Most of the larger corporations have a person, persons or department dedicated to network optimization. These folks have the sophisticated tools to determine the best modes and nodes for their material flows based on origin points, destinations, shipment sizes, shipment frequencies, transportation costs, etc.
It is impressive the number of scenarios that these people and applications can compare and optimize while considering all of the “real world” variables that we live with.
If you are not as lucky to have these resources (educated staff and expensive software), then you may be looking for some more rudimentary (i.e. “cheaper”) tools!
We found a (rudimentary) solution using an Excel template.
While this concept can be used for facility location decisions (such as warehouses), we used it to be sure that the consolidation center, as chosen by our 3PL, was really the optimal location based on the inbound shipments to that consolidation center.
We were shipping from many suppliers located in the northern Midwest and Northeast to our plant in the southern USA.
Our 3PL had chosen Cincinnati as the optimal consolidation point for these suppliers. Did they choose this location because their existing hub was near Cincinnati?
We wanted to find out!
Using the template below, we entered the geocodes for our suppliers’ cities and assigned a weight to their weekly shipments. This method has limitations, but the assumption is that the cost/mile and per lbs. is constant from all origin points. Once you obtain the results, you can give it a sense-check.
Our analysis showed that the true center of gravity for these suppliers and the current shipment sizes is not Cincinnati, but rather some point northeast of Cleveland, maybe near Erie, Pennsylvania.
Our next step is to go out to the market to see whether an alternate consolidation point really makes sense…from a market and rate perspective.
This tool will not provide the with the “sure-fire” answer…but it can provide you with a different approach or an idea for a different direction.
Let me know if you find any value in this or were able to use it or have an alternate tool!
Click the following link for a PRINTER FRIENDLY VERSION of this article: LWL008 Center of Gravity Analysis