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Rise of Mega Distribution Centers and its impact on Logistics

Factors driving the emergence of Mega Distribution Centers

A modern supply chain facility has no leeway to miss out on paying close attention to all the different elements in order to stay competitive and reap benefits. Companies may have to rethink and replan their strategies for designing their inbound (Raw Material – RM) and outbound (Finished Goods –  FG) in their Distribution Centers to stay nimble but yet be in a position to respond to black swan events a la corona virus – COVID 19. On the one hand, companies have far too long focussed on Just in Time (JIT) principle of managing their inventory, they will now, on the other hand, be forced to devise strategies to be able to bear short to medium term shocks that would impair their supply chain security.

Companies must be wiser after every calamity and should put robust infrastructure and processes in place to deal with shocks.  As the legendary business leader Jack Welch said, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” It is therefore important for businesses to be ahead of the curve when it comes to business strategies. Mega Distribution Centers with commensurate logistics are a class that belongs to those businesses being ahead of the curve.

Logistics and Infrastructure

While designing the best fit solution for Mega Distribution Centers, logistics and its related infrastructure form a critical pillar in the structure. The task of distribution with matching logistics could be simplified to mean products having to move from point A to point B which is the right location in the most efficient way. This again means it needs to be transported to the right location, at the right time, in the right condition, for the right price. Distribution centers should be designed with a focus on meeting all the objectives mentioned just now.

According to a research paper on Mega DCs “Factors determining distribution structure decisions in logistics” authored by Alexader T C Onstein, et al, we come across different structures as shown in figure below:

“Decentralised” distribution structures include multiple DC locations in a so-called multiechelon system (layout 4 &6 in the above image).  A “multi-country system” includes an international DC and a number of regional or local DCs.

It is evident that the nature of distribution that a business opts will drive the logistics and transportation infrastructure to meet its demands.

It is imperative for companies to drive efficiencies by digging deeper into the levers to work on, to gain advantage. Ideally an analytics approach will be needed to decide about determining these levers. Many businesses have identified it would be cost effective to have fewer larger facilities than multiple smaller ones.

Even in these Mega DCs, one should de-risk the operations from many external angles that may hamper operations in unforeseen exigencies such as fire, snow, etc. Therefore, a campus style approach where a Mega Distribution Centers could be one with a cluster of a few medium-sized buildings that total the typical area to qualify to be a Mega DC. These buildings could safely be separated by roads for mitigating the effects of fire. Of course, it is important to run a cost benefit analysis from all angles, initial investment, operational expenses and such. Operational expenses could offset the benefit of a cluster of buildings making up a Mega DC as the material handling and automation systems may add to unreasonable cost. *

What Goes into a Mega Distribution Center

Mega distribution Center, by its very nature is the Mothership and should satisfy a variety of needs. Therefore, it is a multifaceted and multitasking entity that is designed to perform end-to-end logistics demand for any business. It should have the following attributes:

  1. A large facility typically of an area around 400,000 Sq.ft. would qualify as a mega DC.
  2. Designed to suit large inbound and outbound traffic at high throughput
  3. Have very good locational advantage and be capable of handling heavy truck traffic continuously
  4. Must lend itself well to be connected to mini and mega markets to meet the demands. This will in turn make the mega DC a viable proposition
  5. Fully automated material handling system, storage and retrieval system linked with business ERP system on a real-time basis

All the above attributes will essentially mean having multiple subsystems that handle material movement within the premises in a seamlessly integrated manner.

Technology and Solutions to be built into a Mega DC

Mega DCs normally operate 24*7 and hence are ideal candidates for automation due to the continuity of service and running multiple tasks simultaneously for meeting high volume of operations.

A good approach would be to break the domains down to:

  • Business need in general
  • Structure of the mega DC – Does it serve as a Mother DC feeding cross-dock DCs to serve the needs of a mini distribution centre
  • Transportation
  • Geography – Locational aspects

Technology and automated material handling solutions are commonplace these days. They help in meeting all the demands – ease of operation, higher productivity per person deployed, unparalleled operational safety and the consistently very high throughputs and accuracy. A carefully designed combination of infrastructure, automated material handling solutions and location will deliver a good value proposition to a business in smart supply chains.

It is precisely in these areas Addverb Technologies, with its domain expertise of both technology and business processes will provide a full bouquet of products and solutions to meet the digitization program of a business to modernise its warehouses and supply chains.

Adoption of technology will result in operational improvements of a warehouse, but the key differentiator is in choosing technology wisely, and here Addverb’s portfolio comes with a promise of delivering results beyond compare.