What is Combined Distribution Network (CDN) and Can a Company Gain Cost Savings by Implementing CDN.

The concept of a combined distribution network (CDN) is fairly easy to comprehend. The simple definition is it that it is the combination of supply networks of different companies in the supply chain.  The goal of combined distribution network (CDN) is increased efficiency and effectiveness.

Collaborating with Combined Distribution Network (CDN)

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 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 would otherwise be competitors.

Current supply chain collaborative techniques allow growing businesses to reduce costs and improve customer service. The methods and models of implementation that exist are many. These success stories, however, are a few when compared with the number of failures. Some of the most basic models of true supply chain management and collaboration remain an elusive target that many are still trying to understand, let alone achieve.

Research by the Logistics and Supply Chain Management Society, show that the potential for recognizing tangible benefits in overall performance, both from increased pipeline velocity and savings for companies who correctly implement combined distribution network, is staggering. In one area – vessel supply and support- CDN use has resulted in almost 70 percent reduction in transportation costs.

Another compelling argument for the implementation of a CDN model 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. CDN is one of the many ways these can be reduced.  Justification of a proposed CDN model is conducted much the same way as any other efficiency improvement project.

Detailed analysis of companies SKU-level (stock keeping unit) 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 model 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, while 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 while at the same time improve shareholder value.

CDN simply means consolidation or pooling of competitive freight into one trans ocean container or domestic truckload, so that all members get the benefit of the full container or truckload rate.

After a complete and thorough analysis has been completed, a comprehensive RFQ (request for proposal) can be built and 3PL (third party logistics) players with the capability to meet both or a part of the requirements invited to bid.

There are a number of reasons why people feel a CDN model 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 arm’s length.

At the end of the day, we believe that the need for greater efficiency and increased effectiveness in meeting customer demand will make CDN the next big thing in supply

Additional reading on Combined Distribution Network (CDN)

A combined distribution network could help improve efficiency.

The concept of Combined Distribution Networks was pioneered by Raymon Krishnan.  Raymon is currently the President of the Logistics & Supply Chain Management Society.

Mr. Krishnan, has over twenty years of experience in the Logistics industry as an end user and service provider. This experience includes senior management, government linked and academic positions in a variety of international companies and institutions based in Asia, the US, Europe and Australia.

A prolific writer on the topic of Supply Chain Management, particularly in the area of Combined Distribution Networks, his work is published in six international magazines and periodicals and a number of online sites.

 

About the Author, Chuck Intrieri

Chuck Intrieri is the owner of Charles M. Intrieri Consulting in Orange County, CA. Chuck specializes in Supply Chain Optimization, Third Party Logistics (3PL) and International Purchasing and Importing Consulting. He also writes for THE GOOD WORD, LinkedIn and other Supply Chain Blogs. He is a guest speaker at the Purchasing Management Association and the University of Wisconsin-Madison. He is certified as a C.P.M.,CPIM, and Value Engineer.  Click here to view Chuck Intrieri’s Expanded Bio