Distribution Decoded: Hub and Spoke vs Point-to-Point

Ever wonder why some packages take forever to reach you, while others seem to arrive before you even finish ordering them online? Well, that's all thanks to the different distribution models utilised by your delivery service. 

In this blog, we’ll be explaining the differences between the two most common business models in logistics: Hub and Spoke and Point-to-point.

The hub and spoke model is a logistical system whereby shipments are directed through a centralised "hub" before reaching their destination.

The hub and spoke model is extremely popular within supply chain networks, with many having multiple hubs to increase efficiency. 

This model is also commonly used in transportation (such as airline), healthcare and financial industries 

In the hub and spoke system, a central hub acts as the main distribution centre for goods coming in and out. The spokes act as depots, either collecting or delivering these goods, passing through the hub as they do so.

In large networks, the hub sees a huge amount of traffic, serving as many as 100 depots!

The hub isn't just a passing place for shipments, though. It also serves as a centre for communications, quality control, inspection and route planning.

There are many advantages of using the hub and spoke system, these being:

More Environmentally Friendly – the way in which the hub and spoke model works means that there are rarely any empty trailers going to and from the central hub to the depots at the ends of the spokes. Always having full trailers going to and from spokes means no journey is a wasted journey.

• Cost Savings - By centralising the distribution of goods, it reduces transportation costs by allowing goods to be sent in bulk from the hub to multiple spokes. This helps to eliminate the need for multiple shipments from multiple locations.
• Increased Service Levels - By allowing goods to be delivered in bulk from the hub to the spokes, it increases the speed of delivery and allows for increased customer service levels and satisfaction.
• Higher Capacity - By utilising the hub and spoke model, it allows for more goods to be stored and transported at once, allowing for greater capacity and better inventory management.

As with any business model, there are some disadvantages to the hub and spoke system:

• Limited Capacity - The hub and spoke model requires a central hub to store and manage shipments, which can cause capacity problems if the hub is too small to handle the volume of shipments. To combat this, many networks and supply chains utilise multiple hubs across their operating area.
• Longer Transit Times - Since shipments must travel through the hub before reaching their final destination, transit times are generally longer than with a point-to-point model. Quality control, route planning and potential lost shipments can all contribute to delays.

The point-to-point model is different to the hub and spoke model, as it involves no central intermediary to act as a middleman.

Instead, there is a direct, uninterrupted connection between point A and point B, hence the name "point-to-point".

As mentioned, the point-to-point model involves the supplier shipping goods directly to the customer without the need for a central hub. 

Usually, in a point-to-point system, the supplier is responsible for sourcing the goods and shipping them out to the customer.

Like the hub and spoke model, many industries utilise this point-to-point system including direct-to-consumer businesses, e-commerce retailers, and some manufacturers of customised products.

The point-to-point model can also be very effective depending on your business operations. Some of the advantages of using the point-to-point system include: 

• Faster Shipments - as goods don't have to go through a middleman, suppliers won't have to worry about delays from things such as quality control or route planning, ultimately speeding up the shipping process considerably. 
• Greater Control - point-to-point distribution allows companies and suppliers to have greater control over the supply chain, as they are not dependent on a central hub for distribution.
• Increased Customer Satisfaction - by delivering goods directly to the customer, point-to-point distribution can increase customer satisfaction as it improves delivery speed and accuracy and reduces delays.

While point-to-point distribution can offer many benefits, it also comes with a couple of drawbacks:

• Reduced Efficiency - while this method of distribution is fast, it's not as efficient as its hub and spoke counterpart. If you've got multiple drivers in a similar location, placing all these goods onto one trailer and delivering them as a groupage service would be much more efficient. 
• Higher Cost - an effect of having more drivers on the roads means more wages to pay, higher fuel bills, more insurance policies and more staff to plan routes.

While very different, both hub and spoke and point-to-point distribution models are two of the most popular business models, not only in logistics, but in many other industries such as transportation, healthcare and even finance!

With hub and spoke distribution adding a central hub location to facilitate smooth running of logistics, and point-to-point having a direct connection to the supplier and customer, it’s important to note that there is no set model that will work for each business.

We hope this article has helped to answer your burning question. Want to read more industry news? Why not read our library of tailored logistics blogs!