Study: Recession spurred distribution network redesigns

A redesign of a company's distribution network might not seem like a high priority during a severe recession. But recent research by Saddle Creek Corp., a third-party logistics service provider (3PL), and DC Velocity, found that many companies modified their networks as a result of the downturn.

The research showed that two-thirds of the survey's 265 respondents had made changes to their distribution network design due to the recession. Transportation-related changes topped the list, followed by shifts in warehouse size or configuration and consolidation of shipments from suppliers. One-quarter of the respondents said they began or accelerated consolidation efforts in their networks during the downturn.

Slightly more than 30 percent of the respondents said they made no significant changes to their networks in response to economic conditions. That includes slightly more than half of the retailers polled in the survey, who said they essentially stood pat.

The biggest companies in the sample—those with more than $2.5 billion in annual sales—were most likely to move distribution nodes (22.6 percent) or make changes to warehouse size or configuration (45.2 percent).

While half of the mid-sized companies—those with between $500 million and $1 billion in revenue—said they made changes to their existing facilities, 62.5 percent of that group said they made shifts related to transportation—a far larger percentage than any other segment in the survey.

Changes in transportation management, which does not involve fixed assets, may be the easiest and quickest to implement and bear fruit. One key change was more effective lease renegotiations. Several respondents said they took advantage of low real estate costs to expand operations.

One respondent from the manufacturing sector told Saddle Creek, "We have worked to better manage our inventory levels and have been able to reduce the amount of inventory we carry and still meet customer needs. As a result, we have been able to reduce DC space, which has been a cost savings to the company."

Managers are demanding more from their 3PLs as well. Saddle Creek reports that more than half of all companies that outsource say they have asked for new things from their warehousing service providers, including cost reductions, real-time tracking, statistical data, and advance shipment notices.

Changes in distribution networks are likely to continue as the economy recovers: 44.8 percent of the respondents expect to make further changes to their networks over the next 12 to 18 months, with cost controls the main objective.

To see the complete results, go to www.saddlecrk.com/dist.