The Rise of Hub and Spoke Distribution Model in Modern Supply Chains
Apr 24, 2020
6 mins read
In an environment where every customer matters, know how a hub and spoke model can satisfy consumers with faster deliveries.
What is Hub and Spoke Model in Supply Chain?
As the name suggests, a hub and spoke model is a centralized warehousing and shipment system that resembles the structure of a bicycle wheel. The center of the wheel is the hub or a distribution center and each spoke represents a direction of delivery.
In a point-to-point distribution model, packages typically move between points A to B, C, D, or E based on delivery requirements and inventory availability at that time. There is no centralized warehouse or distribution center, which leads to inefficient distributions and higher logistical costs.
On the other hand, in a hub and spoke system, distribution centers or warehouses are strategically placed within the city from where reaching out to multiple delivery locations within an area is possible with the most optimal travel distance and time.
The hub and spoke model allows greater flexibility and offers a more efficient connection system, consolidating the efforts of hundreds of drivers, and delivery executives to one dedicated center, making it a popular delivery network system among modern supply chain enterprises.
Why Hub and Spoke Distribution Model?
The short answer: Faster deliveries at lower costs. Globally, customer satisfaction is defined by speed and convenience more than anything else today. Consumers want great products at low prices delivered to their doorsteps in the shortest timeframe possible. In a consumer survey conducted by PwC, 41% of consumers were even willing to pay premium rates for fast delivery services.
Enterprises across varied industries including food, groceries, pharma, retail, FMCG, 3PL, and e-commerce are now focusing on faster last-mile fulfillment methods to get an edge over competitors. According to a McKinsey report, some have even been aiming to make same-day delivery a market standard. Needless to say, efficient logistics has become a key differentiator for all kinds of delivery businesses.
But as logistics comes to the forefront of supply chain operations, businesses cannot afford to bear the heavy costs of transportation, warehousing, and inventory management to be able to reach the customer faster. This is especially true for the last-mile, given that it accounts for around 53 percent of shipping costs.
It is therefore important to make cost-efficient moves, faster. Network optimization is a key strategy for modern supply chain enterprises to stand out in the market. Over the years, supply chain enterprises have embraced tech in logistics and adopted smarter practices such as the hub and spoke distribution model to reduce operating costs and speed up deliveries.
Advantages of the Hub and Spoke Distribution Model
Simplifies shipment processes
Since all shipments in a day are typically picked up from a designated hub, it is easy for logistics managers to plan daily dispatches effectively and assign delivery duties to agents in a more systematic manner based on their geographical knowledge and preferences. It is also easy to load and unload shipments from the centralized point and maintain the right levels of stock to ensure constant supplies within a particular area.
Improves workforce productivity
A day in the life of a delivery agent is quite hectic with multiple orders to be delivered across multiple locations. Running around from one end to the other is not easy, especially with on-ground constraints such as traffic and time-based deliveries. A hub n spoke model allows delivery partners to plan their daily delivery routes around one hub, finish deliveries in a particular region, and then move on to another hub for any on-demand or extra deliveries. It improves the productivity of on-ground executives and allows them to meet service levels effectively.
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Optimizes route planning and faster deliveries
As freight moves along the spokes of the bicycle wheel, a hub and spoke network allows the most optimal planning of delivery routes. Logistics managers can plan the shortest route, considering customer-preferred delivery timings, peak traffic hours, and other ground restrictions. This ensures that last-mile delivery operations are carried out faster and more efficiently, leading to improved customer satisfaction.
Brings down logistical costs
The hub and spoke delivery model is cost-effective for supply chain enterprises in a number of ways. Taking the most efficient routing not only speeds up last-mile deliveries but also saves fuel costs dramatically due to the lesser miles traveled. The hub and spoke system also limit the number of distribution centers within a city, leading to reduced cost of inventory management as well.
Is a Hub and Spoke model ideal for your supply chain?
Many companies are now adopting the hub and spoke structure for inter-city and intra-city order fulfillment. However, as a decision-maker in logistics, you must understand whether it’s an ideal match for your supply chain.
The decision completely depends on the nature of your business and your size of operations. For instance, it is most beneficial for E-commerce or 3PL companies with high-density orders in specific regions. Hub and spoke networks are also best-suited for companies in the food delivery and hyperlocal delivery market with bulk orders within a fixed radius.
All in all, the hub and spoke model is certainly a more flexible and profitable distribution network ensuring a smooth flow of goods compared to the old-school point-to-point model. It is a great option for supply chain enterprises with sizeable shipments and delivery demands on a day-to-day basis.
Locus helps businesses in the supply chain improve logistics operations with Artificial Intelligence. Schedule free demo with Locus experts and achieve end-to-end route optimization in your supply chain.
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ABOUT THE AUTHOR
Shweta is a seasoned business author and writes about logistics, supply chain management, and SaaS technologies. She occasionally writes on Quora and loves to take on baking experiments in her free time.Read other blogs by this author
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The Rise of Hub and Spoke Distribution Model in Modern Supply Chains