Many businesses face a difficult time to operate at efficient levels, and the most likely culprit causing this inefficiency is their business model. A Hub and Spoke model might be a good fit for most businesses.
The Hub and Spoke business model was first used in the transportation industry, and has led to driving efficiency across many industries over the years.
Understanding the Hub and Spoke Model
If you’re wondering what a hub and spoke model is, you can think of it as to how McDonald’s operates with a centralized kitchen? Keep reading, you’re on to it!
Yes, it is a distribution strategy, where a hub – which is centralized – distributes the required products or deliverables to local distribution centers.
Coming back to the McDonald’s example. To maintain their quality and consistency, they distribute their ingredients to all their franchises at fixed schedules or based on demand.
So technically, the burger patties, buns, and veggies, are sent to franchises, for further processing.
The central location is referred to as the “HUB,” in this case the centralized kitchen.
The localized distribution centers are called “SPOKES,” in McDonald’s case, the franchise locations.
Hence this distribution model came to be known as Hub and Spoke Model.
Hub and Spoke Model vs. Point-to-Point
The Hub and Spoke distribution approach was intended to replace the Point to Point model.
The Point to Point model focuses on delivering the product from one location to the other. Though it has it’s benefits, but it also has its disadvantages.
When it comes to Direct to Consumer (D2C) brands, the Point to Point distribution strategy could be a blessing. Especially because everything is centralized in a warehouse, and can be delivered directly to a customer – if an order arrives.
Simple and straightforward. However the logistics cost will most definitely be higher because an increasing number of distribution routes might be required.
In contrast, the Hub and Spoke approach can work better for businesses that have a larger distribution landscape, and require more frequent delivery and distribution. It is also great in maintaining consistency and the quality of products.