To fulfill increasing customer demands, go small

Here's a word you may not have heard before: "micrologistics." At first glance, you might think it has something to do with the storage, transportation, and delivery of tiny things. But it actually refers to the size of the logistics network, not the products or items that move through that network.

According to the market intelligence and advisory service firm International Data Corp. (IDC), micrologistics refers to using multiple, localized network nodes, such as smaller regional warehouses, to position product closer to the end customer and rapidly fulfill demand.

There's no doubt that increasing the number of distribution nodes at the local level will cause supply chain complexity to skyrocket. But IDC argues in its new report "Implementing a Micrologistics Network—The Evolution of Supply Chain Fulfillment" that companies will have to make this move in order to respond to the complex requirements of omnichannel retailing and to fulfill the growing demand for next-day and same-day delivery.

"The utilization of the large, centralized [distribution center] approach to demand fulfillment has been a mainstay network design for some time; however, the expectation of rapid (same-day, next-day) delivery has placed quite a bit of strain on that traditional distribution network," writes report author John Santagate.

A micrologistics network has the benefits of improved responsiveness, greater agility, reduced delivery time, and reduced delivery costs, according to IDC. Additionally, it allows companies to segment their markets in a highly specific, geographical manner so that finished-goods inventory can better match local needs.

But creating this decentralized distribution network will require a major investment in people, processes, and technology. According to the report, an increase in the number of distribution nodes, naturally, will require a concurrent increase in people to operate and manage them. For companies to get a good return on those added employees, Santagate writes, they will need to ensure that people are working as productively as possible, and they will have to scrutinize human resources costs more stringently than in the past. Additionally, companies will need a robust integrated business planning (IBP) process that includes regularly scheduled network evaluations and network-optimization planning. All of this will be dependent on technology that can provide network visibility and accurate inventory and cost data.

More information on the micrologistics report can be found here.