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Factors influencing logistics networks

Updated: Jan 21, 2022

When you build your logistics network, you trade-off two important factors.

The one is cost, the other one is service.

If we want better service to our customers,

we probably have to spend more money.

But logistics networks are already expensive, so most companies try to reduce

those costs as much as possible while still maintaining a high-level of service.

The cheapest logistics network looks different from the most expensive one.

Nevertheless, the concept of cost versus service always applies and

you can have a logistics network with only one warehouse and overnight

transportation, which will give you great service, but it will be very expensive.

Or you can be like Amazon and have top customer service,

two-hour deliveries in some cases, but you need over 100 warehouses for that.

Nevertheless, you have to pick the network that minimizes cost and

gives you the best service possible.

Urban Outfitter,

a major clothing retailer based in Philadelphia, Pennsylvania.

They decided to build their warehouse there.

The reason why Urban Outfitters chose this location,

probably has to do with the proximity to their home office,

their commitment to the local area and the ability to distribute up and

down the eastern seaboard right from here in Lancaster county.

It also behooved them that land was much cheaper here than in other locations and

they were able to bring jobs to an economically distressed area.

Two major drivers affecting the logistics network are the cost of money,

interest rates and the cost of fuel driven by the cost of crude oil.

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