2 September 2023 Discover 7 practical tips to help you choose the best location and model for your distribution center to ensure the success of your business. Logistics managers face many challenges daily to ensure good results, performance, productivity, and business success. Among these is the choice of the ideal location for a distribution center, as well as the definition of the most appropriate operational model, crucial topics of great importance for the high performance of the supply chain. Any decision made in designing a distribution center strategy can directly influence the quality of the service offered, as well as generate great opportunities or trigger a series of errors and losses for the company. We know that the maxim “right product, at the right time, and in the right place” is at stake. Depending on where a warehouse is located and the processes implemented, additional expenses can be generated, errors and delays can occur that impact the entire company. Therefore, it is essential that the choice of installation location and type of intervention is strategically thought out to ensure consistent results. In practice, it is necessary to consider all possible successes, anticipate potential errors, seek the best solutions in property rental, calculate routes, analyze the regulations in force in each region, map processes, among other important actions, always prioritizing the history of supply chain requests. In this article, we share some tips to help you define the best model and understand the main details to pay attention to when choosing a distribution center for your company. Take a look below. Types of Distribution Channels Before knowing which characteristics to analyze, it is essential to know the types of distribution channels and verify which one best fits your business model. Identifying the strategic point and understanding how each of them works is crucial to achieving good results and high performance. Direct Distribution Channel In this model, the company operates throughout the entire process of receiving and sending orders. Therefore, the distribution center handles the entire flow, from the arrival of products at the dock, to the storage of items in the warehouse, to shipping, until delivery to the final customer, meaning there are no third-party companies (such as transport companies, for example) in the work methodology. All communication and activity flow for sending orders is carried out exclusively by the company itself, and one of the main advantages is the close and personalized relationship with the final customer, as well as greater control over productivity, marketing, sales, and reduction of order-related issues. At the same time, since there is no distribution of some tasks, the company can become overloaded, limiting its growth, satisfying a reduced demand, and having long delivery times, which can alienate customers. Indirect Distribution Channel Indirect distribution channels rely on partnerships and outsourcing with companies that do not operate directly in the DC but perform the function of sending goods, whether to wholesalers, retailers, or final customers. In this distribution model, your company is not responsible for the entire process of receiving and shipping; it relies on partnerships, so it can focus on increasing sales for different niches and companies, as all deliveries are made by carriers, in compliance with contractual particularities. Hybrid Distribution Channel This model is nothing more than the sum of direct and indirect methodologies. In this case, the entire commercial part can be carried out by the company itself and also gain partnerships, as well as outsourced distribution. A great example of a hybrid model is cosmetic brands, which have their own website and promote their products through their marketing sector, taking care of the entire relationship with the final consumer. However, sales and deliveries to the customer can be made through distributors. Understanding each of the distribution channel models is important so that your company’s logistics team can choose the ideal strategy to implement. It is important to remember that this decision must be considered in light of other vital sectors for the company, such as marketing, finance, sales, human resources, among others. How to Choose a Distribution Center? After understanding and choosing the ideal distribution channel for your DC, it’s time to evaluate some variables for its development. Below you can find 7 tips to help you, the manager, ensure better results for your business. Take a look: 1. Check Property Rental Costs Undoubtedly, one of the first criteria to consider when choosing a distribution center is the values attributed to the rental of the property. It is important to ensure that the amount allocated for rent is in line with financial planning and the spending cap for this investment; after all, it makes no sense to find the ideal location for the facilities if the acquisition costs exceed those estimated. Additionally, it is important to evaluate both fixed and variable expenses related to the property, i.e., the costs of maintaining the structure, as well as the monthly bills that keep the distribution center running. 2. Evaluate Infrastructures and Facilities After planning and defining the spending limit and budget for warehouse rental as well as monthly investments related to maintenance, it is important to verify the infrastructures and facilities of the property before concluding any contract. Ensure that the location has the ideal structure for product storage and security to ensure its integrity, evaluating ventilation, refrigeration, and fire systems. It is also important to verify if the structure offers good conditions for employees to perform their tasks. This directly impacts results, and as an example, we can mention one of our clients who, by migrating from DC, investing in an environment that offered better working conditions, saw a drop in turnover from 8% to 2%. Another point that should be analyzed with great care is the movement spaces. A great example is the yard where truck maneuvers take place. Other details that can be checked are the floors, ceiling heights, circulation space measurements for employees, machinery, and goods. All of this is important to ensure greater speed in tasks and reduce the risk of work-related injuries. 3. Consider a Strategic Location Another point of attention when choosing a distribution center is to verify its positioning in relation to your business model. For example, if your company is an e-commerce, it is important that it is located close to customers, to ensure that deliveries are made quickly, in order to meet market expectations. Now, if your company exports products, proximity to intermodal connection regions makes a difference in the results. Each business model will have a priority in choosing the location, but always pay attention to the warehouse location and routes for transporting products. Evaluate if the chosen region has a high concentration of customers, main highways, better suppliers, and expressways to mainly ensure a reduction in transportation costs. This strategy allows for speed in deliveries, cost optimization, and, of course, customer satisfaction. 4. Prioritize Regions that Concentrate Logistics Activities The good location of a distribution center, mentioned in the previous point, close to suppliers, partners, and strategic routes, is also a logistical tool because it contributes to the optimization of activities. Choosing locations that help with reverse logistics, reduce delivery times, and optimize routes not only benefits the final customer, with savings on products and shipping costs, but is also a more economical, effective, and sustainable choice. It is therefore worth investing in regions that have already established themselves as logistics hubs and offer the ideal conditions to achieve the desired efficiency. 5. Check Labor Availability After identifying the best locations in relation to the advantages for the company, also ensure that the chosen region is easily accessible for employees and has a good public transport network. If necessary, your company can also provide transportation, but it is important to study all possibilities. Additionally, ensure that the chosen location for the distribution center is close to regions that concentrate qualified labor. This avoids you, the manager, having to search for employees over long distances. 6. Analyze Security No company wants to risk external theft, right? Therefore, another essential point to pay attention to is monitoring whether the chosen location for the distribution center is sufficiently secure. A warehouse draws attention and it may happen that the poor choice of region and/or poor infrastructure of the property puts the safety of the team and stored products at risk. A tip is to talk to other companies in the region, visit other DCs in the area, and ask for information about their crime and security history. This way, you ensure the integrity of your employees and also of the company. 7. Check the Cost-Benefit Ratio Finally, after checking all the previous elements, it is time to weigh the pros and cons. With all the information at hand, it is possible to identify priorities and organize them according to the initial planning, respecting the priorities of your distribution center. Keep in mind that the closest warehouse will not always be the cheapest, nor will the farthest warehouse be the safest. This is a strategic calculation that requires patience, strategy, and clarity and must always be done focusing on costs and benefits. Improve Your Logistics In this article, we have seen that understanding the model and criteria in choosing the location of the distribution center can be decisive for a company’s success and involve a series of criteria and planning. We are sure that after following these tips, the decision-making process will be clearer and more objective. Additionally, do not forget to plan and evaluate the necessary technologies to achieve high performance from your business. Browse our site and discover all the solutions we offer to make your distribution center highly productive, economical, and safe! Distribution Center: How to Choose the Ideal Type and Location Deagor WMS per ecommerce può aiutarti!