cost model

The objective of strategic distribution network planning is to determine the most economical way to ship and receive products while maintaining or increasing customer satisfaction requirements; simply put, a plan to maximize profits and optimize service. Strategic distribution network planning typically answers the following nine questions:

  • How many distribution centers should exist?
  • Where should they be?
  • How much inventory should be stocked at each center?
  • Which customers should be serviced by each center?
  • How should the customers order from the center?
  • How should distribution centers order from vendors?
  • How frequently should shipments be made to each customer?
  • What should the service levels be?
  • Which transportation methods should be used?

Factors in Strategic Distribution Network Planning

Distribution networks can range from direct shipments from the source to demand points for job-shop items to complex multisite networks. The design of a distribution network depends on factors such as type, range and volume of products; the service area’s geographic spread; level of service required; and number and type of customers. Furthermore, since distribution is a dynamic environment, it is also affected by:

  • Geographic shifts in production and consumption (population shifts)
  • Market segmentation, new markets and new customer service requirements
  • Cost increases in energy, plant and equipment maintenance and labor
  • Government regulation or deregulation
  • Fuel and other accessorial charges
  • Negotiated rate contracts
  • Service requirements
  • Product proliferation and life cycle
  • Competition

Internal organizational areas such as marketing, production and finance also affect the makeup of a distribution network. To understand how, it is important to understand their goals. Marketing seeks to maximize sales by being accessible to the customer and having plenty of inventory to minimize back orders. Production wants to minimize cost by running long lots and pushing the product out the door, so both marketing and production request more inventory and more locations to hold it. Finance wants to minimize cost and conserve cash and credit, thereby lowering inventory and the number of stocking points. With these conflicting needs, the distribution network planner must find the lowest cost distribution network and inventory management technique that satisfies both the customer and the company’s objectives.

The Planning Process

Planning a distribution network is a sequential process that continually needs updating, and includes the seven steps outlined below. The pitfall some companies run into is performing steps 3 through 7 before accomplishing-and understanding-steps 1 and 2, which are the most important. The planning process is only as good as the data put into its analysis, and it should:

  • Document the distribution network
  • Identify the delivery requirements
  • Determine the network operating requirements
  • Develop alternative networks
  • Model annual operating costs of the existing network and the alternatives
  • Evaluate alternatives
  • Specify the plan

Documenting the Distribution Network

The first three steps can be simultaneous-their main goal is to understand the current system and define the requirements of the future system. To document the existing systems, the planner must collect information on the distribution centers and transportation system. It is critical to collect information from all sites being considered because the study could result in recommendations for closing, moving or expanding them. The following information needs to be collected for each site:

  • Space utilization . Determine the use of the distribution center. This will allow you to determine the amount of inventory space that will be required if this facility is to be closed when the analysis is complete. It also identifies how much more inventory could be consolidated to this location.
  • Layout and equipment . List the equipment and layout of each facility. If you have a list available during the planning stage, it will be easier to determine the investment requirements of a new or expanded facility.
  • Warehouse operating procedures . Understand the order picking and shipping procedures. If there are two product lines in one location, are they picked and shipped together? Understand the differences in operating methods between facilities. This may tell you why one facility achieves a higher throughput efficiency per person. Understand how replenishment orders are pulled or pushed to the distribution center.
  • Staffing levels . Document levels by position. Understand which jobs could be consolidated. Collect labor rates by level, including fringe benefits.
  • Receiving and shipping volumes . Understand the number of incoming and outgoing trucks and the number of docks. This will be important if the facility is required to increase throughput.
  • Building characteristics . Collect square footage, clear height, column spacing, lighting levels, etc. for the same reason as layout information, and remember to review expansion capabilities.
  • Access to location . Review the access to main highways. Determine if this affects freight cost.
  • Annual operating cost . Collect lease, taxes, insurance, maintenance, energy and other facility costs.
  • Inventory . Collect information on inventory turns and levels, fill rates, safety stock levels and ABC analysis. With this information, you can determine the savings that can be gained by consolidating facilities. Also collect information on which and how much stock is slow moving or seasonal to help determine if it should be centralized in one location or stored in public warehouse space. Get future inventory goals.
  • Performance reporting . Understand the performance measures for service requirements, order completeness and shipping accuracy.

The following information should be collected for the transportation system:

  • Freight classes and discounts . Collect the freight classes and rates used. In addition to freight classes, determine the discounts by carrier or location. It is also important to understand where, and under which parameters, the discounts apply (e.g., routes, minimum weights).
  • Transportation operating procedures . Understand how a certain mode of transportation and a carrier is selected.
  • Delivery requirements . What are the delivery requirements (days of delivery) to the customer, and how is carrier performance measured? Is order completeness measured?
  • Replenishment weight/cube . At what weight is a trailer cubed out? Get this information from each replenishment point and for a typical load of general merchandise.

At the end of the data collection, which would benefit from site visits, a project team meeting should be held to summarize the data collected and assess each site. This assessment will give the team insight into its operation. In addition, it will discover information unknown to management that will be useful in developing alternatives.

Documenting the future distribution network requirements requires an understanding of marketing strategies and sales forecasts. Here are some questions that marketing and sales should answer:

  • Are any new products coming out? Where are they sourced from? What is the target market (geographical) area?
  • What are the current ordering parameters? For example, what is the minimum ordering size? Are any terms of order changing (e.g., charging for expedited service)?
  • What is the direction of the market (packaging changes, wholesalers, mass merchants having more volume)?
  • What are the sales increases by year?
  • Are there noticeable customer shifts? Are fewer customers handling more volume?
  • Are geographic shifts emerging? Have sales increased by geographic region?

Identifying Delivery Requirements

One of the key elements to analyzing a distribution network is delivery requirements, or the time from order placement to receipt of the shipment. If these requirements are not identifiable, it is important to conduct a customer service gap analysis. The gap analysis is a series of questions directed at internal staff and customers. It aims to identify discrepancies between the level of service that will satisfy the customer and current performance. The gap analysis attempts to determine the customer’s balance between service and cost. In general, is it more important to have the goods faster or at a lower price?

Figure 6.2 shows distribution cost as it relates to days of delivery, and its effect on profits. The figure indicates that as delivery requirements are reduced, there is a point where the cost and distribution of the product will outweigh the income achieved from sales. The figure also indicates that the longer the delivery time, the higher the profits. At some point, sales sharply decline because competition exceeds both your delivery time and cost (assuming equal product quality). The key is to determine the best service that also maximizes profits.

Figure 6.2: Gap analysis

Network Operating Requirements

Once customer service requirements are understood, the next step is to determine network operating requirements. This involves determining the baseline cost and the service and performance characteristics of the current network. Key elements to identify include:

  • Current facility locations, capacity, throughput, cost, performance, flexibility, effectiveness and efficiency
  • Inbound transportation costs from plants and suppliers
  • Outbound transportation costs to customers and intra-company facilities
  • Current inventory levels, in-stock percentages and inventory carrying costs
  • Delivery time to customers
  • Current supply points for vendors and production facilities
  • Distribution of customer demand

This information provides a baseline for comparing alternative scenarios. Without the baseline, it is difficult to evaluate the costs and benefits of each alternative versus the status quo.

As the baseline information is gathered, it is important to analyze and validate it against information available from alternate and independent sources within the company. It is not uncommon for databases or database inquiries to yield incomplete results that would potentially skew the analysis. Cost information should be compared with source documents, the general ledger or profit-and-loss statements. Volume information from production or distribution should be compared with volume information from purchasing or sales. Stakeholders who would be affected by any changes in the distribution network should also review the baseline information to make sure that it represents the world as they know it.

Developing Alternatives

Once the data has been collected and validated, the next step is to develop alternative site locations and operating methods. The inputs used to determine alternatives are site visits, future requirements, database analyses and customer service surveys. The methods used for the selection of each site will vary. The main factors influencing site location are listed in Table 6.2.

Typically, site selection is based on the factors shown in Table 6.2, and methods are available for weighing alternative sites based on customer volumes and distance. These methods range from experience to determining the total road miles to running a network model. Network models fall into three general categories:

  • Centroid (center of gravity) analysis
  • Optimization models
  • Simulation models

A centroid analysis calculates the weighted center of customer demand by using map coordinates and customer volume. It was one of the first methods used to determine site location, but it is inadequate when compared with today’s modeling techniques.

Optimization models come in a wide variety of complexity and sophistication, with prices to match. They are typically linear or mixed-integer programs that are capable of determining an “optimal” distribution network based on the data, assumptions and parameters provided. Changes to any of the assumptions, parameters or data will cause the model to yield a different result. They are therefore very dependent on the quality of the data and parameters and the experience of the individual performing the modeling analysis.

Simulation models, like optimization models, come in a variety of shapes and sizes. Unlike the optimization model, which starts with a set of data and gives a single answer, a simulation model will start with a single answer-a network alternative or scenario-and examine the impact of a variety of data sets on the scenario, over time. Simulation models are very useful for determining the impact of supply or demand variability, network constraints and bottlenecks on the efficient operation of the network. Like optimization models, they are very dependent on the quality of the inputs and the skills of the modeler.

The various techniques differ largely in their ability to analyze complex networks. The planner needs to determine how important it is to include complex variables or if assumptions and averages can provide sufficient grounds for decision-making. Centroid analysis, for example, can be done on paper and assumes that transportation costs are proportional to distance, that the straight-line distance between two points is representative of actual distance and that there is a uniform shipment size from or to each location. It ignores capacity constraints, service requirements and differences in transportation and facility processing costs. An optimization-modeling program is more sophisticated, but it is limited to evaluating a static range of variables. If a network can be described by summarized data, or by looking individually at one or more slides in time, then an optimization model is very effective. For example, it may use an annual average when looking at the shipping volume of a facility even though there may be wide seasonal variances. Alternatively, such sensitivity analysis could be done “outside the model” to gain an understanding of the impacts of supply or demand variability. Simulation modeling is able to use actual data that reflects such variances or include randomness in sales or supply patterns. This may better represent the volatility a company faces in the real world. The tradeoff for the increasingly complex capabilities is increasing cost.

Location is not the only decision to make. Companies must consider operating methods, as well as choices like consolidating vendor shipments, centralizing slow-moving items in one place and minimizing order delivery times, which could impact future revenue. Once alternative sites have been determined, data must be collected on freight rates, warehouse cost and labor cost for those sites.

Modeling the Annual Operating Cost

Modeling software does not guarantee the right answer. Modeling should be used only as a tool to aid in the decision process. Sometimes interpretation should be pursued. The real value in distribution planning is the knowledge gained from understanding the workings of a company’s distribution system and applying imagination to the model in ways that will truly benefit the distribution network. Facility alternatives can be close in cost but range widely in other factors. That makes it important to have other criteria by which to judge the modeled costs. For instance:

  • Central administrative and order processing costs . Typically, these costs increase with the number of warehouses. It takes more effort to coordinate and manage a larger network of facilities.
  • Cycle and safety stock carrying costs . More warehouses means more total system inventory. Inventory theory supports the notion that safety stocks will increase with the number of facilities.
  • Customer order-size effects . Customers who operate close to a warehouse generally tend to order more frequently and in smaller quantities than customers who are farther away. This implies that delivery costs tend to increase on a dollars-per-hundredweight basis as the number of facilities increases.
  • Inter-warehouse transfer costs . The more distribution centers there are, the greater the coordination problems and the more likely the need to transfer inventory between facilities due to imbalances.
  • Negotiated reduction in warehousing and delivery costs . The fewer the facilities, the greater their individual volume and the more opportunity there is to negotiate more favorable arrangements for warehousing and delivery service.

Because this article is concerned with the overall approach to distribution planning, it does not discuss the various techniques available to model annual operating cost. However, no matter which modeling method is used, the overall approach should closely resemble the following steps:

  • Validate the existing network . Run a computer model to simulate the existing cost. Compare this cost with actual cost.
  • Run alternative networks . Once the model is validated, run alternative networks for present and forecasted volumes.
  • Summarize runs and rank . Create a table to summarize cost by alternative. The table should list individual distribution center costs.
  • Summarize all annual costs and service factors . Create a table that shows, by alternative, all cost and service factors.
  • Perform a sensitivity analysis . Sensitivity analysis is based on the idea of setting up runs that fluctuate some components of the data. One might be a cost that is uncertain or has the potential to change. By modifying this one parameter, you can determine the effect on the run.
  • Determine all investment costs associated with each alternative . Look, for instance, at the costs of new warehouse equipment required to save space, expansion and construction or any building modifications such as adding dock doors.

Evaluating Alternatives

An economic analysis compares the benefits of a recommended network plan with the implementation cost. To perform this analysis, you must determine all the investments and savings associated with each alternative. Costs such as new warehouse equipment, construction or any building modification should be included. Additionally, the following information must be identified: personnel relocation, severance, stock relocation, computer relocation, taxes, equipment relocation and income from the sale of existing land and buildings.

The result of this evaluation should be the return on investment of each alternative compared with the baseline. Once this step has been completed, perform a sensitivity analysis that fluctuates various costs and savings to see which alternatives are the most stable. To round out the analysis, perform a qualitative analysis looking at factors such as customer service and ease of implementation. Once a conclusion is reached, draw up a time-phased implementation schedule that lists the major steps involved in transferring the distribution network from the existing system to the future system.

While designing an optimal distribution network in an unpredictable world may seem overwhelming, Tompkins is here to help. Contact us today to learn how to learn how to develop a successful network strategy during these uncertain times.

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DISTRIBUTION STRATEGY

The big picture on distribution strategy.

Distribution models drive the economics and growth potential of companies.

Many companies are innovating through low-cost and viral digital and online distribution channels.

In most industries, some company is compressing the value chain by going direct...shouldn't it be you?

When growing distribution, focus on alignment and synergy with other business model elements.

THERE ARE 3 MAIN DISTRIBUTION STRATEGIES

Distribution is how a business makes its value proposition available to customers. There are three main distribution strategies:

1. Direct - company-owned channels

2. Indirect - 3rd party channels

3. Hybrid - both company-owned & 3rd party

Direct distribution is about company-owned channels, which could include a company's website, contact center, sales team , retail, and office locations. Indirect distribution is about intermediaries such as distributors, agents, brokers, online-only and omnichannel retailers, value-added resellers, partners , and franchisees. Hybrid distribution utilizes both direct and indirect channels.

Different Distribution and Channel Strategy Options

1. Going Direct - Customer Experience & Economics

More and more companies are moving from indirect distribution to direct or hybrid distribution. These companies want to lower costs and pricing by compressing the value chain while owning the customer experience and relationship.

Companies with direct distribution remove an often expensive intermediary from the value chain. Much of traditional retail utilizes keystone pricing (100% markup, $10 factory cost translates to $20 wholesale, which translates to $40 retail). By going direct, a company can take that $10 product and price it at $25 or $30, while making much more in gross margin. The first retail direct distribution innovators were back in the 70s with the likes of The Gap, Victoria's Secret, and other vertically integrated retailers. Today companies like Anker (power packs) and Vice (golf balls) are utilizing direct and low-capital, low-cost online channels to disrupt their markets .

Direct distribution also gives the company ownership to craft and manage their customer experience and relationship, which drives conversion, and loyalty and is crucial for complex sales, and innovative products and services. Apple took the world by storm by going direct with Apple Stores, and Tesla did the same when they rolled out Tesla showrooms in high-traffic malls. Both Tesla and Apple differentiated themselves from their competition by owning their customer experience and relationship, while also benefiting from compressing their value chain.

Pretty much every industry has innovators leveraging direct distribution to improve the customer experience and relationship, cost and pricing economics , and overall agility. If your business isn't direct, it may be time to try and figure it out.

tesla distribution strategy

2. Indirect Distribution - Efficiently Scaling

A company with indirect distribution, partners with 3rd parties to sell and fulfill a company’s value proposition. These 3rd parties can be retailers, value-added resellers (VARs), partners, franchisees, distributors, and brokers. For many industries, such as the beverage industry (Coke, Pepsi), the norm is to leverage indirect distribution, in the form of distributors, supermarkets, convenience stores, vending machines, and restaurants. Even in a predominately indirect distribution industry, such as beverages, there are always players looking to take out middlemen, such as Trader Joe's, an entire grocery retailer that only sells its own brands.

Companies often utilize indirect distribution to focus on their core competencies , while gaining access to customers by leveraging channel partners. A company with indirect distribution gives up margin to channel partners but saves on the costs and capital necessary to go direct. For a company leveraging indirect distribution, the key to growing sales is to drive better value and economics for channel partners than the competition . For retailers, it is driving superior gross margin dollars per square foot. For VARs, it is total sales and margin versus the cost of sales.

If your company primarily leverages indirect distribution, deeply understand players that are going direct, because they are most likely changing the industry dynamics through better economics and more consistent and elevated customer experiences.

3. Hybrid - Almost the Best of Both Worlds

Many companies have a hybrid distribution model, utilizing both 3rd party and direct channels to sell and fulfill their value proposition . With hybrid distribution, companies get the broad distribution of indirect channels, while owning the customer experience and expanding margin through their direct channels.

Nike is a great example of a hybrid distribution model. Nike sells in tens of thousands of 3rd party stores and retailers across the world. Yet, in 2017, direct channels, including Nike.com, and more than 1000 flagship and outlet stores accounted for  28% of Nike's total sales versus 10% in 2010. And, Nike is differentiating their direct channels with personalized Nike ID shoes, exclusive styles, and the broadest selection. Not only are they owning the customer experience, relationship, and data through direct channels, but they

Nike has a hybrid distribution model. Nike sells in tens of thousands of 3rd party stores and retailers across the world. Nike also has direct channels, including Nike.com, and more than 1000 flagship and outlet stores accounted for 28% of Nike's total sales in 2017 versus 10% in 2010. Nike is differentiating their direct channels with personalized Nike ID shoes, exclusive styles, and the broadest selection. Nike is heavily investing in their direct channels because they own the customer experience and make 2-3X in gross margin on each pair of shoes they sell directly versus indirectly. Nike sells a pair of shoes that cost $20 to the manufacturer to a retailer for $40, and the retailer marks it up to $80 to the customer. In this example, Nike would make $20 on the shoes, but if they sell them on Nike.com for $80, then they would make $60 in margin on the shoes. This margin expansion is a big reason why more companies are going direct.

The one longer-term potential disadvantage of a hybrid model is that a direct distribution model could come in and structurally undercut the pricing of the industry.

If you are looking for a business coach to collaborate on your distribution strategy, set up some on-demand one-on-one time with Joe Newsum , the creator of this content and a McKinsey alum

DISRUPTIVE DISTRIBUTION MODELS

Disruptive distribution models are becoming more and more central to the core strategy of companies. Think about Southwest, which doesn’t sell tickets through Expedia, Priceline, and travel agents, but only on southwest.com and 1-800-I-FLY-SWA. Tesla has redefined car retailing with showrooms in shopping malls, bypassing typical dealer networks. Apple wanted to give customers the ultimate showroom to showcase their new products and opened the most productive and profitable retail store network in the world.

Maybe your distribution model is what it is, and you have to follow what the industry does. Though, given the reach and innovation of online distribution models, and what other competitors might be doing in innovating their distribution model, it may make sense to reexamine your distribution model and take some time to think through if you have the right distribution model for your situation or you need to innovate .

In 2012, Dollar Shave Club took the world by storm through distribution innovation. Michael Dubin, the founder of Dollar Shave Club, identified the age-old problem that, " razors are really expensive in the store. It's a frustrating experience to go and buy them. You have to drive there. You have to park your car. You have to find the razor fortress. It's always locked. You have to find the guy with the key. He's always doing something else that he doesn't want to be helpful."

At the time, the razor market was on the plateau of its adoption curve , and was a typical mature market two-company race, with Gillette owning 80% of the market and Schick a distant second. In 2012, a Gillette Fusion ProGlide blade would have set you back a cool $4. So, when Dollar Shave Club, comes out of nowhere with the coolest bootstrapped $4,500 viral ad to ever hit Youtube, promising "F**cking Great" blades for $1 a month, customers loved the value proposition. Within two days of the viral video, Michael's team racked up 12,000 orders and ran out of supply.

At the heart of Dollar Shave Club's value proposition is the cost savings that are passed on to the customer from disintermediating traditional shaving industry distribution of retail stores. Then add on the cost savings of bypassing traditional marketing for cost-effective viral marketing , and you can start to understand the $1 a month for blades value proposition.

The value proposition and go-to-market were so strong that Dollar Shave Club grew to $65 million in revenue in two years, and in five years had 8% of the market and $240 million in revenue. In 2016, Unilever bought Dollar Shave Club for $1 billion.

The Big Decision - Which Distribution Model?

When expanding, think about distribution models, direct distribution growth strategy.

If you have direct distribution, then you need to focus on the strategies for your direct channels, which may include a website, contact center(s), sales staff, and locations. Your direct channels are an integral part of your overall customer funnel. You drive revenue growth by increasing and accelerating awareness, consideration, conversion, loyalty (repeat business), and advocacy . Understanding where your customer funnel excels and lags is critical to prioritizing investments. Read up on developing and executing a great sales strategy and marketing strategy . Furthermore, there are the foundational operations and IT strategies necessary to drive efficient and effective execution within your website and contact centers.

If you have locations, then you have three options to grow:

1. Optimize Locations

2. Grow the Number of Locations

3. Rationalize Locations

Optimizing locations involves driving revenue per location through operational and service excellence, new leadership , remodeling, and improving sales and marketing. For growing the number of locations, leverage the geographic strategy module to understand how to choose the right geographies to expand into that are aligned with your targets and economics. While rationalizing locations is often necessary to shed unprofitable and non-aligned locations from the portfolio.

INDIRECT DISTRIBUTION GROWTH STRATEGY

3 main options to grow indirect distribution.

There are three main ways to grow revenue with 3rd party channel partners, 1. Optimize, 2. Grow Points of Distribution, and 3. Rationalize. 

1. Optimize – Increase sales within existing channels by improving the value proposition, customer journey, marketing, and sales

2. Grow Points of Distribution – Increase the total number of productive points of distribution (e.g., channel partners, stores)

3. Rationalize – Shed points of distribution that are non-productive, or are not aligned with the brand, customers, markets, or other business model elements

1. Optimize Channel Partners

In the end, the relationship between a company and its channel partners always comes down to value. The more value a company can drive through a channel partner, the more the channel partner will focus on the company. Channel partnerships are co-dependent relationships. Similar to the overall business model strategy , it is crucial to differentiate the customer value proposition and amplify the sales and marketing strategies within a channel partner while providing them with efficient processes and operations.

So, when thinking about growing sales within existing channel partners, answer the following questions :

How can you differentiate your value proposition with and improve the overall economics for your distribution partners?

What marketing campaigns and strategies will drive volume for your distribution partners?

What sales support strategies will drive velocity and conversion in your channel partners' sales cycles?

What processes need improvement to better support channel partner growth and satisfaction?

1. Optimize : Utilize a Partner Growth Plan

2. grow points of distribution, 3. rationalize channel partners, putting it all together in a plan.

Distribution is a critical growth element of any business model. Whether you rely on direct, indirect or hybrid distribution, it is important to develop a strong distribution strategy to focus the execution of the teams.

If you would like to talk to an expert about your distribution strategy, set up some time with Joe Newsum , a McKinsey Alum with significant experience with distribution strategy.

download the distribution strategy worksheets & templates

To get you started on creating a killer distribution strategy, download the free PowerPoint Distribution Strategy Worksheets & Templates, which includes:

1. Distribution Partner Growth Plan 2. Distribution Partner Assessment Matrix 3. Distribution Growth Strategy One-Pager

DOWNLOAD STRATEGY PRESENTATION TEMPLATES

168-PAGE COMPENDIUM OF STRATEGY FRAMEWORKS & TEMPLATES 186-PAGE HR & ORG STRATEGY PRESENTATION 100-PAGE SALES PLAN PRESENTATION 121-PAGE STRATEGIC PLAN & COMPANY OVERVIEW PRESENTATION 114-PAGE MARKET & COMPETITIVE ANALYSIS PRESENTATION 18-PAGE BUSINESS MODEL TEMPLATE

THE LEADERSHIP MATURITY MODEL

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STRATEGY COACHING MANAGEMENT COACHING BUSINESS TRANSFORMATION STRATEGY WORKSHOPS LEADERSHIP TRANSFORMATION

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BIG PICTURE WHAT IS STRATEGY? BUSINESS MODEL COMP. ADVANTAGE GROWTH

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example of thesis statement for rhetorical analysis

example of thesis statement for rhetorical analysis

7 Steps to Optimizing a Distribution Operations Strategy

by Darren Jorgenson

The ever-shifting supply chain landscape has been a challenge to navigate over the past few years. Market disruption, pandemics and geopolitical unrest has continued to send ripples throughout most industries and the supply chain in general.

However, one aspect that does not change, is the need for a smart strategy for a new or revamped distribution operation. A strategy that can consider the goals, growth and the changing distribution channels of your organization as well as the turbulence of the marketplace. Part of its Distribution Network Optimization Strategy , FORTNA has a proven process that includes AI powered scenario planning, proprietary tools & algorithms and pathway designs & benchmarked industry best practices.

Read on to learn more about the 7 Steps to Optimizing Your Distribution Operations Strategy.

Data Analysis and Baseline Modeling/Calibration

The first step in any strategy is to study and benchmark where and how the business is currently operating. While many times, a company will lean on internal resources to provide insight into company data and analytics, FORTNA employs its proprietary software, FORTNADCmodeler® to analyze years of item, order, receipt, shipment and inventory data that can quickly and effectively provide a strong foundation of data to benchmark.

Stakeholder Alignment Exercises

With any project, alignment with key stakeholders can be a large determiner of length of engagement and overall success or failure. FORTNA takes a step-by-step approach with a diverse client stakeholder team to ensure cohesion, valued discussion and ultimately agreement. Transparency in design and planning helps manage expectations with speed of project, value and flexibility.

Performance Benchmarking

Data is not the only component needed when forming a new strategy. Labor, process and service performance is vital to understanding current operational limits and uncovering opportunities for optimization and improvement. Measurement of throughput, cost per order, capacity and service metrics, can lead to illuminating facts about current processes and perceived limitations.

Network Scenario Development and Evaluation

One unique tool that FORTNA can bring to bear is the Network Strategy Tool. This proprietary tool allows a client to visualize and contrast different network scenarios and explore multiple alternatives as a part of a complete network refresh or a targeted e-Commerce strategy. Using client data points, FORTNA can provide a client with numerous options and scenarios to analyze and study.

Sensitivity/Risk Analysis

Part of working with FORTNA, an end-to-end design-build firm, is that a client works with one company to ensure that sensitive business data and business practices are protected, and a reduction of risk is at the highest of priority. FORTNA uses a suite of software such as the FORTNADCoptimizer™ and FORTNADCcalculators™ to not only present alternatives to design and risk, but also use over 80 built-in calculators that allows our experts to get consistent and reliable answers on design questions so clients can feel completely informed and confident in the data.

Business Case, including Capital Investment and Horizon Operating Costs

Building a client business case is one of the main functions of a successful strategy. FORTNA uses all its proprietary data science tools and experts to unlock meaningful insights, which then fuels our optimization models that meet and/or exceed business requirements. The output of this data is to help clients make a data-based, informed decision that will justify capital expense and set intended ROI and KPIs moving forward.

Roadmap/Transition Plan

As part of its Distribution Network Optimization Strategy, FORTNA solution design experts will factor in the cost of facility design alternatives, help implement the final network, and maintain performance with end-to-end lifecycle services .

FORTNA Can Help

Having a smart strategy is only the first step in building an operation that is a competitive advantage. FORTNA utilizes the FORTNA Distribution Optimization Framework which includes the following steps:

  • Assessments
  • Operations Design
  • Implementation
  • Lifecycle Services

Contact FORTNA today to start building your strategy and to learn more about the FORTNA Framework.

If you liked this post, you might be interested in the following article from our Insights Library: FORTNA Solution Design Guiding Principles .

About the Author

photo-of-darren-jorgenson-practice-lead-strategy

Darren Jorgenson

Practice Lead, Global Strategy

Darren Jorgenson is the Global Strategy Practice Leader for FORTNA and has been in the industry for 20+ years, serving in multiple industries and consulting roles. Darren is a member of the Council of Supply Chain Management Professionals and has been recognized as a Pro to Know by Supply & Demand Chain Executive magazine.

strategic planning

Wholesale Change: How Distributors Should D o Strategic Planning  

Available on-demand

About this event

Every distributor does an annual budget – but that’s not the same thing as formulating a strategy. The budget process is very tactical, focused on current operations and does not typically account for broad industry trends, disruptors or major technology changes.   

If you don’t want to get blindsided, you need a strategic plan. A strategic planning process will allow you to think about the positioning of your company and how you need to adapt your value proposition over time.   

Watch this episode of Wholesale Change on-demand. Ian Heller and Jonathan Bein, Ph.D., talked about the strategic planning process they’ve developed to help distributors formulate long-term plans. This feeds into the short-term budget process but also enables changes that empower a company to thrive in the long term.

Watch now >

When you submit your data, your information will be shared with the sponsors of our program. We will also send you communications from Distribution Strategy Group, which you can unsubscribe from at any time. Our privacy policy can be found at distributionstrategy.com/privacy-policy .

Thank you to our sponsors

About our hosts:

Ian G. Heller

Founder & Senior Partner

Ian Heller is Founder & Senior Partner at Distribution Strategy Group, and has more than 30 years of experience executing marketing and e-business strategy in the wholesale distribution industry. He has written and spoken extensively on the impact of digital disruption on distributors.

Jonathan Bein, Ph.D.

Managing Partner

Jonathan Bein, Ph.D. has worked with many distributors to make their marketing a profit center. He has developed and applied analytic approaches for customer segmentation, customer lifecycle management, positioning and messaging, pricing, and channel strategy for distributors.

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  2. 32 Great Strategic Plan Templates to Grow your Business

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VIDEO

  1. Managing Strategic Implementation

  2. How Can I Create My 2020 Content Marketing Plan in Just 10 Minutes?

  3. Beyond Products: Navigating the Path to Success through Strategic Distribution

  4. Strategic Plan for ASDOC 2024 2029 1

  5. CONCEPT OF STRATEGIC MANAGEMENT

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  13. Optimizing a Distribution Strategy

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  15. How Distributors Should Do Strategic Planning

    A strategic planning process will allow you to think about the positioning of your company and how you need to adapt your value proposition over time. Watch this episode of Wholesale Change on-demand. Ian Heller and Jonathan Bein, Ph.D., talked about the strategic planning process they've developed to help distributors formulate long-term plans.

  16. More Than a Budget: How Distributors Should Do Strategic Planning

    Distributors need a strategic plan - not to be confused with budget planning - if they want to remain competitive and profitable in the future.. In this Wholesale Change discussion, our hosts Ian Heller and Jonathan Bein, Ph.D. talked about the strategic planning process they have developed to help distributors formulate long-term plans that adapt value propositions over time to empower ...

  17. Distribution Strategy: Definition and Examples

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