1. Definition & Scope of Logistics Network Optimization
Logistics network optimization is about determining the number, location and size of warehouses that are optimal for each business by taking into account a wide range of constraints in one’s supply chain. In other words, it is to find the best combination of warehouses necessary to cover the entire supply chain from raw material suppliers to end-users.
Logistics takes place largely in three areas - procurement, supply and sales. Typically, logistics network optimization is for supply and sales of finished goods, although it sometimes includes sourcing of parts or raw materials. In the end, logistics network optimization aims to find an optimal combination of various warehouses best suited to the client’s needs.
Of course, manufacturing factories can be part of a logistics network since they do have in-house warehouses and temporary storage. However, given that when building a factory, the main priorities are usually on terms & conditions of the site acquisition, tax benefits, political risks, market size, or personnel sourcing while logistics factors are considered next, where to locate factories is relatively less important in logistics network optimization.