Shared warehousing and distribution can help you reduce supply chain costs significantly.
A Shared Distribution Strategy, and taking a collaborative approach to your Supply Chain, is an effective way to meet Supply Chain challenges head on.
Working as a small or medium sized enterprise can be very difficult when you have lower volume customers in sparsely populated areas. Your company needs to get orders to that customer but face challenges in ensuring the order is both timely and cost effective. These challenges are not easy to overcome and often companies must take a loss making these deliveries to keep larger contracts with the customer. While still producing returns, this Supply Chain design is not sustainable in the long term, especially with increasing competition and technological advances in the market.
Often, rural orders do not completely fill a truck; leaving capacity that if filled would decrease costs. One option is running routine orders through a less-than-truckload (LTL) company but this can be pricey. LTL companies are great for many Supply Chain solutions including special orders and if your organization does not have its own fleet. However, this service will come at a cost premium and you typically hand over control/track ability to the LTL carrier. When you have a recurring lower volume order to a customer in rural areas, there is a cheaper effective option… shared distribution.
Shared Distribution is a valuable strategy for an organization to adopt and denotes the integration of partners to create a ‘sharing model’. This sharing model will allow partners to combine Supply Chain infrastructure, assets, and technology to consolidate lower volume orders together on smaller volume routes. This combining/consolidating can help to optimize routes, reducing excess capacity, leading to cost reductions and increased sustainability in your Supply Chain. In short, you look for other organizations who are moving low volume orders to partner with to fill the excess capacity on a truck. Your organization must be confident working with the new partner, as close collaboration will partially integrate the organizations. This collaborative approach will bring mutual benefit and strengthen Supply Chain effectiveness. The opportunity is even greater when amplified over large distance.
Let’s look at a potential Supply Chain example:
India faces a difficult Supply Chain challenge, population density. With the wide spread of population, creating timely and cost effective orders to rural areas can be challenging for carriers. Population density (people per sq. km) in India was reported at 478 sq. Km ! While there are larger population beds to stage from, reaching all of the rural customers is not an easy task while remaining highly profitable.
There are more than 6 million trucks on the road as 80% of the cargo transport in India is handled by road transport. The logistic cost in India is 13- 14% of India’s GDP as oppose to 8-9% in the developed countries.
On an average A truck waste around 40% of the available space for short distance but if the truck is travelling long distance for 20 days (Due to waiting on return journey or between trips), then its times utilisation is only 66% also, if the truck is only 60% full on an average during the trip then the effective utilisation is only about 40% resulting in increased freight cost. In sharing model the freight cost can reduce by up to 50% on full load optimization and is beneficial to both the shipper and freight forwarders and can reduce significant amount of waiting time between trips.
Supply Chains face many challenges in optimally fulfilling orders across the markets they reach and challenges are only growing as Supply Chains is becoming increasingly complex. Ensuring orders are timely and cost effective is not an easy task but it is imperative for an organization to remain profitable. Naturally, in low population/volume areas, these challenges are only accentuated. A Shared Distribution Strategy and taking a collaborative approach to your Supply Chain is an effective way to meet this challenges head on.
If you are interested in learning more about Shared Distribution Strategies, looking for possible partners, or have questions, contact our supply chain experts at email@example.com or visit us at www.nwccindia.com for more details.