One of the biggest advantages of using a Third-Party Logistics (3PL) distribution network is decreasing your transportation spend by locating cargo and commodities in strategic locations based on your current customer network. By limiting the physical distance between your product and your customers, transportation costs—including drayage, LTL, truckload, and parcel—are diminished by limiting final mile fees.
A data-driven approach to analyzing physical facility locations ensures the highest level of transportation savings. This is important information when building your third-party distribution network, and there are a few considerations to bear in mind:
- Where are my customers now?
- Where will my customers be in the future?
- Who are my customers? Businesses? Consumers?
- Where are my suppliers located?
- What is my method of delivery? Parcel, LTL, truckload?
By analyzing where your customers exist today, your team can place inventory closest to high-demand regions or large customers to satisfy same-day shipping requirements or customer pickups. Forecasting future customer growth by location or by industry trends can help build your distribution network of tomorrow by locking in capacity today.
Don’t overthink the number of facilities needed to satisfy expedite shipping needs to your customers. By thoughtfully placing your inventory in a few key locations instead of dozens of facilities nationwide, you limit network complexity and increase efficiencies and your supply chain.
And what does placement mean for future customers? If your team is currently running distribution under one main distribution center, transit time from common carriers could be deterring future business and growth. The inability to deliver to your customers’ door within two business days (or less) could drive your current or future customers to purchase from providers with lower lead time.
By adding additional facilities in strategic locations nationwide, your team decreases the time it takes to ship to new potential buyers, allowing you to access new markets while lowering transportation costs to your current customers.
The bottom line
There are tens of thousands of individual third-party facilities to choose from in North America. Millions of routing options—depending on the outbound delivery method—are available to distribute products to your customers.
If your current distribution center is centrally located, two-day shipment penetration could slightly exceed 50% of your customer base.
If your DC is located on the East or West Coast, shipment coverage could dip to less than 25% of North America. This means that in either scenario, over half of your customers fall outside of the ideal range, and shipment costs for these customers can be reduced.
Moving from 25% two-day coverage to 75% can save a shipper an estimated 20% in transportation costs. Moving to 95% coverage can save an additional 10% in transportation costs. Based on placement alone, an ideal warehouse network can save your team up to 30%, on average, for customer deliveries without incurring additional handling or management costs.
Want to learn more about how to make your warehouse network dynamic? Read our latest blog on dynamic warehousing networks.