Distribution Network Optimization Company Strategy & Supply Chain Risk

Summary

In this discussion, the team emphasizes that determining warehouse locations involves more than just network optimization. Factors such as company strategy and supply chain risk play significant roles. For instance, retailers like RockBottom.com prioritize low prices, leading them to place warehouses in remote areas, while FastMovers.com opts for faster delivery by using more warehouses in strategic, costlier locations. HomeTech is similarly adjusting its strategy to compete with major players like WallShop, taking proximity to WallShop’s distribution centers into account. Additionally, supply chain risks, such as dependency on a single supplier, influence these decisions.

Takeaways

• 📦 The network optimization application suggests 15 warehouses and their best locations.
• ❌ However, deciding warehouse locations involves more than just application data.
• 📊 Company strategy plays a key role in deciding facility locations.
• 🛒 Rockbottom.com prioritizes low prices by placing warehouses in cheaper, remote areas.
• 🚚 Fastmovers.com focuses on fast delivery, opting for more expensive warehouse locations to reduce response times.
• ⚙️ Home Tech is aiming to capture market share from Wall Shop, its biggest customer.
• 🏗️ To achieve this, Home Tech plans to place warehouses near Wall Shop's distribution centers, regardless of application suggestions.
• 🌍 Supply chain risk is another factor in facility location decisions.
• 💡 Home Tech previously relied on one supplier in Thailand but added a second in Mexico due to flood risks.
• 🔑 Diversifying suppliers reduces risk, even if it involves higher costs.

Q & A

What does the network optimization application suggest about the number of warehouses?

The network optimization application suggests having 15 warehouses and identifies the best locations for each.

Is the recommendation from the network optimization application the final decision for determining warehouse locations?

No, other factors beyond network optimization need to be considered, such as company strategy and supply chain risk.

How does company strategy affect the decision on warehouse locations?

Company strategy influences warehouse locations based on business priorities. For example, rockbottom.com prioritizes low prices and places warehouses in remote locations, while fastmovers.com focuses on fast delivery and uses warehouses in more expensive, central locations.

What is the main goal of Home Tech in choosing its warehouse locations?

Home Tech aims to take market share from Wall Shop by positioning its warehouses close to Wall Shop's distribution centers, prioritizing competitive advantage over the network optimization application’s recommendations.

Why is supply chain risk a factor in determining warehouse locations?

Supply chain risk is important because depending on a single supplier can lead to disruptions. For instance, Home Tech used to rely on one supplier in Thailand, but floods in the area forced the company to develop a second supplier in Mexico to mitigate risk.

What lesson did Home Tech learn from relying on a single supplier?

Home Tech learned that depending on a single supplier in a risk-prone area, like Thailand with frequent floods, can disrupt operations. As a result, they developed a second supplier in Mexico to ensure continuity.

What trade-off did Home Tech make by choosing a second supplier in Mexico?

Home Tech chose a supplier in Mexico that is slightly more expensive but can supply on short notice if there is an issue with the primary supplier in Thailand.

How does the comparison between rockbottom.com and fastmovers.com illustrate different business strategies?

Rockbottom.com focuses on offering the lowest prices, placing warehouses in remote locations with slower delivery times. In contrast, fastmovers.com prioritizes fast delivery, choosing more expensive warehouse locations to ensure quicker response times.

Why might a company choose warehouse locations based on proximity to a competitor's distribution centers?

A company might choose warehouse locations close to a competitor's distribution centers to offer faster delivery times and capture market share by matching or exceeding the competitor’s logistical efficiency.

What factors should be considered beyond network optimization for determining warehouse locations?

In addition to network optimization, factors like company strategy and supply chain risk should be considered when determining warehouse locations. These factors ensure alignment with business goals and resilience against potential disruptions.