The thought of connecting or transit flights can often seem daunting, especially when long transit times are involved. However, as a trade-off for these potential inconveniences, such flights typically come at a much lower cost, even when booking with premium airlines. These lower prices are made possible by consolidating passengers at a central hub, thereby reducing the number of required flights before transporting them to various destinations.
Now a rather common concept, these transit flights are in fact a prime example of the hub-and-spoke model in the airline industry– pioneered by Delta Air Lines in 1955. Back then, with Atlanta as a central hub, Delta was able to connect smaller southeastern communities to larger cities, successfully increasing flight options and frequencies.
Read on to discover more about the hub-and-spoke model, including its key features, how it works, its advantages and disadvantages, and when to leverage this model for optimal logistics arrangements.
Table of Contents
Understanding the hub-and-spoke model in logistics
How the hub-and-spoke model works in logistics
When to use the hub-and-spoke model in logistics
Centralized excellence
Understanding the hub-and-spoke model in logistics
As the name implies, the hub-and-spoke model is named after the structure of a bicycle wheel as it describes a process where a central hub connects outward to various locations via various routes, resembling the spokes of the wheel. In the transportation logistics industry, FedEx is widely credited as the forerunner in adopting this model to enhance its distribution and transportation processes through a centralized approach. Prior to the adoption of this model, the traditional point-to-point distribution system, which facilitated direct delivery between two points, often became inadequate as businesses expanded and supply chains grew more complex.
In summary, the hub-and-spoke model in logistics includes the following key features:
a) Centralized hub operations: All delivery-related tasks, from inventory management to sorting and consolidating shipments, as well as route control and distribution to multiple spokes, are managed centrally.
b) Efficient resource management: With all shipments consolidated and redistributed in a centralized manner, resources can be efficiently utilized and allocated. The enhanced resource management also manifests through simplified inventory management that focuses solely on the movement of goods between the hub and multiple spokes, reducing complexity in resource distribution.
c) Optimized route and delivery: Through a reduced number of routes, last-mile deliveries are significantly streamlined and optimized, including essential processes such as inventory planning, management, and loading/unloading, thereby achieving cost efficiency through improved operations.
d) Scalable and flexible strategic placement: Strategically placed hubs and spokes offer scalability and flexibility with minimal complexity since this model supports multimodal transportation. Adding spokes typically does not complicate management and therefore supports easy expansion, making this model ideal for both small and large businesses.
How the hub-and-spoke model works in logistics
To begin with, the hub-and-spoke model simplifies distribution by establishing a central hub that receives goods from various suppliers. These goods are then sorted and redistributed to multiple destinations, such as retail stores and other distribution centers, via strategically arranged spoke routes.
Essentially, the center main hub in this model functions as a central storage point and main distribution center. As such, not only should the spoke routes and the final destinations be carefully planned, but the location of the hub must also be thoughtfully selected to be close to the major ports or any key transportation nodes.
In short, the hub should be able to facilitate the continuous movement of goods so that all trailers can be exchanged at an optimal schedule with minimal transit time and minimal disruption to drivers. At the same time, its location must also support easy scalability, which means allowing additional regional warehouses to be added whenever needed.
Finally, while the ease of expanding to more destinations and the ability to apply this model across multiple transportation modes provide businesses with the flexibility to adjust delivery schedules based on market demand and peak season needs, sophisticated systems like Transportation Management Systems (TMS) and Warehouse Management Systems (WMS) can further enhance the scheduling and coordination in this model. These advanced tools can automate essential processes such as route optimization and delivery scheduling, further improving the entire operation.
When to use the hub-and-spoke model in logistics
To understand when a business should utilize the hub-and-spoke model in logistics arrangement, let’s explore a few key perspectives:
1) Identifying the types of businesses that are able to gain the most out of this model,
2) Understanding the specific operational requirements of different businesses, and finally,
3) Considering the types of shipments involved.
First of all, the hub-and-spoke model can be particularly beneficial for certain business types. The most obvious examples are businesses with extensive distribution networks, complex supply chains, and wide geographical reach. These businesses include big and small ecommerce companies on various ecommerce platforms, large retail chains including big-box stores such as Costco, and major food and beverage distributors such as Coca-Cola and Nestlé.
Furthermore, the hub-and-spoke model can also help to simplify the supply chain complexity for global manufacturers such as automotive and pharmaceutical companies. Since these businesses often source raw materials and components worldwide and hence typically operate with intricate supply chains that span multiple continents, their shipping process inevitably involves various transportation methods. They can hence count on the centralized control inherent in the hub-and-spoke model to simplify the entire process while relying on the versatility of utilizing multiple different transportation modes to reach diverse destinations.
Secondly, in terms of specific business requirements, the hub-and-spoke model is ideal for companies that prioritize efficiency in both last-mile delivery and cost management. This model optimizes routing and improves last-mile delivery management, thereby helping to reduce costs through its centralized operations and strategic hub placement. In the meantime, through lower time in transit (TNT) and better resource allocation, the hub-and-spoke model also significantly improves the critical last-mile delivery stage.
Lastly, when it comes to shipment types, Less Than Truckload (LTL) is the most commonly used shipment method under the hub-and-spoke model. While the high demand for LTL shipments is primarily driven by the rapid growth of the ecommerce sector in the United States market, the main reason that this model is particularly suited to LTL shipping is because it aligns well with the essence of LTL shipping, which focuses on the consolidation of various smaller shipments at the hub before distributing them to multiple destinations.
On the other hand, Full Truckload (FTL) shipments are also commonly utilizing the hub-and-spoke model in certain usage cases. For example, when goods from various smaller suppliers or regional hubs have to be consolidated together to form a full truckload destined for a single delivery location. A typical FTL scenario under this model may involve a car manufacturer that requires a full truckload of specific parts shipments, such as engines or transmissions, from various suppliers across the country before delivering them to one of their main factories.
Centralized excellence
At its core, the hub-and-spoke model in logistics is a type of transportation method that helps optimize delivery routes and delivery times by centralizing all warehouse operations and delivery processes at a central hub. The overall process involves the collection of goods from various suppliers, sorting them out, and consolidating them in the hub before delivering them to multiple final destinations through various well-placed spoke routes.
Through such a centralized operation and strategic placement of hubs and spokes, resources can be efficiently managed and allocated as they are all highly concentrated at a single hub. At the same time, the centralized approach also helps to enhance last-mile delivery with its minimized transit time. Its flexibility in supporting various types of transportation modes also makes this model a more scalable and adaptable logistics solution for many businesses.
In a nutshell, the hub-and-spoke model is most beneficial for businesses with extensive distribution networks, complex supply chains, and the need for wide geographical reach. While LTL (Less Than Truckload) is the most commonly used shipment type within this model due to the rapid growth of ecommerce and related industries and in line with its alignment with the nature of this model, FTL (Full Truckload) shipments can also benefit from this model under certain scenarios, particularly for industries like automotive.
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