5 benefits of Hub and Spoke model for an e-commerce company

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Created on June 4, 2021

The success of an e-commerce business depends majorly on the satisfaction of its customers. Several factors that help in achieving 100% customer satisfaction, include offering the convenience of placing an order, quick order fulfillment, and speedy delivery. Having an efficient logistics management system can contribute to attaining this goal while ensuring an edge over your competitors. Talking mainly about quick order fulfillment, it is the hub and spoke model of logistics that is proven to be highly effective. And before explaining the benefits of it, let’s understand-

What is the Hub and Spoke Model in Supply Chain and logistics?

Hub and spoke model is a centralized and integrated logistics system whose main purpose is to reduce the transportation cost while accelerating transportation processes. It can be considered as a centralized warehousing and shipment system that is similar to the structure of a bicycle wheel. The center of the wheel is the distribution center with different spokes representing the direction of deliveries. 

It is completely different from the point-to-point distribution model (where a shipment is moved from point A to B and then C, D, and further points until it reaches the destination), which causes high logistics costs and inefficient distribution.

In the hub and spoke model, distribution centers or warehouses are established at a place in a city from where shipments can be delivered to multiple locations keeping in mind factors like travel distance and time. The model helps e-commerce businesses to speed up their order deliveries without investing heavily in warehousing, transportation, and inventory management.

Advantages of hub and spoke model in supply chain and logistics

Here are the five benefits of using hub and spoke model- 

Simplified and streamlined shipment processes

With all shipments picked from a single hub, managing last mile delivery processes and scheduling dispatch becomes easier. Logistics managers can assign duties and monitor them all systematically and effortlessly. Loading shipments from a single distribution center is also easy. This type of model also makes it effortless to maintain the right inventory. 

Improved productivity 

Picking up goods from multiple hubs or distribution centers is definitely hectic for the riders, especially considering the traffic & weather conditions and delivery time constraints. With the hub and spoke model, delivery agents have to pick goods from only one place and deliver it to multiple destinations. This reduces driving hours and increases productivity. 

Automated route planning 

Hub and spoke model facilitates optimal planning of delivery routes. Logistics managers who are using last-mile delivery software and following this type of model can get digitized route planning and optimization. The software considers real-time traffic conditions, customers’ delivery preferences, delivery location, and other constraints to generate the most efficient delivery routes. 

Accelerated delivery

Auto-generated delivery routes relieve drivers from the hassle of deciding which order to deliver first or which customer’s place to visit first. This speeds up the delivery process and brings customer satisfaction with on-time delivery. 

Reduced logistics cost 

Hub and spoke model is cost-effective as everything is managed from one place; you don’t need to hire huge professionals at different distribution centers. Moreover, the transportation of goods is also done from a single place, which saves the fuel cost and time both. It also reduces the cost of inventory management. 

Choosing the hub and spoke model totally depends on the nature as well as the size of your business. For instance, e-commerce companies that receive hundreds of orders in a day in particular regions can think of establishing a centralized distribution center or warehouse. Besides e-commerce, hyperlocal delivery businesses, consumer goods retailers, and 3PL companies can also choose this type of model to avail its advantages. 

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