What mistakes do companies make when building a logistics network?

Did you design your logistics network once, a few years ago – and has it been running ‘on its own’ ever since? You might be in for some trouble! A logistics network isn’t something you just set up once and forget about. We’ve been building supply chains for years and we see just how much bad decisions cost. What other mistakes do companies make when building a logistics network? Today we’ll tell you about them, so that you don’t have to make the same ones.

Why is it worth modifying your logistics network?

A logistics network is like the circulatory system – it connects warehouses, distribution centres, routes and points of purchase. When it works well, you don’t even notice it. When it has flaws, you feel it in every delay and on every invoice.

The market doesn’t stand still. A study by Gartner, entitled “Gartner Survey Shows 73% of Companies Have Made Supply Chain Network Changes in the Past Two Years”, reveals that 73% of companies have changed their network within just two years, adding or removing locations. Half of them added new locations with existing partners, whilst 48% turned to new suppliers.

The conclusion is simple. If your network was set up “once and for all”, it’s probably already out of date. And most mistakes made when building a logistics network stem precisely from this assumption.

The assumptions on which you based your logistics network quickly become outdated. Demand, fuel prices, customs duties, geopolitical risks, new regulations… these change from month to month. Your network is falling behind. Goods are being transported via roundabout routes; you have surpluses in one warehouse and shortages in another, whilst delivery times are increasing.

How can you avoid this mistake when building a logistics network? Treat network design as a process, not as a project with a fixed completion date. Schedule a regular review (e.g. quarterly or half-yearly) and appoint someone to ensure the assumptions still hold true.

And what are some other mistakes made when building a logistics network?

What are the most common mistakes when building a logistics network?

We’ve compiled a list of seven mistakes we most frequently see in companies designing their supply chains. They usually go hand in hand — one leads to the other. Here they are, one by one.

1. Focusing solely on cost and overlooking trade-offs

This refers to a situation where you optimise the entire model for a single objective: the lowest possible transport and warehousing costs, whilst everything else – delivery speed and reliability, resilience to disruptions, and environmental impact – takes a back seat.

A network designed solely for price becomes fragile. Excessive centralisation “for the sake of savings” means that a single failure at one node can bring the entire supply chain to a standstill.

Sidharath Joshi, in his academic review “A review on sustainable supply chain network design: Dimensions, paradigms, concepts, framework and future directions”, demonstrates that a good network balances three objectives simultaneously:

cost,
the environment,
and social responsibility.

Initial savings can therefore come back to haunt you in the form of higher remedial costs: such as building warehouses in a rush or facing penalties for failing to meet service levels.

How can you avoid this mistake when building a logistics network? Define all the network’s objectives and assign them appropriate weightings. Optimise across several criteria simultaneously, rather than focusing on a single figure.

2. Building a model on poor-quality data

The best optimisation model is only as good as the data you feed into it. Yet companies routinely cut corners when it comes to collecting and verifying data – because it’s tedious and requires cross-departmental collaboration.

The result? The model suggests warehouse locations or routes that are, in practice, sub-optimal. Worse still, the project can get stuck at the stage of presenting the results, because nobody trusts the data and nobody wants to take responsibility for a decision based on a flawed model.

How can you avoid this mistake when building a logistics network? First, recreate and validate the current state; collect and clean the data together with those who understand the operational realities.

3. Decoupling the network project from day-to-day planning

The network is designed by one (strategic) team, whilst someone else (planning and operations) has to live with it on a daily basis. The structure is set in stone, and the operational team has to cope with its limitations (often due to poor communication between departments).

As a result, operational staff begin to work around the network’s shortcomings. They maintain excessive safety stock, use contingency transport routes and make manual adjustments to plans. This leads to increased costs, longer response times to changes and chronic stress within teams.

How can you avoid this mistake when building a logistics network? Align decisions on network structure with day-to-day sales and operations planning. Ensure that the network design and demand forecasting ‘talk’ to each other, rather than operating in two separate worlds.

4. Building resilience solely through higher stock levels

When it comes to resilience, the easiest solution is to rely on safety stock, add more warehouse space or bring in another supplier. The problem is that, in doing so, you tie up capital in stock which, during a crisis, often proves insufficient anyway, because the network structure remains fragile.

This is confirmed by McKinsey & Company in their analysis “Supply chain network reconfiguration for resilience”: true resilience comes from structural change – geographical diversification and flexible stock allocation – rather than simply adding buffers.

Companies that have shifted from high stock levels to more flexible models have shortened delivery cycles and reduced costs. We have already written on our blog about how to select trusted partners and industry organisations (such as IATA, FIATA or AEO).

How can you avoid this mistake when building a logistics network? Treat stock as a supplement, not as your sole defence. First, focus on the structure: where goods come from, which routes they take, and where you hold stock within the supply chain.

5. Overly narrow scenario analysis and ignoring uncertainty

Many companies test a few scenarios (demand up by 10%, down by 5%) and leave it at that. It’s a bit like packing for a trip to the mountains expecting nothing but sunshine: as long as the sun’s shining, everything’s fine.

A network optimised for the most likely real-world scenario rarely works. And disruptions occur regularly — this is evident, for example, from the scale of changes in networks highlighted by Gartner. So when a crisis strikes, the company pays a heavy price.

How can you avoid this mistake when building a logistics network? Test more extensively and allow for a margin of error. Check how the network will behave if a key hub closes or transport prices spike.

6. Poor staff engagement and blind faith in software

The better your tools, the easier it is to switch off your thinking. We’re seeing this now with the development of AI and people’s desire to automate literally everything.

A company feeds data into optimisation software, receives a theoretically correct result, and implements it without any strategic assessment. On top of that, it forgets to involve the right people from within the organisation in the project.

It’s like flying on autopilot, without a pilot. The algorithm may well calculate everything, but it doesn’t know, for example, that you have a specific contract with Supplier 1. Without the support of people within the company – who know the company well – the project gets bogged down at the implementation stage.

How can you avoid this mistake when building a logistics network? Involve the right people right from the stage of defining the project scope and verifying the data. Treat the software as an adviser whose recommendations you verify using common sense and your knowledge of your market.

How can you avoid mistakes when building a logistics network?

The most dangerous mistakes share a common denominator: they stem from a ‘do it once and do it right’ mindset and from focusing on just one figure. Let’s summarise how to prevent these mistakes:

Treat the network as a process.
Optimise for several objectives at once.
Data first, decisions second.
Integrate network design with sales and operations planning.
Build resilience through structure.
Test extreme scenarios.
Involve people and treat software as an advisor.

Frequently Asked Questions (FAQ) about mistakes in building a logistics network

Where should you start when building a logistics network?

With objectives and data, not with a map of warehouses. First, determine what the network is intended to achieve (cost, delivery time, resilience), collect reliable data and map the current state. Only then should you design alternatives.

How often should a logistics network be reviewed?

Not just once every few years, but regularly. A good frequency is a review every quarter or every six months, and it’s essential to do so after any major change, such as entering a new market or changing a supplier.

Do small businesses also make mistakes when building their logistics networks?

Yes, and they often feel the impact more keenly because they have a smaller financial buffer. The good news is that a smaller scale can be an advantage – it is easier and cheaper to redesign a smaller network.

Mistakes in building a logistics network can be anticipated and avoided: all you need to do is stop treating the project as a one-off effort and start looking at cost, service and resilience together. At ADECON, we’ve been doing this for years. We design supply chains to be resilient to crises and changes. Do you want to be sure that your goods will arrive on time, no matter what happens en route? Get in touch.

References

Gartner. (14 August 2024). Gartner survey shows 73% of companies have made supply chain network changes in the past two years. Gartner. https://www.gartner.com/en/newsroom/press-releases/2024-08-14-gartner-survey-shows-73-percent-of-companies-have-made-supply-chain-network-changes-in-the-past-two-years
Joshi, S. (2022). A review on sustainable supply chain network design: Dimensions, paradigms, concepts, framework and future directions. Sustainable Operations and Computers, 3, 136–148.https://doi.org/10.1016/j.susoc.2022.01.001 (open access)
McKinsey & Company. (12 December 2022). Supply chain network reconfiguration for resilience. McKinsey & Company. https://www.mckinsey.com/capabilities/operations/our-insights/operations-blog/supply-chain-network-reconfiguration-for-resilience

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