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Centralization vs. Decentralization What’s Best for Delivery?
To centralize how you manage your delivery? Or decentralize it and let each hub manage itself? A tough call to make. This post makes your decision easier.
To centralize or not to centralize your delivery operations?
It’s a hard call to make.
In this post, you’ll see the reasons for a centralized approach to delivery management.
You will see the same for decentralization.
In the end, you’ll have a more well-informed understanding of what each approach can do for your delivery.
So, you can make a better decision for your organization.
The Question of Delivery Centralization
Centralization and decentralization apply to all business activities.
Technically, every process is determined by one of two paths.
It is a consolidated approach.
One that relies on key people to make decisions that shape the processes for the entire organization.
Or, it is a delegated approach.
One that leaves the decision making to teams based on their working knowledge and expertise.
Addressing the topic, thought leaders at McKinsey proposed three key questions in this article.
A yes to at least one opens the road for you to centralize.
A no to all three and you should dismiss the notion.
1. Is centralization mandated for your delivery?
A positive answer to this question means you have little choice in the matter.
If you outsource deliveries to a third-party logistics provider, then usually you have one person communicating with that company.
On the other hand, if you have multiple fleets covering multiple delivery areas, you probably have a manager responsible for each site.
In this situation, centralization is not mandated and the answer is NO.
2. Does centralization add significant value to your delivery?
A significant problem of this question is how to determine value.
The solution is to gain clarity.
To do this, set a high goal. If it is high enough, the benefits of centralization will clearly outweigh the disadvantages.
The experts at McKinsey suggest asking the question:
Does the proposed initiative add 10 percent to the market capitalization or profits of the corporation?
For example, if you integrate route optimization software, will this tool reduce the costs of your operations?
Or will it add more overhead?
Will it simplify route planning?
Or complicate the process for everyone involved?
If the answer is negative, there is little room for centralization and you can move on to the next question.
3. Are the risks low for your delivery?
More often than not, the value that centralization generates is uncertain.
Or it takes a long time for you to evaluate it.
In this situation, you have to weigh the risks to your organization.
If the risks are insignificant, you can carry out the plan to centralize your delivery.
For example, a plan to manage operations using a delivery management platform will likely get a positive answer to this question.
You can clearly cut costs if you use one tool instead of a host of disconnected apps.
On the other hand, if that software isn’t compatible with other key software, then the additional resources can be better spent elsewhere.
If you don’t get a YES from at least one question, you should rethink your plan to centralize before moving forward.
Decentralized Approach to Delivery
Each delivery follows different stages in its lifecycle.
And each stage has a different structure, process, and person at the helm.
A decentralized approach to delivery management is grounded on each of those individual parts in your organization.
Every aspect operates independently from the other and within the limits you set. This can be based on:
You manage each delivery area separately.
Each location can receive orders and fulfil them independently from other sites.
It has the infrastructure, fleet of vehicles, depot locations, and workforce in place to complete every stage of the delivery.
You manage deliveries stage-by-stage.
At each stage, there are people, infrastructure, equipment, and tools in place to independently carry out specific tasks.
Only when one task is completed (for example an order is received), the process can move forward to the next stage until you fulfil the order.
You manage deliveries at a team level.
Specialized teams are responsible for completing specific tasks at specific stages of the delivery process.
Each team has a set of goals they have to achieve to fulfil an order.
When you combine their efforts, you can see the results of the organization as a whole.
This kind of organizational planning relies a lot on individuals.
Each person is a professional in his or her field of expertise.
That person is also responsible for performing unique tasks and achieving specific results.
For example, a route planner has to plan the best delivery routes for your drivers.
At the same time, he has to address key metrics in delivery logistics.
If he has to achieve a specific cost per delivery, he will increase route density (number of deliveries per route) to maximize cost-effectiveness.
This gives your staff a lot of independence.
Each professional on your team can make decisions and take action based on the best possible outcome for your organization.
The decentralized approach also gives managers and CEOs more freedom to delegate.
Rather than passively waiting for orders, this lets you empower employees to take a proactive role in your organization.
Distributing responsibilities like this will reduce the pressure of managing large scale delivery operations, especially at the enterprise level.
Another benefit is local talent.
Many decentralized organizations hire professionals close to their delivery networks.
Their working knowledge of the local roads and supply chains makes planning deliveries at new sites.
It also makes your organization more flexible.
Removing the need to train and deploy teams when opening up new networks lets you apply proven delivery tactics to grow your operations.
Instead of sending regional managers from your central offices, you can rely on new hires to put your plans into action.
Inadvertently, this cuts the time it takes to bring a new site online.
But despite the benefits, decentralization isn’t without its downsides.
Disadvantages of Decentralizing Delivery Operations
- Replacing key team members is difficult
- On-premise solutions prevent easy transition
- Specific equipment is tied to specific locations
- Going nowhere fast
- Lack of control
Replacing key team members is difficult
Because each professional is hand-selected for his role, finding a substitute isn’t simple to achieve.
In case of a long absence due to illness or injury, their extensive experience can turn into a hindrance to day-to-day operations.
On-premise solutions prevent easy transition
If you manage each delivery network separately, the software is likely unique to those sites.
In case you have to replace a staffer, the learning curve prevents new employees from their immediate integration into the role.
Specific equipment is tied to specific locations
Because each delivery area is independent, it is difficult for you to consolidate all your assets.
For example, when demand exceeds your capacity at one location, you have to jump through hoops to distribute resources to meet those requirements.
Going nowhere fast
The level of expertise of professionals at different locations means they spend most of their time completing basic tasks.
On the one hand, it can be difficult to maintain their morale.
And on the other hand, sending them to new offices means retraining employees to fill their roles at existing sites. In both cases, turnover is suffering.
Lack of control
Without central oversight and visibility, it is difficult for you to monitor the performance of specific teams.
This can result in inconsistency and inertia at various levels of the delivery process, which can seriously affect the output of your operations.
It also prevents you from applying strategies that drive change across the organization as a whole.
Now it’s time to move on to a different approach.
Centralized Approach to Delivery
At its core, a centralized system is based on consolidation.
Instead of treating each process, person, or structure independently, it combines them into a single more effective whole.
Here, the whole is greater than the sum of its parts.
And one central hub is responsible for managing the entire delivery operation.
To do this, centralized deliveries leverage standardization, collaboration, and communication across the entire organization:
All assets are managed holistically
The CEO, operations managers, and team heads have access to the same resources.
You can actively use these resources and distribute them directly to meet the requirements of a specific situation.
All teams receive orders from one place
Because the entire operation relies on one order management systems, planners and schedulers can work together when assigning deliveries to drivers.
All teams can collaborate on different tasks.
Sharing data and resources across teams, stages of delivery and processes make it possible to streamline operations.
If, for example, a vehicle breaks down, managers can quickly find a replacement vehicle or driver to complete the delivery run.
All teams have access to the most modern systems
Most companies today take this approach because they use modern technology.
Systems like delivery management software make it possible to view, review, and assign tasks for maximum impact and the most efficient results.
All strategies are applied company-wide.
A centralized approach makes it possible to create, adopt, and evaluate tactics that solve the biggest delivery challenges.
In turn, you can optimize operations for maximum performance sooner rather than later.
All teams use the same lines of communication
Since strategies and technologies are adopted across the company, it is easier to set up one channel for communication.
This enables information to flow both top-down (from management down to staff), and bottom-up (from staff to managers).
In taking this approach to delivery management, you can achieve greater consistency both in terms of performance and growth and scalability.
And because everyone is on board, your entire organization is always moving forward.
Is there a balance between a centralized and decentralized approach?
Yes, there is.
Thanks to disruptive technology, like delivery management software, the game has changed.
Before, small and medium businesses relied on manual planning, while large enterprises could afford to use on-premise solutions.
The lack of suitable solutions meant most companies had to adopt a decentralized approach to their delivery operations.
But today, things are different.
Cloud computing has made it possible for SaaS companies to offer quality solutions at the fraction of the cost, and with greater functionality than ever before.
Technically, it’s impossible to imagine an operation that isn’t adopting a cloud-first approach to delivery logistics.
Inadvertently, this has opened many doors.
Technology has allowed more companies to centralize their operations.
At the same time, it enabled more companies to experiment when finding the approach that works best for their organization.
And in fact, this has led to a fusion.
A company with a centralized delivery operation can now decentralize specific processes using the software.
For example, you can use the same platform to plan, route, and dispatch deliveries for drivers.
Simultaneously, integrated apps for drivers allows them to communicate with customers directly, and independently from the central hub.
This can open your organization to new delivery management trends, like letting drivers upsell favourite products or services directly to your customers.
And with this third approach, the question is different than before.
To centralize or not to centralize your delivery?
That is the question that is on every manager’s mind. It’s what keeps them awake at night.
But that’s not the question you should be asking yourself.
Instead, ask yourself the three questions from the beginning of this post.
A yes to just one can set you on the path to centralization.
Even then, opening a debate with your team can help you to build a strategy that works best for your company.
Create a level playing field for both sides of the argument to strike the ideal balance between centralization and decentralization.
And let delivery management software help you find the answer.
We can help with that.
We have everything you need to start improving your delivery.