Before the age of e-commerce, many companies built large centralized distribution centers designed to service the entire country. These facilities were erected in places like Kansas or Nebraska, where land was plentiful and cheap, and labor was available at a fraction of what it would cost in urban areas. The central location meant that the companies could reach customers on both coasts within three to four days. For many businesses, these facilities became their sole national distribution centers.
The advantages to this approach are many. Inventory can be housed in one building instead of duplicated over several sites, which means lower carrying costs. Additionally, automation investments can be concentrated in these large facilities, creating further distribution efficiencies.
This was a successful distribution strategy—that is, until e-commerce came along and changed things dramatically. Customer demands have now shifted, and the repercussions reach far beyond just those companies that compete directly with the Amazons of the world. The same service levels that major e-commerce players have conditioned their customers to expect—such as free shipping within two days—are now the norm for every distributor, including those doing only business-to-business sales.
Those changes in customer expectations required businesses to rethink their distribution models. Being located in the middle of the nation would not allow them to meet those demands without expensive transportation. Add to this the truck driver hours-of-service regulations, and reaching the end customer in two days or less requires a different strategy. As a result, companies began scrambling to add new distribution sites that were located closer to the large markets, sometimes sacrificing the benefits gained by maintaining a single pool of inventory in a highly automated facility.
But what if another twist were added that made centralized distribution attractive once again? That game-changer could very well be autonomous vehicles. As noted earlier, the driving force in regional distribution strategies is speed—being able to reach customers sooner. But what if autonomous vehicles doubled the current amount of time that merchandise could be on the road each day?
Unlike drivers bound by hours-of-service regulations, self-driving trucks do not have to pull off for mandated rest breaks. Autonomous vehicles would only need to stop for short periods to refuel or recharge. As a result, a self-driving vehicle could possibly cover 1,000 highway miles or more in a day, bringing more remote distribution facilities into play. How will that alter your future distribution network?
Gartner, Inc.