Logistics network optimization involves an analysis of data and strategy elements to determine the number, size and location of required distribution centers in order to achieve the optimal balance between service levels and logistics costs.

        While it’s a sizable undertaking, network optimization can yield service improvements and significant savings in system-wide warehouse, transportation and inventory costs. A growing interest in network optimization among cost-conscious logistics professionals has driven significant growth in the market for optimization software in the last five years.

        But many companies mistakenly conduct optimization studies that are almost exclusively data driven. The assumption: plug in the relevant data on size, weight, volumes, ship-to points and other factors and output the ideal network design. However, in focusing too much on the modeling exercise itself, companies can miss the strategic and practical context for the analysis. This can have serious and expensive consequences.

        For instance, will the customer base and shipment characteristics used for the analysis change over the next five years, driving up the cost of the once optimized network? Or, will a requirement for a large and ready supply of temporary labor for seasonal spikes cripple your service if the chosen distribution market cannot support such a requirement?

           No optimization software can consider these critical, but less data-driven, factors. The capability of optimization software has improved greatly over the last five years and now enables highly sophisticated analysis. But logistics professionals should rely on network modeling tools as decision support tools, not as the ultimate determinant of a distribution network design.

        A better approach is to combine these tools with a top-down design approach that includes a detailed understanding of the company’s present and future business strategy and the practical implementation requirements that could impact the...

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