How Network Optimisation Can Drive Cost Reduction

October 19, 2024

How Network Optimisation Can Drive Cost Reduction for Australian Businesses

In the competitive landscape of Australian supply chains, businesses are increasingly looking for ways to reduce costs while maintaining high levels of service. Warehouse network optimisation is one of the most effective strategies to achieve these goals. By strategically aligning warehouse locations, inventory levels, and transportation routes, companies can achieve significant cost savings, improve efficiency, and enhance customer satisfaction.

In this comprehensive article, we will explore the various ways in which network optimisation can drive cost reduction for Australian businesses, the key strategies for optimising warehouse networks, and how businesses can leverage technology to support this process.

What is Warehouse Network Optimisation?

Warehouse network optimisation involves improving the design and operation of a network of warehouses to reduce costs, improve service levels, and achieve overall efficiency. This process includes determining the optimal number and location of warehouses, managing inventory distribution, and optimising transportation routes to minimise expenses while meeting customer expectations.

The benefits of warehouse network optimisation include:

Reduced Operational Costs: By strategically locating warehouses, companies can minimise transportation costs and improve efficiency.
Enhanced Service Levels: Placing warehouses closer to key markets and customer locations enables faster delivery times and improved service levels.
Improved Scalability: An optimised warehouse network provides the flexibility to adapt to changing market demands and business growth.

Key Strategies for Network Optimisation

1. Site Selection and Warehouse Placement

The location of warehouses is one of the most critical aspects of network optimisation. By strategically selecting warehouse sites, businesses can reduce transportation costs, shorten delivery times, and improve service levels.

Factors to Consider in Site Selection

Proximity to Customers: Placing warehouses closer to customers helps improve service levels and reduces lead times, which is particularly important in the retail and fast-moving consumer goods (FMCG) sectors.
Access to Transport Networks: Warehouses should be strategically located with easy access to highways, ports, railroads, and airports. This helps in reducing transport costs and ensures quick and reliable movement of goods.
Labour Availability and Cost: Labour is a significant factor in warehouse operations. Site selection should consider the availability of a skilled workforce and the prevailing wage rates to optimise labour costs.
Regulatory Considerations: Understanding zoning laws, building regulations, and local compliance requirements is essential when selecting a warehouse site to avoid potential legal challenges.

2. Centralised vs. Decentralised Network Design

Choosing between a centralised or decentralised warehouse network can have a substantial impact on costs, efficiency, and customer service. Each approach has its own advantages and considerations.

Centralised Network: Centralised networks typically involve fewer, larger warehouses that cater to a broad geographical area. This approach benefits from economies of scale, reduced inventory costs, and simplified management. However, transportation distances may increase, impacting delivery times.
Decentralised Network: Decentralised networks consist of multiple smaller warehouses distributed across different regions. While this can lead to increased storage and operational costs, it allows businesses to offer faster delivery times and respond better to regional market needs.

The optimal approach depends on factors such as product type, market demand, and service expectations.

3. Inventory Allocation and Balancing

An effective warehouse network relies on optimising inventory levels across all locations. Proper inventory allocation ensures that the right products are available in the right quantities at the right locations. This helps in minimising both stockouts and excess inventory, ultimately improving customer satisfaction and reducing costs.

Techniques for Inventory Allocation

ABC Analysis: ABC analysis categorises products based on their value and demand frequency. High-value, high-demand items (A-items) are often positioned in warehouses closer to customers to reduce lead times, while lower-value items can be stored in central warehouses.
Safety Stock Optimisation: Maintaining appropriate safety stock levels is essential to prevent stockouts, especially during periods of high demand or supply chain disruptions.
Demand Forecasting and Data Analytics: Using data analytics and forecasting tools helps predict customer demand, enabling better decision-making regarding inventory placement and replenishment.

4. Leveraging Technology for Network Optimisation

Technology plays a key role in optimising warehouse networks. From warehouse management systems (WMS) to data analytics and machine learning, technology helps businesses make informed decisions and maximise efficiency.

Warehouse Management Systems (WMS): A WMS helps in managing inventory, tracking product movement, and ensuring the efficient use of storage space. A robust WMS is critical for optimising warehouse operations and maintaining accurate inventory levels.
Network Optimisation Software: Network modelling and optimisation tools allow businesses to visualise their current warehouse network and simulate various scenarios. These tools help in identifying the best warehouse locations and inventory allocation strategies.
Data Analytics and Artificial Intelligence (AI): AI and data analytics can be used to forecast demand patterns, identify bottlenecks, and provide insights into improving warehouse network performance.

5. Transportation and Route Optimisation

Transportation costs represent a major portion of overall logistics expenses. By optimising transportation routes and warehouse network design, businesses can achieve significant cost savings and improved efficiency.

Consolidated Shipments: Consolidating shipments from multiple warehouses into fewer, larger shipments can reduce transportation costs.
Dynamic Route Planning: Utilising dynamic route planning tools helps optimise delivery routes based on real-time traffic data, vehicle availability, and delivery requirements, ensuring timely and cost-effective deliveries.

Benefits of Warehouse Network Optimisation

1. Cost Savings

Warehouse network optimisation can lead to substantial cost savings in several areas:

Reduced Inventory Costs: By optimising inventory placement and maintaining appropriate safety stock levels, businesses can reduce excess inventory and associated holding costs.
Lower Transportation Costs: Strategically located warehouses help reduce transportation distances and related costs, particularly for high-volume, low-margin products.
Consolidated Operations: Consolidating warehouse facilities where feasible can reduce operational costs, including labour, energy, and overheads.

2. Improved Service Levels

Optimising the warehouse network can help businesses enhance their service levels, resulting in higher customer satisfaction and loyalty:

Reduced Delivery Times: Strategically placed warehouses allow for faster delivery times, especially for time-sensitive products.
Enhanced Responsiveness: Decentralised networks, in particular, offer increased responsiveness to changing regional market demands, helping businesses meet customer expectations effectively.

3. Scalability and Flexibility

A well-optimised warehouse network provides flexibility to adapt to market fluctuations, expansion, and new business opportunities. For example:

Scalable Growth: Businesses can add or remove warehouses based on market demand, ensuring a scalable supply chain.
Seasonal Demand Management: The ability to scale warehouse operations up or down helps businesses manage peak demand periods effectively, without impacting customer service levels.

4. Reduced Carbon Footprint

Sustainable practices are becoming increasingly important for businesses across Australia. Optimising the warehouse network helps in reducing carbon emissions by minimising transportation distances and improving resource efficiency. Placing warehouses closer to key markets reduces the need for long-distance trucking, contributing to a lower carbon footprint.

Steps to Achieve Warehouse Network Optimisation

1. Data Collection and Analysis

The first step in network optimisation is to collect detailed data on current warehouse locations, inventory levels, transportation routes, customer demand, and operational costs. This data provides the foundation for analysing current network performance and identifying areas for improvement.

2. Define Business Objectives

Clearly defining business objectives is crucial in guiding the network optimisation process. Common objectives include reducing costs, improving service levels, enhancing scalability, and minimising environmental impact. These objectives help determine the best strategies for optimising the warehouse network.

3. Conduct Network Modelling

Network modelling tools are used to create simulations of different warehouse network configurations. By modelling various scenarios, businesses can evaluate the impact of different strategies on cost, efficiency, and customer service. This helps in identifying the optimal network configuration that aligns with business goals.

4. Implement and Monitor

Once a new warehouse network configuration is selected, it is crucial to implement the changes effectively. This may involve consolidating facilities, relocating warehouses, or adjusting inventory allocation. Continuous monitoring is essential to ensure that the optimised network is performing as expected and delivering the desired benefits.

Case Study: Warehouse Network Optimisation for an Australian FMCG Company

An Australian FMCG company faced challenges related to increasing transportation costs and long delivery lead times, particularly in regional areas. The company embarked on a warehouse network optimisation project to address these issues.

Approach

Data Analysis: The company analysed sales data, customer locations, transportation costs, and existing warehouse operations to understand the current network's shortcomings.
Site Relocation: The analysis identified that relocating one of the central warehouses to a more strategically beneficial location would reduce lead times for regional customers.
Inventory Reallocation: Using ABC analysis, high-demand products were moved closer to customer regions, while slower-moving products were centralised.

Results

Reduced Transportation Costs: By relocating the warehouse, the company reduced overall transportation costs by 15%.
Improved Delivery Times: Lead times for regional customers were reduced by an average of 20%, significantly improving service levels.
Enhanced Efficiency: Inventory reallocation helped streamline order fulfilment processes and improve the accuracy of deliveries.

Challenges in Warehouse Network Optimisation

1. Managing Complexity

Warehouse network optimisation can be complex, especially for large organisations with numerous facilities and product lines. Balancing inventory levels, managing different customer service expectations, and navigating regulatory requirements can make the process challenging.

2. Initial Investment Costs

Optimising a warehouse network may require significant initial investment, particularly if it involves relocating warehouses or implementing new technology solutions. However, the long-term cost savings and efficiency gains often outweigh these initial costs.

3. Change Management

Implementing changes in the warehouse network can be disruptive to day-to-day operations. Proper planning and change management strategies are necessary to ensure a smooth transition and minimise operational disruptions.

4. Data Accuracy

The success of network optimisation depends heavily on the quality of data. Inaccurate or outdated data can lead to suboptimal decisions and ineffective changes. Investing in accurate data collection and management systems is crucial.

Warehouse network optimisation is a powerful tool for improving efficiency, reducing costs, and enhancing customer service levels. By strategically selecting warehouse locations, optimising inventory allocation, and leveraging technology, Australian businesses can create a robust warehouse network that supports their business objectives and enhances competitiveness.

Whether it’s a centralised or decentralised network, understanding the unique needs of the business and using the right optimisation tools and techniques can make a significant difference in operational performance. As the supply chain landscape continues to evolve, warehouse network optimisation remains an essential strategy for ensuring scalability, flexibility, and long-term success.

Ready to optimise your warehouse network and achieve operational excellence? Trace Consultants is here to help you navigate the complexities of warehouse network design and create an efficient, scalable solution tailored to your needs.

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Related Insights

Strategy & Design

Australia's Emergency Response Capability and Preparedness

Enhancing Australia's Emergency Response Capability and Preparedness: Emergency Supply Chain Design and Strategy

When nature's fury or unforeseen calamities strike, Australia's frontline responders - spanning fire emergency services, ambulance teams, police forces, the national emergency management agency, and more - are fortified not merely by their unparalleled dedication but also by an intricately crafted supply chain strategy.

This backbone of preparedness ensures that our capability is never found wanting. This article examines the facets of supply chain management that elevate our nation's emergency responsiveness.

In-depth Supply Chain Network Planning: Building Robust Capability

At the nexus of rapid response lies a thoroughly envisioned supply chain network:

Strategic Warehouse Locations: Using a blend of past emergency data, GIS, and input from fire emergency and ambulance services, distribution centres are judiciously placed to ensure swift accessibility.
Transportation Intelligence: Alongside understanding primary routes, collaborations with police services ensure real-time monitoring of transportation arteries, allowing proactive movement of supplies even before disasters escalate.

Inventory Management: Enhancing Preparedness Precision

Inventory management's true essence shines in its ability to predict and provide:

Critical Item Definition: In liaison with organisations like the national emergency management agency, items are ranked by their significance, ensuring each unit, from fire brigades to ambulance teams, has what they need.
Advanced Stock Monitoring: Today's AI-integrated systems, backed by insights from various emergency services, offer real-time stock assessments, guaranteeing that critical supplies are ever-ready.
Streamlined Supplier Arrangements: Fast-track contracts and digital procurement interfaces ensure that replenishment is seamless, meeting the ever-evolving needs of emergency services.
Pre-positioning Inventory: Strategic foresight, informed by data and ground reports from services like fire emergency units, results in adaptive stockpiling based on potential disaster zones.

Warehouse Design: Powering Organizational Responsiveness

Modern warehousing transcends mere storage:

Disaster-centric Segmentation: Collaborative insights from police, ambulance, and fire services ensure dedicated zones within warehouses, expediting supply deployment.
Dynamic Layouts: Seasonal predictions and feedback from frontline units guide adaptive warehousing layouts, ensuring supplies are dispatched with unmatched speed.

Network Planning & Design: Crafting Unrivalled Agility into Response

Network design is the cornerstone of heightened capability and preparedness:

Data Integration: Collating inputs from traffic units, weather stations, historical patterns, and frontline feedback provides an overarching perspective.
Adaptive Resource Allocation: Proactive resource positioning, based on shared intelligence from emergency units, ensures services in potential crisis areas are well-equipped.
Continuous Iterative Learning: Reviews and debriefs from all emergency services continuously feed into the network strategy, refining our preparedness blueprint.

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The Immeasurable Role of Supply Chain Expertise

Amidst the technology and data, the nuanced expertise of supply chain professionals bridges the gap between logistical strategy and on-ground reality. Their intricate understanding of how each emergency service operates ensures that supply chains are tailored, responsive, and adaptive.

Unified Action: The Pinnacle of Collective Strength

Emergencies demand more than individual brilliance; they require synchronized, coordinated responses. By fostering unity among fire emergency services, ambulance teams, police units, and agencies like the national emergency management body, we ensure a harmonized, collective, and potent response. Shared databases, inter-agency drills, and cohesive communication platforms underline our unified resolve.

Across Australia's vast expanse, with its unique challenges and diverse emergency scenarios, stands a robust supply chain strategy, elevating our capability and preparedness. It epitomizes our collective commitment to safeguard every citizen, ensuring that in the face of adversity, Australia stands resilient, unified, and always prepared.

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Strategy & Design

October 16, 2023

Supply Chain Visibility

2023 and we are still seeking visibility in supply chains

Unlocking End-to-End Supply Chain Visibility for ANZ Executives

Visibility remains a pivotal aim for supply chain professionals across Australia and New Zealand. The merits, ranging from cost reduction to customer satisfaction enhancement, have been extensively highlighted. So, what impediments are businesses encountering on their journey to achieve full visibility? Here are three prominent reasons:

Incomplete Implementations: Many aim for comprehensive visibility while designing new supply chain processes. However, real-world challenges, such as budget constraints or shifting priorities, lead to only partial solutions being executed. This often leaves teams grappling with less-than-ideal systems.
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Prohibitive Integration Costs: It's not uncommon to witness projects where integration expenses – be it among ERP systems, supplier platforms, financial tools, or reporting instruments – skyrocket. This becomes a formidable barrier, making visibility an expensive endeavour.
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Fragmented Systems with Siloed Reporting: ERPs might trace inventory up to a point. But, once the inventory moves – say to a warehouse, branch, or vehicle – that traceability diminishes. The item, though dispatched, is no longer under systematic surveillance.

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Yet, the landscape is not devoid of practical solutions. For instance, a food and beverage client, striving to amplify supplier performance and enhance DIFOT metrics, sought a system to monitor supplier efficacy. While a comprehensive ERP deployment was on the horizon, they needed an immediate remedy. We, at trace, employed the Microsoft PowerApps suite to craft a tool for their Loading Dock personnel. This tool not only pinpointed delivery discrepancies but also integrated seamlessly with existing systems, presenting real-time supplier performance insights.

Harnessing Pragmatic Solutions with trace

The case mentioned above epitomises how immediate, tactical solutions can fulfil the supply chain vision of unhindered visibility. At trace, our seasoned professionals assist ANZ clients, offering tools and strategies tailored to unique challenges. Rapid benefits can be harvested through platforms like Microsoft PowerApps, with more expansive, investment-heavy solutions considered subsequently.

Intrigued by our approach and keen to delve deeper?

‍Reach out to the trace team today. Let's explore success stories and how we can collaborate to enhance your supply chain visibility.

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Strategy & Design

January 25, 2025

Reclaiming the Long View: How Network Optimisation and Scenario Modelling Drive Strategic Investments in 2025

After a challenging 2024 marked by short-term survival strategies, business leaders in 2025 are reorienting towards medium and long-term investments. Network optimisation and scenario modelling have emerged as critical tools for reducing operating costs and improving efficiency across warehouse labour, freight, rent, and inventory.

Introduction: A Shift in Perspective

2024 was a year of firefighting for many organisations, with leaders focused on managing immediate pressures such as supply chain disruptions, inflation, and geopolitical uncertainty. As the dust settles, 2025 is shaping up to be a year of recalibration. Companies are once again exploring medium to long-term investments to secure a competitive edge in an evolving landscape.

Network optimisation and scenario modelling are pivotal in this shift. These tools allow organisations to analyse, predict, and plan their supply chain strategies more effectively, unlocking cost savings and operational efficiencies across multiple areas.

This article delves into how network optimisation can drive tangible benefits across warehouse labour, freight, warehouse rents, and inventory, enabling organisations to achieve a balance between short-term agility and long-term sustainability.

Understanding Network Optimisation and Scenario Modelling

Network Optimisation involves evaluating an organisation's supply chain and logistics networks to determine the most efficient configuration. This might include decisions about warehouse locations, transport routes, and inventory placement, all aimed at minimising costs and maximising service levels.

Scenario Modelling complements optimisation by allowing businesses to simulate different conditions, such as changes in demand, costs, or constraints. This proactive approach helps leaders make informed decisions in an uncertain environment.

In 2025, organisations leveraging these tools gain the ability to:

Reduce costs through efficiency improvements.
Enhance customer satisfaction by improving service reliability.
Build resilience by stress-testing networks against potential disruptions.

Key Areas of Cost Optimisation

1. Warehouse Labour Spend

Labour remains one of the most significant operating costs in supply chains. Network optimisation identifies opportunities to reduce labour spend by:

Consolidating Warehouses: Reducing the number of facilities while maintaining service levels can eliminate redundant labour requirements.
Improving Labour Utilisation: Optimising workflows and scheduling can ensure the workforce is deployed efficiently.
Leveraging Automation: Network analysis can highlight where investments in automation, such as robotics or advanced WMS (Warehouse Management Systems), could deliver a strong ROI.

Example:
A major FMCG company used network optimisation to consolidate three regional warehouses into one strategically located distribution centre. This move reduced labour costs by 20%, as fewer workers were needed to manage inventory and fulfil orders.

2. Freight Spend

Freight is another high-impact area where optimisation delivers results. By evaluating transport routes, carrier options, and modal choices, organisations can:

Minimise shipping costs through efficient routing.
Improve load utilisation, reducing the number of trips required.
Shift to cost-effective transport modes where feasible, such as rail or sea freight for long distances.

Scenario Modelling in Action:
Businesses can use scenario modelling to assess the impact of fuel price increases or changes in carrier rates, allowing them to secure better contracts or adjust pricing strategies.

Case Study:
A retailer in ANZ re-evaluated its distribution network, switching from road to rail for inter-state deliveries. This reduced freight costs by 15% and lowered carbon emissions, aligning with sustainability goals.

3. Warehouse Rents

In 2025, skyrocketing commercial property prices and rising rental rates are pressing issues for businesses. Network optimisation can help mitigate these costs by:

Identifying underperforming warehouses that could be closed or relocated.
Assessing lease agreements and exploring renegotiation or alternative options.
Exploring shared warehousing models or co-location with partners to reduce fixed costs.

Data-Driven Lease Decisions:
Scenario modelling can simulate the long-term financial impact of staying in a high-rent facility versus moving to a more affordable location, considering factors like transport cost implications and service levels.

4. Inventory and Working Capital

Inventory optimisation is a cornerstone of working capital management. Excess stock ties up capital and increases carrying costs, while stockouts can damage customer relationships. Network optimisation addresses this by:

Balancing inventory levels across the network to minimise overstocking and understocking.
Positioning inventory closer to demand centres to reduce lead times and safety stock requirements.
Improving demand forecasting to align inventory with actual market needs.

Advanced Tools:
AI-powered forecasting and optimisation tools can further enhance accuracy, helping businesses dynamically adjust inventory in response to changes in demand or supply.

Real-World Impact:
A healthcare company used network optimisation to centralise its inventory at a regional distribution hub. This reduced inventory holding costs by 25% while maintaining 98% service levels.

Why 2025 is the Year for Medium to Long-Term Investments

Several factors are driving the renewed focus on long-term planning and network optimisation in 2025:

Economic Stability:
After navigating economic turbulence in 2024, businesses now have a clearer outlook for growth and investment opportunities.
Technological Advancements:
The proliferation of digital tools, such as AI-driven analytics, cloud-based platforms, and low-code/no-code solutions, makes it easier and more cost-effective to implement network optimisation projects.
Sustainability Pressures:
Regulatory and consumer demand for sustainable practices are pushing organisations to optimise their supply chains to reduce emissions and waste.
Competitive Advantage:
Companies that proactively invest in their networks can position themselves ahead of competitors, particularly as supply chain resilience becomes a key differentiator.

Challenges and How to Overcome Them

While network optimisation offers substantial benefits, it is not without challenges. Common obstacles include:

Data Quality Issues: Incomplete or inaccurate data can lead to suboptimal outcomes.
Resistance to Change: Employees and stakeholders may resist significant changes to established processes or locations.
Cost of Implementation: Upfront investment in technology and expertise can be a barrier for some organisations.

Strategies for Success:

Conduct thorough data audits and invest in data cleaning processes.
Engage stakeholders early to build buy-in and address concerns.
Partner with experienced consultants, such as Trace Consultants, to guide implementation and ensure ROI.

The Role of Scenario Modelling in Resilience

In addition to cost optimisation, scenario modelling enhances resilience by helping businesses prepare for various eventualities, such as:

Sudden demand spikes or drops.
Disruptions in supply routes.
Changes in regulatory or market conditions.

By simulating these scenarios, leaders can develop contingency plans that minimise disruption and maintain business continuity.

The ROI of Network Optimisation

Organisations that invest in network optimisation and scenario modelling typically see a strong return on investment. Benefits include:

Cost Savings: Across labour, freight, rent, and inventory.
Improved Service Levels: Faster delivery times and higher accuracy.
Resilience: Greater ability to navigate disruptions and adapt to changes.

How Trace Consultants Can Help

At Trace Consultants, we specialise in helping businesses navigate complex supply chain challenges. Our expertise in network optimisation and scenario modelling enables organisations to unlock cost savings and build resilient, efficient networks.

We work closely with clients to:

Assess current network performance.
Develop data-driven optimisation strategies.
Implement solutions tailored to business needs.

As 2025 unfolds, business leaders are seizing the opportunity to pivot towards strategic, medium to long-term investments. Network optimisation and scenario modelling are essential tools in this journey, enabling organisations to reduce costs, enhance efficiency, and build resilience.

The question is: Are you ready to optimise your network and secure a competitive advantage for the future?

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