Monday, July 15, 2024
Monday, July 15, 2024
HomeProcurement/Supply Chain ManagementHub and Spoke vs Milk Run Model in Supply Chain

Hub and Spoke vs Milk Run Model in Supply Chain

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In any supply chain network design, the distribution is very important but for perishable items like fruits and vegetables, FMCG, dairy, and other perishable products, it is more important due to the reason, that frequent visits and supplies (maybe twice or thrice a day) and limited lead time available to the distributor. Various distribution strategies like the hub and spoke milk run model and have been suggested for distribution strategy development. Let us understand like milk run model, hub and spoke one by one.

Milk Run Model

Milk Run Model

The name Milk Run has been derived from the method used by the trucks to deliver the daily requirements of milk to the dairy co-operatives picking up milk from multiple suppliers and delivering it to a common point for further process. A milk run makes sure that the shortest possible distance is traveled and that the highest amount of demand is transported into the truck or delivery vehicle to satisfy both the demand requirement and the need for efficient transportation at the lowest possible cost.

This is applied where the load is scattered in many different places and smaller units.

Example of Milk Run Model

Let us assume there are 20 different vendors of dairy products, and they send dairy products to a central point to meet customers’ demands and collect leftover dairy products from the previous day. There are 2 ways to do it.

1. The suppliers send their delivery trucks to the demand center and deliver dairy products and collect the leftovers

2. There is one truck that starts from the central point and goes to each supplier one by one and collects dairy products and leaves the leftover to the corresponding supplier. There can be multiple trips as well.

The milk run is the second method.

Importance of Milk Run Model

The milk run model in distribution is significant because it promotes a strategy that has lower costs and more efficiency. A single delivery vehicle makes journeys to several locations to pick up the items rather than each supplier or vendor sending numerous deliveries to a single point of demand. This guarantees lower expenses and full utilization of one vehicle. It goes around in a circular motion.

It has emerged as a key idea in lean and agile businesses where cutting costs is crucial. It ensures that material delivery takes place at the best times and is very linked with just in time. It entails the distribution of commodities to areas with high demand from several pick-up stations. The planning and routing part of a milk run is one of its key components. a route that picks up as many people as possible from various locations and transports them quickly and cheaply to a central location. Once the route is improved, milk runs begin to exhibit numerous long-term advantages.

Hub and Spoke Model

Hub and Spoke Model

As the name suggests, a hub and spoke model is a centralized warehousing and shipment system that resembles the structure of a bicycle wheel. The center of the wheel is the hub or a distribution center and each spoke represent a direction of delivery.

A hub and spoke system strategically place distribution centers or warehouses within the city from which it is possible to reach various delivery locations within an area with the least amount of travel time and distance.

Modern supply chain organizations frequently use the hub and spoke delivery network system because it provides better flexibility and a more effective connection system by centralizing the efforts of hundreds of drivers and delivery executives in one specific location.

Example of Hub and Spoke model

Hub and spoke distribution are effective, thus major (and some smaller) merchants like Amazon have embraced it to hasten the delivery of goods to customers.

For instance, Amazon has fulfillment centers spread out around the nation that will be catering to last-mile delivery centers to allow the quick delivery times consumers to have come to expect. This reduces transit time. Most of the airlines use hub and spoke model.

Additionally, by using the same high efficiency that a larger retailer fulfillment network employs across all their sales channels, this model aids small and medium-sized businesses.

Importance of Hub and Spoke Model

The possibility that customers won’t be able to receive what they want increases when inventory is spread out among numerous locations. You can maintain a tight eye on inventory across all locations using a hub and spoke system and act promptly when there is a shortage. Logistics costs are heavily impacted by transit time. Receiving inventory from manufacturers and sending the product to fulfillment centers are two crucial points in the supply chain where a hub and spoke distribution architecture can assist reduce transportation costs. By using less warehouse space, renting less expensive real estate, and using fewer resources, hub and spoke systems can help you save money. The decision completely depends on the nature of your business and your size of operations. For instance, it is most beneficial for E-commerce or 3PL companies with high-density orders in specific regions. Hub and spoke networks are also best suited for companies in the food delivery and hyperlocal delivery market with bulk orders within a fixed radius.

Conclusion

A well-designed distribution strategy can save time and make product delivery more efficient. Distribution strategy designs the entire approach for the availability of the offering started taking inputs from what the company communicated in marketing campaigns to what target audience is to be served. Although it is more expensive, the milk-run model guarantees just-in-time delivery and minimizes the likelihood of waste and material damage. The hub and spoke organizational structure is currently being used by many businesses to fulfill orders inside and between cities. However, as a logistics decision-maker, you must know if it’s the best fit for your supply chain.

Also read: Inventory Turnover Ratio: Examples and Importance

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Shantanu Trivedi
Shantanu Trivedi
Shantanu Trivedi is working as a faculty at the University of Petroleum and Energy Studies, Dehradun. He holds an MBA and a Ph.D. degree in Supply chain management. He has more than a decade of experience in teaching and research. He has published 2 books, 5 book chapters and more than 12 research papers and articles in international journals of repute. His research interest includes Supply chain management, agribusiness, online and distance education, Business sustainability and infrastructure management. He is the reviewer of many international publishing houses. He has presented his work and won awards at many research conferences and symposiums. He has worked on many research with state governments and the government of India. In his spare time, Shantanu loves to travel and explore nature.
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