Importance of Single Sourcing Groups of Customers

In practice, you need flexibility to single source customers and groups of customers.  (By customers, I am referring to the final ship-to location.  This could be a retail store, your distributor’s warehouse, or even an end consumer)

For example, you many minimize your costs by shipping from multiple warehouses or plants to a customer.  But, this may annoy your customers.  Or, you may only be able to send full trucks once every two months.  To avoid these problems you can single source the customer and find the best single point of delivery to that customer.  That is, your products must all travel to single warehouse and then on to the customer.

It also becomes import to single source groups of customers.  For example, for simplicity, you may want to serve all the customers in Tennessee from a single warehouse to simplify your operations.  Or, you want to serve all your customers that are in the same Sunday Paper region so you can better manage promotions.  In the construction business, you want to make sure all the customers in a region receive product from the same manufacturing plant.  Boards and shingles coming from different plants can have slightly different colors.

Justin Holman, CEO of TerraSeer, is doing some interesting work for the automotive aftermarket.  He put together the map you see in this post to help determine the similar regions for auto parts.  He has a post that explains the map and the fact the state boundaries are not helpful for forecasting auto parts.

If you apply his concept to network design, you might want to single the customers in each of the regions that Mr. Holman has identified.  This would simplify your decisions about what products to stock in each warehouse and would allow you to better manage demand.

Besides aftermarket auto parts, you could imagine that this analysis would apply to a wide range of products– construction materials, swimming pool products, sun screen, lawn care products, beverages, and about any other product whose demand changes by season.