Raymon Krishnan

EVERY few years someone comes up with a new theory or buzzword that gets everyone excited. Some of these concepts go on to become ‘winners’ whilst others fall by the wayside. The Logistics & Supply Chain Management Society has commissioned research in the area of Combined Distribution Networks (CDN) and the preliminary data shows benefits of such significance that CDN cannot be ignored. More research is being done in this area and CDN could be the next big thing in SCM, promulgating and embedding itself into the supply chain of tomorrow.

The concept of Combined Distribution Networks is fairly easy to comprehend. A basic and simple definition would be: “A CDN is the combination of the supply networks of different companies in the Supply Chain to achieve increased efficiencies and effectiveness.”

Collaboration of this nature is not unheard of and can be considered merely an extension of the theory of supply chain collaboration. There exist some real-world examples in support of such implementation. The future challenge and perhaps where the greatest economies and efficiencies can be leveraged would be in implementing an effective CDN between companies that would otherwise be competitors.

Current supply chain collaborative techniques allow growing businesses to reduce costs and improve customer service. The methods, models of implementation and real-world examples that exist are many. These success stories, however, are few when compared against the number of scenarios where the elusive SCM nirvana could not be received and implementation has resulted in failure. Some of the most basic models of true supply chain management and collaboration remain an elusive target that many are still trying to understand - let alone achieve.

With this somewhat negative perspective, why then highlight the practice of yet another little-known concept that will either be a short-lived fad or result in the sort of failure that we highlighted earlier?

The answer to this is simple. Preliminary research by the Logistics & Supply Chain Management Society, in collaboration with some of its academic partners, shows that the potential for recognising tangible benefits in overall performance both from increased pipeline velocity and savings for companies, who correctly implement CDN of this nature, is staggering. In one area – vessel supply and support in Singapore waters – CDN result in up to almost 70% reduction in transportation costs.

Purchasing, inventory management and technology requirements are also targets for permutations of CDN theory.

Another compelling argument for the implementation of CDN is the positive impact on the environment. Much has been done, and needs to be done, to reduce the impact our supply chains have on the environment. The carbon footprint of individual products, from point of supply to point of consumption is being measured in more and more supply chains. CDN are one of the many ways these can be reduced.

Implementation
Justification of a proposed CDN is conducted much the same way as any other efficiency improvement project. Detailed analysis of companies’ SKU-level product information is conducted over a period of time. This data will allow stakeholders to clearly understand the current transportation or warehousing structure, as well as to establish an accurate cost baseline by which all optimisation would be evaluated.

Once the historical network baselines are developed, the analysis phase of the CDN can start by first scrutinising the product flows, then using both the production information as well as customer consumption to determine the appropriate placement of warehouses and the transport network to be adopted.

All models in the CDN will balance real-world operational constraints put in place by companies involved in the CDN model, with the need to service a majority of customers within a specified timeframe, all whilst factoring in current market conditions for transportation rates into and out of each distribution market.

The model developed and implemented will enable companies to optimise customer service whilst at the same time improve shareholder value.

After a complete and thorough analysis has been completed, a comprehensive RFQ can be built and 3PLs with the capability to meet both or a part of the requirements invited to bid.

Again, based on research by the Logistics & Supply Chain Management Society, which tabulated feedback from supply chain practitioners, there are a number of reasons why people feel CDN will not work. The main hurdle, it would seem, is the need to get stakeholders to overcome the common mindset that competitors should be treated as the ‘enemy’ and kept at arm’s length.

At the end of the day, we believe that the need for greater efficiency and increased effectiveness in meeting customer demand will make CDN the ‘next big thing’ in supply chain management. The numbers don’t lie and cannot be ignored!

Raymon Krishnan is the president of the Singapore Logistics & Supply Chain Management Society and a Fellow of the Australian Logistics Academy. His portfolio currently includes that of programme director of the MSc in Strategic Supply Chain Management from the University of Wales conducted by the society in Singapore. He can be contacted at raymon@logis.com.sg.

*Excerpt from MHD Supply Chain Solutions, May/June 2008 (p.18)

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