New IDC PlanScape Provides Framework for Implementing a Micrologistics Network Strategy

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The FINANCIAL —  International Data Corporation (IDC) recently predicted that 50% of manufacturers will explore the viability of micrologistics networks by 2017 to enable the promise of accelerated delivery for select products and customers.

A new PlanScape report from IDC Manufacturing Insights, Implementing A Micrologistics Network, Implementing a Micrologistics Network – The Evolution of Supply Chain Fulfillment, expands upon this prediction and provides insights for manufacturers and solution providers interested in better understanding why an investment in a micrologistics network can serve their business. The report also discusses the kinds of investments (people, process, IT) that are essential to success, who the key stakeholders critical to success are, and how to go about taking the next steps towards implementing a micrologistics network strategy.

The impact of the omni-channel revolution is being felt across every element of business today including warehousing and fulfillment strategies. This fundamental shift in the manufacturing industry can be characterized as a move from a manufacturer-dominated environment where the firm decides what to make, stock, and sell, to a customer-dominated environment in which the customer now dictates to the manufacturer what to make, when to make, how to stock, and how to deliver the product into the hands of the customer. This evolution is forcing manufacturing firms to rethink, retool, and reposition their supply chain strategy in order to ensure the capability to meet increasingly complex consumer and customer demands, maintain a competitive position, and drive profit and growth for the firm, according to IDC.

Micrologistics network refers to the expansion of the distribution network beyond the centralized distribution center (DC) model, where manufacturers leverage multiple forward inventory stocking locations, closer to the customer, enabling localized inventory segmentation strategies as well as more rapid response capabilities to customer demand. Micrologistics networks are important because they enable manufacturing firms to better position inventory (finished goods and assemble-to-order components) closer to the customer, and therefore help in reducing delivery costs, improving inventory strategy, and driving a layer of agility into the fulfillment network.  Moving inventory closer to the customer provides a variety of benefits to the manufacturing firm including:

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Improved Responsiveness – Keeping the right inventory at the right nodes in the network enable inventory strategies that can be more tailored to the specific profiles of a variety of customer markets.

Reduced Delivery Times – Rapid delivery is no longer a nice to have, it is a requirement.  Customers have come to expect next day (in some cases same day) delivery of product that they have ordered or have gone into a store and purchased (but cannot walk out with).

Reduced Delivery Costs –It becomes economically beneficial to keep inventory as close to the customer as possible so as to reduce the costs associated with shipping.

Improved Product Mix Management – A more dispersed series of inventory stocking locations in the network enables the manufacturing firm to leverage product/geography location segmentation to improve the mix of products maintained in a variety of markets.

Flowpath Optimization –The implementation of a micrologistics network introduces a greater number of potential sites from which to ship, therefore creating greater opportunities to optimize the product flow from distribution center to the customer.

IDC Manufacturing Insights asserts restructuring of the supply chain fulfillment network is a complex, capital intensive, and strategically critical undertaking. Therefore, it is imperative that any manufacturing firm considering approaching fulfillment through a micrologistics network have buy in and active participation from the top levels of executive leadership. The executive leadership must recognize and embrace the value potential of creating a wider fulfillment network based on a fundamentally altered view of the market as smaller, more distinct service areas, each with its own demand profile. In the new report, IDC outlines the key elements required to achieve the micrologistics vision:

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Start with product segmentation
A deeper level of market insight
Evaluate the fulfillment approach.
Comprehensively map out distribution and logistics network and costs
Simulate network performance
Be strategic
Collaborate internally and externally

“It is no secret that the supply chain of today is vastly different from the supply chain of the past,” said John Santagate, research manager, Supply Chain, IDC Manufacturing Insights. “The customer today has much more power in the buyer/seller relationship compared to the past, due to the abundance of information available and an increasingly competitive environment. This fact is driving manufacturing firms to identify additional sources of competitive advantage by which to better satisfy an increasingly demanding customer.”

Santagate added, “At IDC Manufacturing Insights we believe more manufacturing firms will embrace a shift from the traditional hub and spoke distribution network approach to a distribution network built around an increased number of smaller regionalized warehouses, helping to bring a greater variety of product closer to the customer.”


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