Hub and spoke model vs. point-to-point system
There are two business models an e-commerce company can choose regarding how products are delivered to customers: the hub and spoke model or the point-to-point system. A point-to-point system is the
opposite of a hub and spoke delivery model.
With a point-to-point system, the item you're distributing goes from one point to the next. There's no central distribution hub.
Let's think about this in terms of e-commerce logistics. With a point to point system, a product is sent directly from the warehouse to the customer. However, with a hub and spoke delivery model, a product is sent from the hub to a small distribution center and then to the customer.
Transportation costs are typically higher the farther a product travels. But with a hub and spoke delivery model, more products are grouped together and shipped to a distribution center, where they can then be delivered to the customer.
Benefits of the hub and spoke model
There are many benefits of using the hub and spoke system for your business's distribution model, including:
A hub and spoke model improves the connectivity between a region's hub and distribution centers.
When all shipments are picked and packed from a central hub, it becomes easier to improve business operations and logistics. It's also much easier to invest in workflow automation when you have this connectivity in place.
For example, when a distribution center has a low inventory of a certain product, it can automatically reorder products from the central hub to reduce the time it takes to deliver products to customers. This helps to improve connectivity between the customer and business and results in better customer service.
The hub and spoke model can improve your productivity in many ways.
With a point-to-point model, it can take longer for a product shipped from one end to reach another without first going to a smaller distribution center. In addition, picking up goods from multiple hubs can be confusing for delivery drivers, forcing them to make multiple back-and-forth long-distance trips.
However, with a hub and spoke model, your delivery agents can pick goods up from a distribution center within the same area and deliver them to customers more efficiently, reducing overall driving time and increasing productivity.
The hub and spoke delivery model reduces distribution costs for retail businesses because it requires less space to store goods and reduces overall logistics costs.
With this model, you can transport goods from a single place to save time and fuel while reducing the total cost of inventory management.
This business model provides flexibility for retailers, allowing for more efficient delivery speed during peak periods like holidays.
Ultimately, the hub and spoke model scales with your business, enabling you to keep monitoring inventory and respond to shortages while cutting costs associated with scaling up delivery efforts.
One of the biggest risks associated with retail is running out of inventory, especially when there is a high demand for certain items. However, the hub and spoke model mitigates this risk by giving you more control and better inventory visibility to watch the stock levels at various locations.
Additionally, you can avoid the risk of lost packages by tracking deliveries and using resources more efficiently.
Challenges of the hub and spoke model
The hub and spoke model isn't the best solution for every type of business. Retail companies primarily use it because it's a distribution method, but that doesn't mean it's the best option for all retail businesses.
This retail business model aims to increase efficiencies within the supply chain, but it can result in hub congestion that affects your bottom line.
A few challenges of the hub and spoke model include the following:
- High costs: The hub and spoke business model can help you reduce logistics costs. However, it may increase inventory costs because you'll need to rotate inventory throughout several distribution centers.
- Customer service issues: Using a hub and spoke model can cause customer service issues because some customers will receive their orders faster than others, depending on where your distribution centers are located. However, as long you're transparent about delivery times on your website, most customers won't complain.
- Slow response times: Shipping products can take longer depending on the distance between various spokes and the central hub.