Goods have a complex journey from their source to the end customer. It’s up to logistics networks to help ensure these goods get from Point A to Point B quickly, safely, and as cost-effective as possible.
Here’s what you need to know about logistics networks and how you can build your own.
What is a logistics network?
A logistics network is a system that moves goods from a business to the end customer. It’s vitally important that your network be fully optimized to provide the best service possible without compromising on cost too much. It will likely include the following:
- Various modes of transport (i.e. ground, air, sea)
- Distribution centers
- Forward stocking locations
- Options for consolidation of shipments
How to build your own logistics network
Here are the steps to start building your own logistics network to get your goods to consumers and businesses, no matter where they are in the world:
Step 1: Know your customer
A logistics network aims to get your customers their products as time- and cost-efficiently as possible. This means:
- Knowing where your customers are located (are they all domestic or international?).
- What do they expect in terms of shipping speed and processing time?
- Understanding your ratio of one-time vs. repeat customers.
Step 2: Know your business
What are your business goals and expectations regarding product fulfillment and delivery? You need to ensure your logistics network can handle your needs today and in the future. Future proofing your network now will save you time, cost, and headaches later as your business grows.
Ask yourself if you:
- Want to focus on fast delivery (no matter the financial or environmental cost)?
- Want to focus on environmentally friendly options?
- Plan to utilize large businesses or support local businesses?
- Need to reduce costs?
- Want to improve your customer service?
- Plan to expand into new geographic areas?
- Plan to ship new products?
Step 3: Choose your transportation options
You can work with ground transport if you support a relatively small geographic area. If you have a national or international customer base, you’ll likely want a mix of air and ground. If time is not critical, you can probably save money by adding ocean shipments to your international logistics network.
Keep in mind that:
- Air will help you reach a large geographic area faster, but often at a higher cost
- Ocean shipments will take longer to ship, but can be cheaper if you consolidate shipments
- Ground shipments are slower for larger geographic areas, but fast for hyperlocal deliveries.
- Rail is a great middle-ground for serving large geographic regions, as it’s less expensive than air but takes longer (but not as long as ground transport).
Step 4: Create distribution centers
A great way to optimize your logistics network is to establish distribution centers, so goods and services don’t have to travel as far to the end customer. During order fulfillment, you can ship goods from the closest distribution center, so customers can get their product faster than shipping it from one primary location.
Amazon does this really well. They have distribution centers in many major cities and communities, which they stock with their products. It’s one reason they can offer same-day delivery on a large inventory of products.
Step 5: Establish Forward Stocking Locations (FSL)
Forward Stocking Locations are like distribution centers, but act like backup warehouses. These are often stocked with inventory or spare parts, so they’re closer to your network partners and customers for fast delivery.
Having FSLs in various locations in your service area helps minimize downtime for part replacements for your end customers. Having out-of-service equipment can cost thousands of dollars per day (or more). By stocking FSLs (from a warehouse or rented storage facility), you can get replacement parts to your customers faster and more cost-efficiently because they’ve already cleared customs and have a shorter distance to ship to your customer.
Step 6: Plan for consolidations
An excellent way to save on shipping costs is to consolidate your shipping. Combining orders and shipments into one larger container is much cheaper than shipping individual items separately and relying on freight forwarders to consolidate based on their schedule.
This is an example of why knowing about your customers is essential. Suppose you know you have 100 customers who get a monthly shipment and all live in the same geographic area. In that case, you can predict your shipping needs ahead of time, consolidate these shipments, and send them to a central location for distribution to their final stop.
Step 7: Test your networks capabilities
Once you think you’ve set up the perfect logistics network, test it. Use a simulation model to enter your data (transportation, warehouses, labor costs, handling costs, inventory levels, and order information). You can then change the parameters to see where you can optimize your process.
For example, using a model, you might discover that you’re not profitable opening a local distribution center until you have a local, regular customer base of over 10,000 people. You might find that even though it’s cheaper to ship your orders by air freight, it adds too many costs in labor, and it’s challenging to break even.
By testing your logistics network using modeling, you can identify ways to optimize efficiency and cost without too much trial and error testing with live orders and real customers.
Combined Logistics Networks (CLN)
One of RWSolutions’ networks is the Combined Logistics Networks (CLN). They provide a reliable and secure platform for a global partnership of over 320 independent forwarders worldwide, focusing on improving cargo solutions.
Join CLN and be part of one of the world’s biggest and most established global freight forwarding networks.
Become a member + connect with us
Thinking of joining or starting a logistics network? By becoming a member of RWSolutions, you’ll gain access to eight specialized associations, exclusive events, and a worldwide network of freight forwarders! Learn more on how to become a member.