What is Hub and Spoke Distribution Model in Supply Chain?
The hub and spoke distribution model is a centralized warehousing and shipment system that bears resemblance to the structure of a bicycle wheel. The center of the wheel is the hub or a distribution center and every one of the spokes symbolizes a direction of delivery.
In a point-to-point distribution model, packages generally travel between point A to B, C, D, or E according to the delivery requirements and the availability of inventory at that point in time. There is a lack of a centralized warehouse or distribution center, which results in higher logistical costs and inefficiencies in the distribution process.
But in a hub-and-spoke network distribution model, there are distribution centers or warehouses that are strategically located within the city from where delivering packages to several delivery locations within a particular area is possible with the most optimal travel distance and time. Thus distribution model offers higher levels of flexibility and a highly efficient connection system. It consolidates the efforts of several drivers and delivery executives to a single dedicated center. This has caused the hub and spoke model to become the most widely used delivery network system among modern supply chain enterprises.
Why is the hub and spoke model so popular?
Today’s customers expect faster deliveries than ever before. But quite often, businesses (especially small and new ones) cannot afford to pay the high costs of transportation, warehousing, and inventory management in order to reach their customers and deliver the products faster.
This means that businesses need a more cost-effective way of delivering goods to their customers. Network optimization is a very effective strategy for modern supply chain enterprises to enable quicker deliveries at lower costs. Over time, supply chain enterprises have adopted new logistics technologies and strategies that allowed them to stand out. The hub and spoke model became wildly popular due to the fact that it allowed supply chain companies to lower their operating costs and speed up their deliveries substantially.
What are the advantages of the hub and spoke distribution model?
Here are the most prominent advantages and benefits of the hub and spoke distribution model:
- Simplifies shipment processes
- Increases workforce productivity
- Optimizes route planning and speeds up deliveries
- Reduces logistical costs substantially
- Lower carbon footprint
- Consistent pricing
- Improved recruiting and retention of delivery executives
Simplifies shipment processes
When all the shipments are picked up from a centralized hub, it becomes much easier to manage last-mile delivery processes and schedule dispatch. Logistics managers get to assign duties and keep an eye on them all systematically with minimum effort. It’s rather easy to load up shipments from a single distribution center and maintain the right level of inventory to ensure constant supplies within a specific area.
Increases workforce productivity
One of the benefits of hub and spoke distribution model allows delivery partners to plan their daily delivery routes around one hub, finish all the deliveries in one specific region, and then proceed to another hub to handle any on-demand or extra deliveries.
Optimizes route planning and speeds up deliveries
The hub and spoke distribution model makes it possible to plan delivery routes in an optimal way. Logistics managers get to plan out the shortest route, accounting for customer-preferred delivery timings, peak traffic hours, and other ground restrictions. This ensures that last-mile delivery operations are carried out in the fastest, most efficient way possible, leading to increased levels of customer satisfaction.
Reduces logistical costs substantially
The hub and spoke method helps reduce costs for supply chain enterprises in several ways. By ensuring optimal route planning, you get to speed up deliveries but also save on fuel costs due to the few miles traveled. This model also limits the number of distribution centers located in a city, which also reduces the cost of inventory management involved.
Lower carbon footprint
Since the delivery routes are planned in an optimal manner to increase efficiency, there are fewer empty miles driven and thus there are lower levels of wasted fuel and emissions, thus allowing a supply chain enterprise to reduce its carbon footprint when it adopts the hub and spoke distribution model.
Consistent pricing
Another one of the benefits of hub and spoke model allows for consistent pricing and mitigates the risk of having to deal with third-party carrier price fluctuations.
Improved recruiting and retention of delivery executives
The hub and spoke model makes the delivery process more efficient and even makes it possible for drivers and delivery executives to reach home every night, thus offering them a better quality of living. This leads to higher tenure, route consistency, increased transit dependability and performance as well as improved safety.
How did the hub and spoke model revolutionize air cargo transport?
When the U.S. federal government deregulated the airlines in the late 1970s, a large number of the major North American airlines started adopting the hub-and-spoke model for their daily operations. In this scenario, the central airport that flights are routed through became the hub and the routes planes follow to transport cargo became the spokes. Larger airlines have several hubs in their commercial network.
Prior to the hub-and-spoke system gaining popularity, airlines had to fly between two small markets under the direct-route or point-to-point system. The smaller airports offered a lot of undesired destinations, which caused a lot of planes to have to fly half empty. It wasn’t efficient to make deliveries without filling the planes to capacity and a lot of shipping companies ended up losing quite a lot of money because of the need to take the disorganized, multi-pronged routes from so many airports.
Adopting the hub and spoke model made the aviation route network much simpler and it is widely used to help airlines save money by ensuring that the planes are filled to the right capacity.
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