Optimisation of warehouse management in a fulfilment centre

Growth outstripping warehouse maturity?

  • From backlogs to SLA achievement & customer satisfaction


Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​



Supply Chain Network Design


Supply chain network design is one of the most exciting and complex fields of supply chain management. Its various possibilities arise from site selection; the optimization of transport routes and modes; the dovetailing with production, customers and suppliers; and the many new opportunities offered by digitalisation. A cost-effective network that meets growing customer demands is increasingly determining a company's success in the marketplace. The German automotive industry, Amazon, Zalando, and others are showing the way – strategic supply chain planning of inbound logistics and distribution networks can decide competitions. In this context, we shed light on questions such as:

  • Why does supply chain network design sometimes fail?
  • What is the right approach?
  • What is an example of the right approach and the potential added value?
  • What role does digitalisation play?
  • What influence do a changing world and today's challenges have?

If you are interested in ways to further improve your supply chain network design, you may find some suggestions or thoughts below that will help you with your project.



Common causes for the failure of supply chain network design


If all COO's and supply chain managers optimise their supply chain network in terms of customer satisfaction and costs, why do we observe such differences between competitors and industries? Lack of incentivisation can only rarely be identified as a driver for these competitive differences in strategic supply chain planning. On the contrary, most COO's and supply chain decision makers directly account for these goals through KPIs or defined milestones in their work contracts or annual goals.

When you think about your vision, what are your goals regarding your supply chain network? Like many other decision makers, do you have in mind a high level of service to customers and production sites, a reduction in costs, or perhaps successfully implemented improvement initiatives?

What are the most common reasons for unrealised potential and unmet goals?

  • Prioritised resources: Combining day-to-day operations with a multitude of implementation projects and strategic supply chain planning initiatives often overwhelms the organisation and individual employees - focus and efficiency thus remain unachieved. Sometimes, managing day-to-day operations alone demands everything from one department, preventing any focused improvement of the network
  • Complexity: Growing and multifaceted requirements usually have to be reconciled with different goals and dependencies in the supply chain network, ranging from supplier management and inbound logistics to the last mile distribution network. Beyond these variables, there are many others that together can make supply chain network design a complex challenge. The risk of making and being responsible for wrong decisions increases and paralyses many organisations
  • Database & Systems: The data, systems, and tools used do not mesh and make it difficult to control or leverage efficiency opportunities along the supply chain network
  • Integration and penetration: Coordination with adjacent functions and alignment along a clearly defined supply chain strategy is often not given and initiatives get bogged down in political disputes.

Do you, like many supply chain decision makers, also know these frustrations? As a specialist we support you in optimizing your supply chain network design. Together we ensure a successful implementation and help to sustainably embed strategic supply chain planning in your organisation.



Supply chain network design in 3 steps


Many companies in similar positions of frustration try to turn the tide with actionism, overambitious project plans, and, especially, software implementations. Mostly with limited success. How are the already overburdened resources suddenly supposed to find the capacity to seek and implement the best solutions? There is often a lack of time, know-how, and decision-making power.

As unique as the challenge is, as unique is each solution - successful implementations almost always follow 3 phases, which is why our proven approach is also divided into 3 steps. The key to success throughout all the steps is the close involvement of the organisation. Company-specific knowledge has to be integrated and transferred into working solutions together with the relevant teams in order to implement the improvements sustainably.


Step 1)

Have you ever observed that during a project, when asked, project members could not immediately, fully, and unambiguously state the project’s goals and most critical requirements? If not, try asking! In many cases, this is due to the aforementioned thematic complexity, a lack of project alignment, or a lack of project communication. In order to set up a successful strategic supply chain planning initiative, it is crucial in the first step to jointly record and prioritise the goals and requirements of your supply chain network and to map out the dependencies. Service levels, delivery times, capacities, response times, customer service, and supply chain costs per unit are just a few possible target criteria.

Clearly defined objectives, understood by the team and taken into account at all times, are essential for the successful alignment of the supply chain. Based on an analysis of your supply chain data and supplier contracts, and especially through interviews with the relevant stakeholders, pain points are identified and improvement opportunities are developed. Based on the objectives and the status quo, we jointly define the improvement initiatives and the implementation procedure in the project strategy. The cost-benefit analysis for each initiative helps you to target the initiatives with the highest value contribution.


Step 2)

The next step is to implement the agreed improvement initiatives. Typical project topics are:

  • Site selection: Placing, changing, or outsourcing warehouse locations
  • Collaboration with freight and transport suppliers
  • Transport routes and alternatives
  • Governance and risk management

We work closely with your teams in a supporting or leading capacity to jointly develop the best concepts and implementation options and present them to you for an implementation decision. Comprehensible, reliable data and calculations form the basis for decision-making. In supply chain network design projects, an agile project approach and the involvement of all relevant stakeholders ensure that implementable and quickly functioning solutions are achieved.


Step 3)

In the third step of implementation, we help you to ensure that the concepts, improvements, and supplier solutions developed are successfully implemented and traceably incorporated into the key performance indicators and P&Ls. During the initial implementation period, it is especially important to ensure that the initiative is firmly embedded and becomes part of an organisation's automated processes through governance and follow-up. During the implementation process, we take into account the additional workload of your organisation and the need to ensure uninterrupted day-to-day business.

The lack of standardised processes and far-reaching interrelationships with other areas, suppliers, and customer platforms present companies with a major challenge when it comes to digitalising the supply chain network – especially deciding upon the focus of digitalisation and successfully selecting and implementing the most suitable tools for the most critical requirements.

Client situation: Particularly in B2C online retail with an international supply chain network, the digitalisation options are diverse and the provider market for software solutions can be confusing. The company receives large consignments of goods, both nationally and internationally, and assembles them in its own fulfillment centers into the customer orders, placed online. For customer shipments, various external 3PLdistribution networks are used for end-customer delivery. Transportation between the manufacturers and the FCs as well as between the FCs and distribution centers of the 3PLs is partly organised by the company itself and partly by third parties. To improve customer service, parcel tracking is to be integrated into the customer portal and the in-house control of logistics and transport commissioning is to be examined for the potential for optimisation through digitalisation. 

Project solution: Based on a review of all supply chain network processes with the various departments of the customer, optimisation opportunities were jointly identified and potential solutions were developed. The potential solutions were prioritised and embedded in a holistic digitalisation concept. The goals of the project were to improve customer service and optimise internal processes. The measures defined were:

  • With the goal of increasing customer satisfaction: the introduction of parcel tracking; the customer selection of the carrier and shipping service levels (overnight, express, standard).
  • With the goal of process and cost efficiency: the introduction of a truck management system including routing, FC slot booking, and order and dispatching function, as well as a strategic transport sourcing tool

In an agile led project, starting with a small scale proof of concept, the digital solutions were successfully implemented and deployed over a period of 6 months.

Starting with the most critical requirements and a quick market RFI, the most promising solutions were directly tested and selected based on their actual added value. Rather than according to very detailed pre-specification testing as in many classic IT projects, the agile approach was able to achieve rapid results based on the added value identified in the PoC. In addition to improving customer service, the project was able to deliver significant process cost savings as well as double-digit percentage procurement savings.

In most cases, companies already have an existing supply chain network. The situation differs from a ‘new-build' supply chain project in that existing restrictions and transformation costs must be taken into account. Often companies make these considerations when there is duplication of coverage between two existing networks in the same sales territory, for example due to a company acquisition. We also recommend a review if there is significant change to customer behavior, volumes, or the products themselves.

Client situation: The acquisition of a competitor resulted in almost 100 percent coverage between the two wholesale networks in the main sales market. Both companies operated their own wholesale warehouses and transport networks, and supplied an overlapping customer base. As part of the company integration, the supply chain network design had to be optimised in terms of warehouse locations, the inbound logistics, and in the context of the last mile distribution network. The complexity resulted primarily from the non-convergent product ranges, warehouse capacity restrictions, and non-convergent intersections of the catchment areas of the individual warehouses or sales regions. In the initial situation, inventories were duplicated, unnecessarily long transport routes were taken to deliver to customers, and last mile delivery tours were made, in some cases with a lower capacity utilisation than was necessary. The synergies promised by the company acquisition still had to be leveraged.

Project solution approach: Based on a reverse supply chain re-design, uniform sales and supply affiliations of all customers were first brought together according to logistical accessibility. Here, delivery time restrictions, the available road network, and the inventory warehouse locations formed the decisive restrictions. Based on these newly established regions, some warehouse locations were merged, some new warehouse locations were put in place, and some new warehousing facilities were added. Warehouse capacities, location costs, relocation costs, as well as the resulting transportation costs through the last mile distribution network, which were simulated with route optimisation software, were used to make this decision.

Since the costs of the network were significantly driven by the last mile distribution network, this reverse engineering approach led to the holistic optimisation of the network costs and a cost-optimal distribution network through the early inclusion of cost-optimal transport routes in combination with the warehouse location analysis.

Many companies have software to digitalise their processes but fail to use it properly. Inefficient work processes, methods, skills, and data availability are often the reason why the existing optimisation software cannot be used to its full potential.

Client situation: The best optimisation software is worthless without the right work processes, process methodology, and reliable data. How data is provided, via which interfaces and who then maintains the data are often unanswered questions. In addition, optimisation cannot achieve the desired results due to faulty or non-existent methods and processes. Optimisation tools, that can be very costly, fail to reach their full potential. Not realising an assumed benefit and on top of that paying software license costs is both frustrating and a missed opportunity for value creation.

Project solution approach: In the first step, as the basis for sustainable optimisation, the prerequisites for a permanently updated data basis including the associated recording and evaluation processes were created. For this purpose, all existing data sources and systems were examined and the current processes were analysed in interaction with the existing IT systems. Based on the target requirements for the data and the existing IT requirements, data processes were adapted and a data target framework was defined. The new data processes were implemented in the existing IT systems and the employees involved were then trained in their use.

As a second step, a process methodology was developed with the client that maximised the cost and service potential with the available resources. In this example, a new methodology for route optimisation was developed by incorporating a service level matrix and the probability of daily customer arrival. It was then rolled out through a pre-defined coordination process in cooperation with the sales department. The savings achieved from these measures reached a double-digit percentage due to optimised routes, arrival times, and approaching frequencies to individual customers.

These and other examples show how companies are improving their supply chain network design and embedding this progress for the long term through focused collaboration between internal teams and experts. Leading companies are working hard to evolve their supply chain network design to respond to change and innovation – take advantage of this time to take this step for your business.



Changes and contemporary challenges to supply chain networks


The three most significant challenges to a supply chain network are:

  • Responding to rapidly and constantly changing supply and sales markets
  • Ensuring information and control sovereignty over an increasingly complex supply chain network often outsourced to partners
  • Further optimisation of costs through interaction between procurement (prices & conditions) and supply chain optimisation (capacity utilisation and process efficiency)

Supply chain networks have changed significantly in recent years. Supply and sales chains span the entire globe. Transport routes have become more frequent and more numerous. Means of transport by sea, rail, and air have evolved technologically. Supply chains have increasingly become a coordinated interplay of experts. Freight brokerage exchanges, for example, are working to better utilise container capacities at sea, or customs handling experts are taking care of customs and import administration, especially for special goods. The change brought about by outsourcing, technological innovations, and, above all, digitalisation is in full swing and far from complete. In addition, the next massive challenge is already on our doorstep in the form of climate change.

Companies that are unable to respond quickly to these changes and take advantage of the opportunities offered by digitalisation will lose out to the competition in terms of customer service and cost efficiency, thus forfeiting valuable revenue and margin. Going down this path half-heartedly and starting at a point where the supply chain has increased in complexity and dependency on partners but control and mitigating alternatives have not grown along with it is dangerous – there is a risk of supply chain collapse or a drastic increase in costs. The opposite is true for companies that continuously improve their supply chain network.

For example, we were able to help customers select and roll out suitable route optimisation software to make the management and governance of the outsourced last mile distribution network more efficient. This enabled better utilisation of transport capacities, cost reductions, and, in the next step, the introduction of delivery transparency and scheduling. Total transport costs were reduced by 15% and network management and control improved.

In another case, various digital solutions along the supply chain network were consolidated into one transport management system. This significantly increased transparency, improved capacity utilisation, reduced resource costs by simplifying processes, and massively lowered transport costs by digitally allocating peak demand in the transport market.


Conclusion on supply chain network design


Companies that want to continue to gain competitive advantage through their supply chain network design must be able to respond to changes in demand, requirements, and technology. The 3 most important characteristics are:

  1. Flexibility and quick adaptability of the supply chain network to customer needs and market circumstances
  2. Cost-benefit added value considerations & optimisation of the individual components of the network service offering
  3. Transparency & meaningful analyses as a basis for decision-making as well as for action along the supply chain networks

Successfully implemented improvements of the supply chain network achieve a high ROI through improved customer satisfaction, better utilisation of resources and capacities, and often significant cost savings. Especially in logistics-heavy industries, these improvements significantly contribute to the company's bottom line.

OCM offers you support in the analysis and evaluation as well as the realisation and implementation of your supply chain network design.

Frequent project modules also carried out in this context of strategic supply chain planning – for inbound logistics as well as distribution networks - are:

  • Tendering of transport, freight, and 3PL services
  • Route and transport optimisation as well as implementation of the corresponding software
  • Process optimisation and digitalisation with selection & implementation of supply chain management software such as freight & truck management tools, transport management systems (TMS), parcel & freight tracking systems, and integration of own TMS to carrier information systems

Additional modules can be found in our comprehensive Supply Chain & Logistics product offering.

We combine our proven approach to supply chain network design with the other areas of supply chain operations and digitalisation. We would be happy to present our approach and modules to you or discuss concrete solutions based on your individual challenges.


Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​



Our project modules at a glance:

Logistics optimisation & Supply Chain Consulting modules

Case Studies