Business models are highly irreversible, they cannot be altered every day. Likewise, the basic supply chain models aligned to the business model also cannot be changed abruptly & frequently. A business model coupled with the right supply chain model forms integral part of success story and these also form key part of the Business continuity plans of organisations.
The Warehouse Network design or warehouse configurations form the building blocks of a successful supply chain model and is generally seen as either centralized (Figure 1A), wherein all products are shipped from one primary location, or decentralized (Figure 1B), a method of maintaining several smaller warehouses spread out to different areas in order to better serve different markets or stocking different products.
Each method has their own advantages and disadvantages. While Centralised warehousing rest in premises of reduced operating cost, enhanced customer service but it also faces increased shipping cost & its Lack of addressing Emergencies. Whereas Decentralised warehousing builds its premise on enhanced speed to the customer, thereby faster deliveries and some positive impact on sales, but it potentially increases the overall operating cost of supply chain.
While no single rule of storage & distribution fits all the organisations alike, the perception of decentralized warehouse setup increasing overhead and complexity, has long left companies to bring resources into a central location. Further, the recent regulatory changes like implementation of GST and improved transport infrastructure etc was tilting the action towards centralisation of warehouses.
However, Covid crisis has caught the Centralised Warehousing model off-guard for being absolutely incapable of addressing emergencies. The crisis has also resulted in recognising the warehouses as key part of the business models and warehouse workers along with the delivery and retail workers as key workers. Occurrences such as these would shift the balance of supply chain models towards decentralised warehouse system. This further gets reinforced by the fact that with the technology at helm of affairs and the rise of robust data collection and integration tools, the perceived challenges associated with warehouse decentralisation are almost eliminated. This shall give organizations an opportunity to rethink their supply chain network and include the spreading out of their inventories to a decentralised network in a strategic way.
Further, as the events unfold, the structure of the distribution model is likely to change further as the buying behaviours of the consumers is changing due to host of factors including technology, ecommerce and now Covid19. In the emerging context, it would not be unfair to say that you may have the best product in the world, but if you can’t seamlessly distribute it to consumers, you’re already behind. So, it will be more important for brands to be in time to reach the consumer rather than being cheap. Delay in reaching your product to the customer does not remain only about lost profitability but will be defining business sustainability. Customers would certainly be at crossroad to think and decide between efficiency and effectiveness or an optimum balance thereof. This also means that the fulfilment along with the Last-mile delivery will become the battleground for retailers and brands alike. Someone who is optimally spread out may win the battle!
This article is contributed by Mr Mansingh Jaswal, A corporate executive turned Serial Entrepreneur & an Angel Investor, with over 20+ years of experience in Supply Chain, Logistics, Transportation and International Freight and a Research Scholar in Strategy at Management Development Institute (MDI), Gurgaon.