Network optimization is the computer modeling of how different transportation networks will work for your operation. They can take into account the inbound and outbound volumes of different products, shipping and rail transportation, labor analytics, and economic incentives. Network analysis will help you play out different scenarios to find optional outcomes when you have a variety of different geographies at play. These studies will help you understand if you can better serve your customers out of four distribution centers in each corner of the United States or if you just should focus on three locations between the east coast, the west coast, and Dallas or Chicago. A word of caution with network optimization studies, as the saying goes, garbage in, garbage out. Therefore, a lot of upfront time validating and standardizing data if you are to realize the actual value of the study.
A good glimpse into the insights of network optimization comes from Jim Tomkins of Tomkins International:
How do you create a network design when your sourcing is going to have a major change over the next three years?
“A year ago 90% of our stuff came from China, today 80% of our stuff comes from Vietnam and Thailand, and three years from now 90% of our stuff’s going to come from Africa. We constantly look at what will impact our network. When we start with clients, we think about who the clients are that we’re trying to satisfy, what makes those clients work really work, and what we are trying to accomplish or achieve in the long run.
We used to say, we have a men’s store, so the business is going to sell clothes to men. That used to be a good definition, but today we have to ask, what kind of men? Are they over 50 years old? Are they wealthy or are they college graduates? Are these people hip? What percent of our market is in major cities versus rural? All these things impact how the stores will work, what the fulfillment centers will look like, and the overall real estate.”