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The Hub and Spoke Model: Why It's the Optimal Supply Chain Integration Type for Your Business.

Maximizing Efficiency with the Hub and Spoke Model: Cost-Effective, Fast and Reliable

The optimal method for ensuring the efficiency for supply chain integrations and optimisation for businesses is a topic of much debate. Three contrasting logistics strategy approaches, the hub-and-spoke model, VANs and DIY are often discussed. However, when all is said and done, hub-and-spoke integration models emerge as the most cost-effective, the fastest and the most robust of all integration models.

There are Currently Three Major Types of Supply Chain Integrations

Let’s say you’re a small or medium-sized company. You’re handling enough orders that you’ve got someone, or multiple people, working full-time on your supply chain, and they’re managing your orders from suppliers, your warehouses, logistics partners, and 3PLs, your deliveries and your customer orders. All of this is done manually, and soon you’re paying them to do almost exclusively manual data entry.

Looking at some larger companies, you decided that it’s time to automate some of this manual data entry. You’d be right in thinking it would be faster, save you money in the long term, and give you much better visibility over your supply chain. But what’s the first step?

If you’re in this position, you’ve basically got 3 options:

  1. The “Hub and Spoke” Model - this is the best option for most businesses. Integrate your suppliers and systems once into a single platform, and connect seamlessly to as many trading partners as you want.

  2. VANs - a bespoke “value added network”, in which a consultant builds a bespoke network for your systems, and each supplier must integrate with your network. This is currently the most common, but is losing favour as it is prohibitively expensive to create a VAN, and requires massive overheads to maintain.

  3. Do-it-yourself (DIY) - if you’re a particularly tech-savvy company, you may decide to dedicate some of your own software engineers to build a bespoke integration with your systems. There are a few great tools for this, but it’s usually limited to only the most technological companies, and generally requires a huge amount of engineering capacity to set up and manage.

The following table summarises the services and business model for the previously mentioned 3 supply chain integration types:

The three options for companies seeking to create digital supply chain integrations

The Hub and Spoke Model allows Businesses to Streamline their Logistics Operations and Unlocks Low-Cost Integrations for Logistics Needs

What is the Hub and Spoke model?

The hub and spoke model in supply chain involves using a central “hub” or platform to manage and consolidate the flow of goods and materials to multiple destinations. The hub serves as a central point for receiving and sorting items from multiple suppliers and then distributing them to the appropriate spoke locations. This approach can be an efficient way to manage supply chain operations while minimizing implementation and management costs.

This model is the same that is typically used by other integration providers, such as Stripe, Zapier or Workato.

In this model, the hub may also provide value-added services such as quality control, product assembly, or packaging. Trading partners integrate once, requiring a few days of effort, and then are fully plugged into the network, meaning they can onboard other trading partners also in the network instantly.

The hub and spoke model can be used for supply chains of all shapes and size, such as for retailers with multiple distribution centers, e-commerce companies fulfilling orders from multiple locations, or manufacturers coordinating shipments to multiple suppliers or customers.

The diagram below shows what the hub and spoke model looks like.

The “Hub and Spoke” model sees many companies integrate with each other through a central “hub”

Who does the Hub and Spoke model benefit and how?

The Hub and Spoke model benefits businesses of all sizes, especially SMBs which have limited options for advanced supply chain integrations, as well as all parties involved, including retailers, agents, carriers, drivers, and consumers. It offers high-speed integration with flexible integrations between any shipper and any supplier.

For example, every shipper needs to manage their schedules with truckloads heading to single destinations and then return with another full truckload. Returning with another full truckload is not always possible and the transportation and distribution process is far from simple. However, the hub and spoke model simplifies the shipping process, particularly for smaller and fragmented freight. Even those who cannot fill up an entire truck can still take advantage of this model. The central hub of the model enables the sorting, loading, and distribution of various shipments to multiple destinations. By leveraging a software that's tailored to the hub and spoke model, most tasks can be automated, allowing for a quick and efficient process even with a complex logistics network.

The optimised hub and spoke system also provides cost savings. Low costs with no upfront fees benefit businesses with cheaper set-up costs. By centralizing operations at a hub, the transportation cost per delivery can also be decreased. A hub can receive a large number of shipments each day and store them appropriately until a suitable route, truck, and destination are available. New shipments are always arriving, and trucks quickly get loaded to capacity, and therefore this results in significant savings in fuel, wages, and time for the company, which can then lower prices for their customers.

Hub and spoke models are also simple to use due to the effective features of the product where suppliers and shippers integrate once and then remain integrated.

VANs simplify EDI Communication with Reliable Value-Added Networks

What are VANS?

Value-Added Network (VAN) is a third-party provider of electronic messaging services between businesses. External advisors provide 1:1 bespoke digital integrations, where it provides a secure and reliable means for exchanging electronic transactions between businesses, including purchase orders, invoices, and other standardized documents. It acts as a central hub for businesses to transmit these electronic documents to each other, and also provides value-added services such as data mapping, translation, and EDI document management. VANs use standardized protocols and data formats to facilitate communication between businesses, making it easier to streamline supply chain operations and improve overall efficiency.

VANs typically build bespoke, 1:1 integrations that are rigid and entrench supplier relationships. While VANs may offer small, discrete 'hub and spoke'-like networks to enable integrations with some of the largest retailers (e.g. Costco, Walmart, Woolworths, Coles), these networks are often limited to connecting with these big players. As a result, the integration requirements for many businesses are generally not be served by these networks and instead rely on bespoke integrations.

A VAN sees discrete integrations built for each shipper, with supplier integrating with multiple VANs if they trade with multiple shippers. VANs are extremely expensive, and require a large team to build and maintain.

Who does VANs benefit and how?

Large businesses like multinational corporations who are able to afford VANs may be able to benefit most from value-added services with a customised solution to presented supply chain problems. VANs act as a central hub for businesses and therefore businesses are able to transmit these electronic documents to each other.

However, there are limitations of VANs:

  • Very slow onboarding time for new supplier integrations which may take from 1-3 months

  • Cost prohibitive for most companies

  • Expensive due to variable cost per document which is processed and separate integration per partner

  • Requires external consulting team to implement which takes up lots of resources like money and time

  • Does not cater to smaller businesses or businesses that are in the growth stage

DIY Integration Tools Provide Self-Service Integration Solutions for Your Business

What are DIY Integration Tools?

DIY integration tools are platforms that enable companies to create their own supply chain integrations using in-house IT and engineering resources. DIY tools allow customised integration solutions for businesses looking to solve specific supply-chain disturbances or errors.

DIY integrations see each shipper building bespoke integrations to each of their suppliers, and vice versa. While this gives the most fine-grained control, it’s also the most expensive solution and requires the most continuous management.

Who do DIY Integrations benefit and how?

DIY integrations are beneficial for tech-savvy firms with small supply chain, or companies whose entire business is to build supply chain integrations. They provide a flat fee for platform access with a variable cost per API call, and enable firms to target specific integration problems to find customised solutions to solve these matters.

However there are limitations of DIY integration tools:

  • Additional fees per partner integration, for example, fee per file stored, transfer, API calls

  • Very long implementation lead times

  • Requires an advanced team of engineers to implement and then ongoing efforts to maintain them

  • May not be very secure, as companies building DIY solutions may not have access to fully professionalized security teams that manage data transfer and storage according to industry best practice

Conclusion: Switchboard’s Hub and Spoke Model can supercharge your supply chain, unlocking massive value at a tiny fraction of the cost of a VAN

Current solutions for creating digital supply chain integrations - such as Value-Added Networks (VANs) and DIY integrations - fall short in providing businesses with the level of low-cost flexibility they need to benefit from a digital supply chain.

Switchboard’s platform simplifies digital integrations between companies and their trading partners. We connect any supply chain IT system to any other, so that companies can instantly send and receive accurate data with trading partners autonomously. Through Switchboard, companies can access the flexibility and visibility of a hub and spoke model by saving costs, time, and resources. The hub and spoke model utilised by Switchboard is the fastest and easiest on the market, has much lower e2e price than others, and is very simple to use but fit-for-purpose at scale. Switchboard minimises effort for customer teams and is designed to enable and respond to changing business requirements (e.g., new systems, TPs). Switchboard also enables data-driven insights due to improved visibility and control over network of suppliers and customers.

Get in touch with Switchboard today to learn more about the massive value that digital supply chains can have for your business.

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