Warehousing & Fulfillment

The Hub and Spoke Model for Better Inventory Distribution

Warehousing & Fulfillment
December 19, 2023
8 min read

Learn how to lower time in transit and offset freight costs with a hub and spoke distribution model designed for businesses of any size or order volume.

What Is a Hub and Spoke Model?

Hub and spoke is a term used to describe any process that resembles the wheel of a bicycle, where paths (spokes) shoot out from a central location (the hub). In the logistics industry, brands and retailers leverage hub and spoke distribution models to disperse inventory to multiple fulfillment centers from a large distribution center.

Amazon famously uses a hub and spoke distribution model to enable its same-day and one-day delivery by positioning inventory across 8 regional hubs that get products as close as possible to end customers.

However, hub and spoke distribution is not reserved for ecommerce giants like Amazon. By partnering with an on-demand warehousing partner, brands and retailers of all sizes can leverage a hub and spoke network without the overhead of owning and operating multiple warehouses. They can inbound inventory to a centrally-located distribution center where their shipments will be aggregated with other brands so they can share labor and storage costs.

Then the distribution center can consolidate Less than Truckload (LTL) onto a single truckload and disperse it throughout the network. This way, merchants can negotiate for lower full truckload (FTL) rates when shipping smaller amounts of inventory to fulfillment centers across the country. 

Click here to learn more about freight shipping, including LTL vs. FTL.

Hub and Spoke Examples

The classic example of a hub and spoke model is the airline industry. Before airlines were deregulated in 1978, flights were all direct routes. When flying from one small market to another, flights were often nearly empty, which was highly inefficient. After deregulation, airlines started routing flights from smaller markets through major hubs like Atlanta. For example, if you’re flying from Greenville, SC to Tampa, FL, odds are, you’ll have a layover in Atlanta.

Amazon sellers who use FBA for fulfillment are familiar with Amazon’s hub and spoke distribution model for fulfillment. Amazon distributes fulfillment centers across the country to help shorten time in transit (TNT) and facilitate the fast delivery times Prime customers expect.

While the FBA network is highly efficient, many sellers find it limiting. The changing standards for inventory levels and constantly evolving fee structure, make it difficult to manage inbound schedules and monitor profitability. Amazon sellers looking to move away from FBA might be considering Seller Fulfilled Prime (SFP) to gain more control over their inventory and customer data. In order to meet SFP requirements, sellers will likely need to find an outsourced fulfillment partner with an extensive hub and spoke network and the reporting capabilities to determine ideal inventory placement.

Looking for more Amazon fulfillment options? Check out our complete guide to selling on Amazon without FBA.

Is Hub and Spoke Distribution Right for Your Business?

If you’re considering adopting a distributed warehousing model. or if you are already distributing inventory but are struggling with volatile freight schedules, read ahead to decide if a hub and spoke model the best fit for your business. The benefits include:

1. Lower Time In Transit (TNT)

Time in transit (TNT) significantly affects the cost of moving inventory. A hub and spoke model can help lower TNT and offset shipping costs at two phases of the supply chain: receiving inventory from manufacturers into your network and forwarding inventory to your fulfillment centers.

In an effective hub and spoke distribution model, the distribution center (or multiple distribution centers) should be strategically located close to major and/or secondary ports. Having a distribution center in Southern California can significantly lower TNT into your network. Once a container comes off the ship (likely in the port of LA or Long Beach), it will only have a few short hours to travel to the distribution center. Some inventory will stay at the distribution center, and some will be distributed throughout the rest of the network.

With an on-demand warehousing partner like Ware2Go, you will also be able to aggregate your inventory with other merchants, enabling you to distribute your inventory via full truckload (FTL) dedicated lane shipments rather than less than truckload (LTL) shipments. FTL shipments move faster through the network to get your inventory on the shelves and ready to sell quicker.

2. Improved Service Levels

Once the inventory reaches the distribution center (hub), you partner will forward it to fulfillment centers across the country (spokes). This gets inventory as close as possible to its final destination (your end customer) to lower TNT on the final mile. The benefits are two-fold:

  1. Eliminate costly long-zone shipments to control final mile costs.
  2. Affordably meet consumer expectations for 1- to 2-day delivery.

Ultimately, improving service levels is just as much of a consideration for demand generation as it is for customer satisfaction and brand loyalty. Consumers today have the world at their fingertips when it comes to shopping online. On average, they compare options on three websites before making their decision, and 77% are more likely to purchase an item that can be delivered in two days or less. That means if your brand can’t guarantee delivery in 2 days or less, they will likely purchase from one of your competitors who can.

Delivery guarantees influence buyers at the top of the funnel as well. 69% of consumers report that they are more likely to click a display ad that mentions fast and free shipping, while Google reports that listings displaying their free and fast delivery tag have a 9% higher conversion rate.

3. Offset Freight Costs

One consideration when building a distributed warehousing network is freight rates. Most SMBs will ship less than truckload (LTL) freight shipments to the warehouses across their network. Demand for LTL freight is at an all-time high. Merchants who can negotiate full truckload (FTL) rates can offset supply chain costs to realize higher margins

A strategic partner like Ware2Go will also help merchants monitor their order distribution and forecast demand according to geographic region. These insights will inform where inventory should be distributed and how much should be allocated to each region.

4. Lower Inventory Carry Costs

Some merchants may find themselves carrying excess amounts of slow-moving inventory. This can lead to expensive long-term storage rates that significantly erode margins. Ideally, retailers will store slow-moving inventory in low-priority space. Using a hub and spoke distribution model, merchants can keep their “C” and “D” movers at a large distribution center at a lower storage rate and their “A” and “B” movers in more strategic locations. 

The Hub and Spoke Model for Brands of All Sizes

The hub and spoke distribution model enables large retailers to meet consumer expectations for 1- to 2-day delivery without inflating their fulfillment and delivery costs. However, with an on-demand warehousing partner like Ware2Go, brands of all sizes can realize the same efficiency in their own supply chain.

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