CDN – THE NEXT BUZZWORD IN SUPPLY CHAIN?

Logistics Insight Asia, 1/5/2008

Bringing different companies together in Combined Distribution Networks (CDNs) can produce significant gains in supply chain performance, says Raymon Krishnan.

The Logistics & Supply Chain Management Society (LSCMS) has commissioned research in the area of Combined Distribution Networks (CDNs) and the preliminary data shows benefits of considerable significance. Indeed, CDNs could very well be the next big thing, promulgating and embedding into the supply chain oftomorrow.

The concept of Combined Distribution Networks is fairly easy to comprehend: “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 wouldotherwise be competitors.

REASONS TO BELIEVE

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”while others fall by the wayside.

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 failurethat 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 recognizing tangible benefits in overall performance both from increased pipeline velocity and savings for companies who correctly, implement CDNs of this nature is staggering. In one area – vessel supply and support in Singapore waters – CDNs result in up to almost 70 percent reduction in transportation costs.

Another compelling argument for the implementation of CDNs is the positive impact on the environment. Much has been done and needs to be done in the area of reducing 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, and CDNs are one of the many ways these can be reduced.

PUTTING INTO PRACTICE
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 optimization would be evaluated.

Once the historical network baselines are developed, the analysis phase of the CDN can start by first scrutinizing 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 time frame, factoring in current market conditions for transportation rates into and out of each distribution market.

The model that is developed and implemented will enable companies to optimize customer service whilst at the same time improve shareholdervalue.

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.

BEYOND ENEMIES
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 CDNs 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 arms length.

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

The Logistics & Supply Chain Management Society (www.lscms.org) is interested in developing further research in the area of CDN to help build awareness and widen the scope of implementation of CDN. For more information, contact Edmund Lee at elee@lscms.org.

Raymon Krishnan is President, Logistics & Supply ChainManagement Society.