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What is Logistics Network Planning & Steps to Design

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Danish Khan

Content Writer @ Shiprocket

March 7, 2023

7 min read

Planning is crucial for any task to be completed smoothly and on time. Planning is paramount because logistics management failure can lead to revenue and customer loss. An optimised logistics network design is needed to ensure an efficient operation that helps keep operational costs at a minimum while providing optimal customer service. 

Logistics network

What Is Logistics Network Planning?

Logistics network planning (LNP) is a collection of tools and processes required to review the physical infrastructure’s size, location, scope, inventory quantities, and movement costs to support a desired level of customer service. It includes the reverse logistics or returns process too. This logistics network is critical to the supply chain as it plots how goods flow between manufacturers and customers via the various warehouses. Efficient logistics planning can analyse historical data to optimise the route, optimise asset utilisation, improve business efficiency, and reduce operating costs.

Logistics network planning benefits businesses by ensuring planning certainty through data analysis, considering all possible ‘what-if’ situations, increasing prospects for partnership, and providing flexibility to adapt due to unexpected disruptions. An example of such logistics planning is Shiprocket Fulfilment services. It is an eCommerce fulfillment solution provider offering order fulfillment, warehousing, catalogue, and inventory management. With their tech-enabled fulfillment centres across India, brands can store products closer to their customers and ship 3X faster at lower costs.

Ways To Design Logistics Network Planning

Design logistics network plan

A well-designed logistics network gives the business a competitive advantage in the market. It helps optimise operations, transportation, and inventory to balance cost and service best. A primary challenge with LNP is that the design has to adapt to the inputs/demands in real-time. To overcome the complexity, most companies work with third-party service providers.

To have an optimal network design, a seven-step process is recommended:

  • Process customisation
  • Determine the need for change
  • Review of as-is network
  • Evaluate alternatives for the network
  • Plan facilities
  • Decide the to-be state
  • Implementation 

Steps To Design Logistics Network Plan 

Let us check out the details of each of these steps:

Process Customisation

Every business has a different way of working, and the network design has to cater to these needs. It is best to decide on the critical elements like the scope of work, objectives, and results. After the initial framework, specific design steps and processes achieve the end goal. Proper linking between tasks, staff, and budget; only the system will provide the desired results. 

The necessary inputs, tools, and outputs should be marked out well. The outcomes of a step will become input to the next step. It can happen several times, thereby creating a more detailed plan. It is essential to link the process with the overall goal of the business. Clear objectives and goals will prevent scope creep or slowdown. Introducing new functions in a step without sufficient resources leads to a slowdown and project failure.

Determine The Need for Change 

Change is constant and inevitable in the current global and political scenario. A network design may need modification from time to time to suit the demands of the situation. It would be best to introduce any changes in logistics networks only after review. There are a few drivers of change, such as competitive advantage, cost reduction in logistics, customer base, new markets, change in manufacturing processes, and mergers and acquisitions. 

Review Of As-Is Network

Before implementing anything new, review the existing cost, lead times, and other parameters. It involves gathering business information, mapping the system, explaining the key activities and functions of the network, benchmarking, identifying the gaps between current capacity and strategy, and generating plans to close the gaps.

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Evaluate Alternatives For The Network  

Different types of modelling techniques can assess network alternatives. The ultimate goal is identifying the most cost-effective and efficient process to address various service levels’ needs.

  • Plan Facilities

It is the process of planning facilities depending on the quantitative analysis results. This quantitative analysis would factor in all the qualitative factors required to seek the best location alternatives. A team can find locations based on the prioritised selection criteria.

  • Decide The To-Be State

The detailed plan is presented to the management at this stage for the go-ahead to the managers who may ask for more analysis. The plan must utilise the existing assets to control capital costs. After the final plans are signed, the network design implementation can begin.

  • Implementation 

The implementation phase would involve acquiring new facilities or modifications to existing facilities. Each component in the project will include time and cost. Maintaining an overall master plan will help implement the network as per sequence and keep track of the plan’s progress. After implementing the project, the network updates must follow comparative results gathered over time with the actual network output. 

What Is The Distribution Network In The Supply Chain?

In the supply chain, the distribution network is an interlinked group of warehousing and transport systems that receive goods and then deliver them to customers. It could be an indirect delivery through a network of intermediaries or direct delivery from the manufacturer. For a distribution network, two aspects are essential: location to the customer and infrastructure quality. Many distribution networks, such as hub-and-spoke or decentralized, depending on what works best for different types of products.

The distribution network in the supply chain industry has changed significantly in recent years. With the advent of eCommerce, there has been a change in logistics approaches and plans. The delivery of goods to the end-user has improved speed and accuracy. The emergence of omnichannel has influenced the design and implementation of supply chain networks. Multiple distribution channels network helps to deliver goods to customers directly from the inventory in available facilities instead of the conventional flow of goods. Shiprocket Fulfilment ensures a delightful customer experience while providing 99.9% accuracy of operations.

Distribution networks need to get modified over a while to suit changing demands of the supply chain. Non-optimised distribution networks lead to a loss in revenue and customers. The distribution network optimisation should depend on the efficiency needs and cost factors. Businesses need to identify the customers’ demography and choices and optimise the distribution network based on cost-effectiveness. Purchase volumes and frequency play an essential role in optimising the distribution network. Warehousing and storage facilities are significant in distribution network optimization. 

Conclusion

A robust LNP is essential to meet the changing needs of the customer. It also helps to create more innovative and better-connected value chains in the process. Logistics network planning needs to be constantly reviewed and redesigned to improve customer service and reduce the total cost of customer service.

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Frequently Asked Questions(FAQs)

Why Do Supply Chains depend on Logistics Network Planning (LNP)?

A logistics network is critical to the supply chain as it plots how goods flow between manufacturers and customers via the various warehouses. Logistics Network Planning (LNP) is a collection of tools and processes required to review the physical infrastructure’s size, location, scope, inventory quantities, and movement costs to support a desired level of customer service. It includes the reverse logistics or returns process too.

What Is The Importance of Logistics Network design?

Logistical networks reduce costs, optimise asset utilisation, improve business efficiency, increase customer service, and maximise profits. It enables businesses to have transparency and visibility into their operations, thus increasing the order fulfillment rate.

How To Design An Optimal Logistic Network Plan?

To have an optimal network design, a seven-step process is recommended:
– Process customization
– Determine the need for change
– Review of as-is network
– Evaluate alternatives for the network
– Plan facilities
– Decide the to-be state
– Implementation 

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