Executive Briefings

Micrologistics as a Strategy for Improving Your Network

Analyst Insight: The impact of the omnichannel revolution is being felt across every element of business today, including transportation and distribution, which can impact network planning. Customers today are more connected, more informed, and more demanding than ever before, and as a consequence, firms are forced to reevaluate their fulfillment strategies to meet ever-increasing demand for fast, accurate, and low-cost delivery of product to the customer. - John Santagate, Research Manager, IDC

Micrologistics as a Strategy for Improving Your Network

Markets have clearly shifted from a manufacturer-dominated environment, where the firm decides what to make, stock and sell to a customer-dominated environment, in which the customer dictates to the manufacturer what to make, when to make, how to stock, and how to deliver the product into the hands of the customer. This evolution is a direct result of the always-on and always-connected customer who has a wealth of information available, literally in the palm of the hand, to support a purchasing decision. Such a shift in power is forcing firms to rethink, retool and reposition their supply chain strategy to ensure the capability to meet increasingly complex consumer and customer demands, maintain a competitive position, and drive profit and growth for the firm.

One strategy available for firms to adapt to such change is the micrologistics network approach, where the firm leverages a more distributed network of smaller, regionalized warehouses. This approach enables firms to position a greater variety of strategically selected product closer to the customer, resulting in benefits such as:

Improved Responsiveness - keeping the right inventory at the right nodes in the network enables inventory strategies to be more tailored to the specific profiles of a variety of customer markets. Such an approach allows firms to respond more rapidly to changes in customer preference and thus drive greater inventory planning throughout the supply chain.

Reduced Delivery Time - as customers have come to expect next-day (in some cases, same-day) delivery of products ordered through non-traditional channels, it becomes imperative that firms adopt a strategy capable of placing inventory as near the customer as possible to drive product availability while reducing delivery time.

Reduced Delivery Costs - shipping single units directly to the customer has become a common practice in the omnichannel environment, and as a consequence, there is a greater need to leverage parcel shipping to fulfill customer demand. Therefore, it becomes economically beneficial to keep inventory as close to the customer as possible to reduce the costs associated with shipping.

Improved Product Mix Management - a more dispersed series of inventory stocking locations in the network enables the manufacturing firm to leverage product–geolocation segmentation to improve the mix of products maintained in a variety of markets. This strategy helps to efficiently position the right mix in the right place and thus reduce inventory redundancies throughout the network.

Flow Path Optimization - while distance is a primary factor in fulfillment costs, other factors such as inventory levels, labor costs, and transportation mode contribute to flow path optimization. A micrologistics network introduces a greater number of potential sites from which to ship, thereby creating greater opportunities to optimize product flow from distribution center to the customer.

The Outlook

Over the next several years, expect to see firms broadening their approach to network design and expanding the network footprint through the application of a micrologistics strategy. This will not be a trivial undertaking, and it may be implemented in various ways, including partnering with a large logistics services provider, but it seems to be an inevitable result of accelerated delivery, particularly if "direct to consumer" grows as a practical channel.

Markets have clearly shifted from a manufacturer-dominated environment, where the firm decides what to make, stock and sell to a customer-dominated environment, in which the customer dictates to the manufacturer what to make, when to make, how to stock, and how to deliver the product into the hands of the customer. This evolution is a direct result of the always-on and always-connected customer who has a wealth of information available, literally in the palm of the hand, to support a purchasing decision. Such a shift in power is forcing firms to rethink, retool and reposition their supply chain strategy to ensure the capability to meet increasingly complex consumer and customer demands, maintain a competitive position, and drive profit and growth for the firm.

One strategy available for firms to adapt to such change is the micrologistics network approach, where the firm leverages a more distributed network of smaller, regionalized warehouses. This approach enables firms to position a greater variety of strategically selected product closer to the customer, resulting in benefits such as:

Improved Responsiveness - keeping the right inventory at the right nodes in the network enables inventory strategies to be more tailored to the specific profiles of a variety of customer markets. Such an approach allows firms to respond more rapidly to changes in customer preference and thus drive greater inventory planning throughout the supply chain.

Reduced Delivery Time - as customers have come to expect next-day (in some cases, same-day) delivery of products ordered through non-traditional channels, it becomes imperative that firms adopt a strategy capable of placing inventory as near the customer as possible to drive product availability while reducing delivery time.

Reduced Delivery Costs - shipping single units directly to the customer has become a common practice in the omnichannel environment, and as a consequence, there is a greater need to leverage parcel shipping to fulfill customer demand. Therefore, it becomes economically beneficial to keep inventory as close to the customer as possible to reduce the costs associated with shipping.

Improved Product Mix Management - a more dispersed series of inventory stocking locations in the network enables the manufacturing firm to leverage product–geolocation segmentation to improve the mix of products maintained in a variety of markets. This strategy helps to efficiently position the right mix in the right place and thus reduce inventory redundancies throughout the network.

Flow Path Optimization - while distance is a primary factor in fulfillment costs, other factors such as inventory levels, labor costs, and transportation mode contribute to flow path optimization. A micrologistics network introduces a greater number of potential sites from which to ship, thereby creating greater opportunities to optimize product flow from distribution center to the customer.

The Outlook

Over the next several years, expect to see firms broadening their approach to network design and expanding the network footprint through the application of a micrologistics strategy. This will not be a trivial undertaking, and it may be implemented in various ways, including partnering with a large logistics services provider, but it seems to be an inevitable result of accelerated delivery, particularly if "direct to consumer" grows as a practical channel.

Micrologistics as a Strategy for Improving Your Network