Scaling logistics networks
Part 1: The right timing

What to keep in mind when scaling the logistics network
Part 1 of 4: The aspect of time

If all of a sudden outbound logistics goes through the roof, that’s actually a good thing. In a way. Especially in e-commerce, more and more providers are facing a situation where they are growing significantly faster than their logistics can. Although difficult, this phase is crucial for the future of a company. Our four-part series of articles provides an overview of the aspects that online traders should consider.

Part 1 of the series deals with the most obvious question: When do you have to create new capacities?

The temporal aspect of logistics capacity

Regardless of whether you process orders through your own logistics locations or through external service providers, as soon as the growth curve starts to rise steeply, you will begin to question how long the current logistics set-up will suffice. Ideally, you will recognise this before the purchasing department announces that 20 sea freight containers with new goods have arrived but the only place left for them is the yard according to your warehouse manager.

If you fail here, the only option now is to buy new expensive short-term capacities. Of course, it would be better to identify this need at an early stage, so that you then usually have enough time to efficiently counteract with capacity-building measures.

It should be taken into account that these projects, depending on their scale, take a considerable amount of time until their full effect is felt. In addition to the decision-making and planning phase, there is also the (construction) implementation phase, while a certain period of learning and ramp-up also needs to be taken into account. When it comes to logistics construction projects of significant size, you can expect it to take about one and a half years before they are up and running, and that’s a manual concept. An automated concept can take anywhere up to two and half years. The subsequent ramp-up can take another one to three years, depending on the size of the facility and degree of automation. This means that the analytical foundation should be laid early on, sensitivities should be examined and management should be brought on board, so that funds and manpower are made available in good time.

It is true that this question can be solved analytically without specific software and algorithms. Basically, all that is required is to compare existing capacities, which can also develop over time, and the required capacities, which essentially depend on the respective business case. But even this kind of modelling can pose a number of pitfalls that should be considered. Due to the relatively long observation period, even small inaccuracies can lead to considerable fluctuations in total and hence to less than favourable decisions.

It should also be taken into account that capacities can be both static (storage) and dynamic (inbound, outbound, returns, etc.). The bottleneck is not necessarily obvious. In any case, it makes sense to create a holistic picture of the material flow in order to check the development of important KPIs (shopping basket, return rate, stock turnover rate, etc.) for plausibility.

The capacity time series should also be checked once or twice a year. Once you have put some effort into a tool that is both well thought out and user-friendly, the subsequent iterations will be easier and, most importantly, will cut costs. With the right equipment, a company can be well-prepared for the most diverse future scenarios and avoid sudden surprises caused by capacity bottlenecks.

We would be pleased to talk to you about specific approaches and problem-solving tools. You can contact us via e-mail or on LinkedIn.