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The hub-and-spoke model may have been popularized by airline flight paths, but it can also be applied to the logistics process. Doing so leads to a centralized distribution solution from which many businesses can benefit.
Key Takeaways
Join us as we examine this logistics strategy and see what all the hubbub is about.
As the name suggests, this model is based on two primary elements:
Just as spokes radiate outward from the center hub of a wheel, the routes spread outward in multiple directions from a centralized location.
Depending on the size and scope of a carrier’s operation, hubs may be located between large cities or even within a single city. The placement of the distribution center (DC) should make it possible for each spoke to meet customer expectations, such as same-day or two-day shipping.
Larger companies may build out more than one distribution hub. In such an instance, each wheel would function a bit like a cog as well. If a package needed to go from one part of the country to another, the end of the spoke could be a meeting place for item transfers between centralized locations.
To further illustrate how hub and spoke logistics work, let’s start with a small-scale scenario.
You own a meal delivery business in a large city. To handle deliveries, you employ four couriers, who bring orders to your customers according to a predetermined schedule. Each courier handles one of the four cardinal directions as they relate to your business location.
In this example, you have a hub (where you cook and package meals) and four spokes (the routes handled by your couriers). By timing deliveries in specific intervals, each courier can make multiple deliveries along their respective routes and return at approximately the same time. The cycle repeats itself throughout the business day.
This same scenario can illustrate the adaptability of a hub and spoke model. For instance, during one order window, you receive no orders going north and twice the orders you’re used to headed east.
The driver who would have handled the northern route can be reassigned to support the eastbound courier. Doing so allows you to meet customer delivery time expectations without using extra resources.
Once we scale this model up, it quickly becomes more complex. Ecommerce giants use a version of this strategy that incorporates consolidation centers, DCs, and warehouses to build out networks capable of delivering goods anywhere in the country within a matter of days.
Businesses without their own logistics network who need to execute this strategy will often partner with a third-party logistics (3PL) provider to handle the job.
When comparing these two systems, the only guaranteed shared characteristic is that goods are loaded into a delivery vehicle for transport. The systems differ greatly in terms of the number of delivery destinations and warehousing/DC strategies.
By definition, point-to-point logistic systems are networks where one point is connected to another point. Anything traveling from point to point does so directly; there is no stopping.
Hub and spoke logistics have a central hub that may connect to several different points in a network. When transporting from a central hub, the carrier is expected to make stops along the route for multiple deliveries to be completed.
The chart below will further illustrate these differences.
Smaller companies that target specific routes may benefit from point-to-point systems. For instance, a truck moving out of the port of Los Angeles is likely to have a full load. Due to the number of containers that enter the port, it’s common practice to move goods directly from the port to a nearby warehouse.
By contrast, trying to get a full load from Los Angeles to Wichita, Kansas on a regular basis will be more difficult. This is where a company may prefer to establish a hub in a center point of the Midwest, which could reach cities such as Wichita and Denver. In this way, drivers split up long hauls into more manageable trips, and carriers can adjust deliveries as needed to meet demands.
Related: How Milk run Logistics Can Streamline Your Inbound Supply Chain
Improving freight transport usually comes down to increasing efficiency. Whether it’s shaving a few miles off a commonly-used route or getting the most out of trailer space, incremental changes can create long-term financial benefits.
More efficient systems cost less long-term and allow operations to run smoothly. Hub and spoke systems were originally adopted by freight airlines, who wanted to make sure that planes were flying out with a full load of cargo. In today’s trucking and rail industries, the goal is the same.
We can group the benefits of this logistics strategy into two basic categories: optimization and the subsequent cost savings it creates.
Optimizing Routes and Deliveries: Same-day or next-day delivery has become the standard expectation for many consumers. Route optimization is one tool that helps carriers meet that demand, and it can take a few forms, including:
When delivery managers use set paths for the majority of deliveries, the occasional last-minute delivery change is easier to handle. A driver who becomes increasingly familiar with one or two assigned areas is also able to navigate their established route with confidence.
Routine final mile deliveries from familiar faces may provide customers with a sense of comfort and personalization. Those customers are likely to continue doing business with you as a result of the carrier’s dependability.
Simplifying and Lowering Logistical Expenses: Companies will always need to account for logistics costs. In fact, the overall cost of logistics in the U.S. grew to over $2.3 trillion from 2021 to 2022, an increase of 19.6% over the previous year. The majority of that spend is toward transportation.
With good warehouse management and transportation management systems, facilities can maintain consistent delivery schedules and avoid or mitigate any scenarios that slow down business.
Logistical costs are lowered and simplified when:
Companies that use a hub and spoke system report significant savings in overall distribution costs. These savings allow companies to recoup the start-up costs quickly while improving customer satisfaction.
In practice, almost any commodity-based business can reap the benefits of hub and spoke logistics. The size and scale of your enterprise, in addition to the types of goods you sell, should be taken into account when deciding whether to use this strategy.
Hub and spoke logistics can be advantageous for:
As a small business grows, its logistics requirements can scale dramatically in a relatively short period of time. Implementing a hub and spoke delivery model can help you maintain profitability throughout these growing pains.
Related: 10 Reasons You Need to Outsource Inventory Management to a 3PL
As a business grows, its logistics requirements become more complex and demanding. This is why many business owners choose to work with a 3PL to handle their warehousing and shipping. If you’re looking for this and other logistics services, we can help.
Fulfillment and Distribution has warehouses across the United States and access to multiple carriers. This allows us to easily create hub and spoke logistic processes for business of all types and sizes.
Our full list of services includes:
Call us (866) 989-3082 or get a service quote online today and see how we help you drive circles around the competition.
