Global Supply Chain MGT Assignment 1

BACHELOR OF ARTS (HONS) IN INTERNATIONAL BUSINESS 2010
Global Supply Chain Management 1

TABLE OF CONTENTS
Abstract .....................................2
Introduction .....................................3
Supply Chain and EIIective Distribution Networks..................6
Distribution Network Designs..........................................6
Determining Factors Ior EIIective Distribution Network.................13
Conclusions.................................18
ReIerences...................................19

ABSTRACT
Supply chain management is an important determinant oI organisational eIIectiveness. However,
since objective oI supply chain management is to IulIil customer requests and demands, there is
need Ior an eIIective distribution network in order to perIorm these Iunctions. In order to do this,
there is need to choose an eIIective and suitable distribution network that will meet the Iirm and
customer needs. ThereIore, this work is meant to examine the relationship between supply chain
management and eIIective distribution network. Also it explores and assesses the need Ior
eIIective distribution networks and provides eIIective strategy towards achieving an eIIective
organisational network design in the supply chain.

NTRODUCTON
In a highly competitive environment, today`s companies are gradually realising the need to
consider their decisions in inventory, transportation, and Iacility location in an integrated manner.
This has also led to the emphasis oI the importance oI Supply Chain Management (SCM). The
Supply Chain Management principle has been considered as the most eIIective operations
strategy to gain organisational competitiveness through the network oI close collaboration and
integration in term oI demand and supply. It is a principle emphasising the utilisation oI an
eIIicient integrated system oI suppliers, producers, customers, buIIers, inIormational Ilow, and
logistic distribution, so that items can be produced and distributed system-wide at the right
quantities, locations, and time to minimise costs and maximise services. Supply chain activities
can cover everything Irom designing to product development, sourcing, manuIacturing,
marketing, logistics, and inIormation systems needed to coordinate these activities.
A Supply Chain encompasses all activities in IulIilling customer demands and requests. These
activities are associated with the Ilow and transIormation oI goods Irom the raw materials stage,
through to the end user, as well as the associated inIormation and Iunds Ilows. There are Iour
stages in a supply chain: the supply network, the internal supply chain (which are manuIacturing
plants), distribution systems, and the end users. Moving up and down the stages are the Iour
Ilows: material Ilow, service Ilow, inIormation Ilow and Iunds Ilow. E-procurement links the
supply network and manuIacturing plant, e-distribution links the manuIacturing plant and the
distribution network, and e-commerce links the distribution network and the end users.
Supply Chain Management involves a set oI synchronised decisions and activities utilised to
eIIiciently integrate suppliers, manuIacturers, warehouses, transporters, retailers, and customers
so that the right product or service is distributed at the right quantities, to the right locations, and
at the right time, in order to minimise system-wide costs while satisIying customer service level
requirements. The objective oI Supply Chain Management (SCM) is to achieve sustainable
competitive advantage (Abdinnour-Helm, 1999).
Supply chain management (SCM) is a competitive strategy aiming at achieving organisational
competitiveness in the course oI Ilexibility and responsiveness by integrating relationships and
coordinating eIIorts oI business suppliers and customers (Gunasekaran & Ngai, 2004).
Researchers such as Gunnarsson and Jonsson (2003) and Themistocleous, M. et al. (2004)
described SCM as a network oI relationships and connections between partners like suppliers
and customers. It is also regarded as an integrated management Irom designing product to
development, business links, inIormation Ilows, and people (Themistocleous, et al. 2004). SCM
aims to achieve business competitive advantages through the coordination oI resources and the
optimisation oI activities across the supply chain.
According to Chopra and Meindl (2004) supply chain consists oI all stages, direct and indirect,
involved in IulIilling customer requests. They listed Iive typical supply chain stages:
O Components / raw materials
O ManuIacturers
O holesalers and distributors
O Retailers
O Customers
However, because businesses set up primarily to provide service have little connection with a
manuIacturing process, their supply chains encompass only some oI the traditional supply chain
stages. The seller provides the item Ior sale, Iilling the initial supply chain stage. The items listed
Ior sale may be classiIied as the 'inventory in the process.

-----------------Sellers------------ -----Distribution Function----- Buyer
Lummus and Vokurka (1999) developed a summary deIinition oI the supply chain based on the
works oI numerous authors. They state that supply chains consist oI 'all the activities involved in
delivering a product Irom raw material through to the customer including.distribution across
channels, delivery to the customer, and the inIormation systems necessary to monitor all oI these
activities (Lummus & Vokurka, 1999).
The Iocus is on selecting a Iew good suppliers and maintaining a good relationship with them.
Maloni and Benton 1997, review the conceptual literature oI supply chain partnerships, point out
the associated risks and beneIits, and outline the critical success Iactors Ior implementing such
partnerships. The management oI the downstream customer network ensures that customers
receive the products they want in a timely manner. The Iocus is on the distribution channels that
the Iirm employs to send the product to the end customer. Throughout the supply chain, the
emphasis is on reducing inventory, hence reducing cost. The ultimate goal is customer
satisIaction through delivering a quality product at a good price and in a timely Iashion.
Its coordination and optimisation activities include planning, supply and demand, managing
operations and inIormation, sourcing materials and components, running productions, tracking
quality and inventories, and delivering to end users and customers (Chow et al., 2008).
Achieving organisational competitiveness depends upon how eIIectively SCM is implemented.
An eIIective SCM can result in organisational competitiveness in productivity gain, product
quality, greater operational eIIiciencies, lower operational costs, Iaster products delivery to
market, proIitable growth, and higher customer satisIaction.
According to Keskinocak and Tayur (2001), the primary goal oI supply chain management is to
deliver the correct product to the correct place at the correct time while maintaining cost
eIIiciencies. They identiIied three components oI a supply chain which are sourcing/procurement,
manuIacturing and distribution and inventory disposal. These three components oI the supply
chain were Iurther explained by Gunasekaran et al. (2008) as the Iive necessary basic Iunctional
Suppliers ManuIacturer Distributor Retailer Customer
activities to achieve competitiveness through responsive supply chain. These Iunctional activities
which are somewhat related to the value chain include:
1. !rocurement (maximum purchasing discounts)
2. Inbound logistics (low transportation cost)
3. Operations (low production costs)
4. Marketing and sales (wide product range/high availability)
5. Outbound logistics (low transportation costs).

The integration oI inIormation Ilows Irom both intra and inter-organisational levels Ior the
supply chain is very important (Bartezzaghi, 1999). As stated by Themisocleous et al. (2004), an
eIIective SCM can be achieved through successIul integration oI business processes and
inIormation Ilows oI the partners within the supply chain. Themistocleous et al. (2004)
identiIied many obstacles and problems to integrate business processes and inIormation Ilows
among the supplies and customers within the supply chain. They acknowledged there is no
single integration technology available to overcome all obstacles embedded in the integration
process. In their studies, they proposed a Iramework and suggested to overcome the integration
process through the concept oI multiple permutations integration. SCM is operations paradigm
Ior business competitiveness in the 21st century (Sreenivas and Srinivas, 2008).
The supply chain always begins with a need. For example, a customer places an order Ior a Dell
computer through the Internet. Since Dell does not have distribution centres, this order triggers
the production at Dell`s manuIacturing centre, which is the next stage in the supply chain.
Microprocessors used in the computer may come Irom AMD and a complementary product like
a monitor may come Irom Sony. Dell receives such parts and components Irom these suppliers,
who belong to the up-stream stage in the supply chain. AIter completing the order according to
the customer`s speciIication, Dell sends the computer directly to the users through U!S, a third
party logistics provider. In this supply chain, Dell is the captain oI the chain; the company selects
suppliers, Iorges partnerships with other members oI the supply chain, IulIils orders Irom
customers and Iollows up the business transaction with services (Magretta, 2008).
SUPPLY CHAN MANAGEMENT AND EFFECT'E DSTRBUTON NETWORKS
Distribution is an important Iactor to consider Ior the eIIiciency oI the supply chain. Distribution
here reIers to the steps taken to move and store a product Irom the supplier stage to a customer
stage in the supply chain. It is a key driver oI the overall proIitability oI a Iirm because it directly
impacts both the supply chain cost and the customer experience. Good distribution can be used to
achieve a variety oI supply chain objectives ranging Irom low cost to high responsiveness. The
choice oI the distribution can be used to achieve a variety oI supply chain objectives ranging
Irom low cost to high responsiveness. The perIormance oI the distribution network is usually
assessed by the customer needs that are met and the cost oI meeting customer needs. This is
because customer needs that are met inIluence the company`s revenues, which along with cost
decide the proIitability oI the delivery network (Chopra and Meindl, 2004).
Distribution network design is usually inIluenced by response time, product variety, product
availability, customer experience, order visibility and returnability. Response time is the time
between when a customer places an order and receives delivery. !roduct variety is the number oI
diIIerent products and conIigurations that a customer desires Irom the distribution network.
Availability is the probability oI having a product in stock when a customer order arrives.
Customer experience includes the ease with which the customer can place and receive their order.
Order visibility is the ability oI the customer to track their order Irom placement to delivery.
Returnability is the ease with which a customer can return unsatisIactory merchandise and the
ability oI the network to handle such returns.
DSTRBUTON NETWORK DESGNS
There are six distinct distribution network designs and they are classiIied as Iollows:
1. ManuIacturer storage with direct shipping
2. ManuIacturer storage with direct shipping and in-transit merge
3. Distributor storage with package carrier delivery
4. Distributor storage with last mile delivery
5. ManuIacturer / distributor storage with costumer pickup
6. Retail storage with customer pickup
Manufacturer Storage with Direct Shipping
This is a distribution network design where products are shipped directly Irom the manuIacturer
to the end customer, bypassing the retailer (who takes the order and initiates the delivery request).
This option is also reIerred to as drop shipping and all inventories are stored at the manuIacturer.
InIormation Ilows Irom the customer, via the retailer, to the manuIacturer, while product is
shipped directly Irom the manuIacturer to customers. One oI the strategies Ior achieving this
distribution network design is through drop shipping. Drop shipping is a supply chain
management technique in which the retailer does not keep goods in stock, but instead transIers
customer orders and shipment details to either the manuIacturer or a wholesaler, who then ships
the goods directly to the customer. As in all retail businesses, the retailers make their proIit on
the diIIerence between the wholesale and retail price (Coe, Kelly and Yeung, 2008).
ManuIacturer storage with direct shipping have one important advantage which is the ability to
centralise inventories at the manuIacturer. A manuIacturer can aggregate demand and provide a
high level oI product availability with lower levels oI inventory than individual retailers. The
beneIits Irom centralisation are highest Ior high value, low volume items with unpredictable
demand. The inventory beneIits oI aggregation are small Ior items with predictable demand and
low value. Drop shipping also oIIers the manuIacturer the opportunity to Iurther lower
inventories by postponing customisation until aIter the customer order has been placed. Build-to-
order companies such as Dell hold inventories as common components and postpone product
customisation, thus lowering the level oI inventories carried.

Also in this distribution network design supply chains save on the Iixed cost oI storage Iacilities
because all inventories are centralised at the manuIacturer. There can be some savings oI
handling costs as well because the transIer Irom manuIacturer to retailer no longer occurs.
Handling costs can be signiIicantly reduced iI the manuIacturer has the capability to ship orders
directly Irom the production line. However, a good inIormation inIrastructure is needed so that
the retailer can provide product availability inIormation to the customer even though the
inventory is located at the manuIacturer. The customer should also have visibility into order
processing at the manuIacturer even though the order is placed with the retailer. Drop shipping
will generally require signiIicant investment in the inIormation inIrastructure (Raman and Bharat,
1997).
Given its perIormance characteristics, manuIacturer storage with direct shipping is best suited Ior
a large variety oI low demand, high value items where customers are willing to wait Ior delivery
and accept several partial shipments. ManuIacturer storage is also suitable iI it allows the
manuIacturer to postpone customization, thus reducing inventories. For drop-shipping to be
eIIective, there should be Iew sourcing locations per order. It is thus ideal Ior direct sellers that
are able to build-to-order. Drop shipping is hard to implement iI there are more than 20-30
sourcing locations that have to ship directly to customers on a regular basis. For products with
very low demand, however, drop shipping may be the only option (Chopra, 2003).
Manufacturer Storage with Direct Shipping and n-Transit Merge
This distribution network design combines pieces oI the order coming Irom diIIerent locations so
that the customer gets a single delivery unlike pure drop shipping where each product in the
order is sent directly Irom each manuIacturer to the end customer. As with drop shipping, the
ability to aggregate inventories and postpone product customisation is a signiIicant advantage oI
in-transit merge. This design is oI greatest beneIits Ior products with high value whose demand is
hard to Iorecast, in particular iI product customisation can be postponed. In most cases,
transportation costs are lower than drop shipping because oI the merge that takes place at the
carrier hub prior to delivery to the customer. An order with products Irom three manuIacturers
thus requires only one delivery to the customer compared to three that would be required with
drop shipping. Fewer deliveries save transportation cost and simpliIy receiving. Facility and
processing costs Ior the manuIacturer and the retailer are as in drop shipping. The party
perIorming the in-transit merge has higher Iacility costs because oI the merge capability required.
Receiving costs at the customer are lower because a single delivery is received (Chopra, 2003).

Overall supply chain Iacility and handling costs are somewhat higher than drop shipping. In-
transit merge requires a very sophisticated inIormation inIrastructure because besides
inIormation, operations at the retailer, manuIacturers, and the carrier must be coordinated. The
investment in inIormation inIrastructure will be higher than Ior drop shipping. Response times,
product variety, and availability are similar to drop shipping. Response times may be marginally
higher because oI the need to perIorm the merge. Customer experience is likely to be better than
drop shipping because the customer receives only one delivery Ior their order instead oI many
partial shipments. Order visibility is a very important requirement. hile the initial setup is
diIIicult because it requires integration oI manuIacturer, carrier, and retailer, tracking itselI
becomes easier given the merge that occurs at the carrier hub. Returnability is similar to drop
shipping. !roblems in handling returns are very likely and the reverse supply chain will continue
to be expensive and diIIicult to implement as with drop shipping (Chopra and Meindl, 2004).
The main advantage oI in-transit merge over drop shipping is the somewhat lower transportation
cost and improved customer experience. For example when a customer orders a car Irom Toyota
along with Michelin tires, the package carrier picks up the car at the Toyota Iactory, the tires at
the Michelin Iactory and merges the two together at a hub beIore making a single delivery to the
customer thereIore saving on transportation cost. The major disadvantage is the additional eIIort
during the merge itselI. Given its perIormance characteristics, manuIacturer storage with in-
transit merge is best suited Ior low to medium demand, high value items where the retailer is
sourcing Irom a limited number oI manuIacturers. Compared to drop shipping, in-transit merge
requires a higher volume Irom each manuIacturer to be eIIective. II there are too many sources,
in-transit merge can be very diIIicult to coordinate and implement. In-transit merge is best
implemented iI there are no more than Iour or Iive sourcing locations and each customer order
has products Irom multiple locations. The in-transit merge oI a Toyota car with a Michelin tire is
appropriate because product variety is high but there are Iew sourcing locations with relatively
large total volume Irom each sourcing location.
Distributor Storage with Package Carrier Delivery
Distribution storage with package carrier delivery is a distribution network design where
inventory is not held by manuIacturers at the Iactories but is held by distributors/retailers in
intermediate warehouses and package carriers are used to transport products Irom the
intermediate location to the Iinal customer. Relative to manuIacturer storage, distributor storage
will require a higher level oI inventory because the distributor / retailer warehouse aggregates
demand uncertainty to a lower level than the manuIacturer. From an inventory perspective,
distributor storage makes sense Ior products with somewhat higher demand. In some instances,
postponement can be implemented with distributor storage but it does require that the warehouse
develop some assembly capability. Distributor storage, however, requires much less inventory
than a retail network (Chopra, 2003).

Transportation costs are somewhat lower Ior distributor storage compared to manuIacturer
storage because an economic mode oI transportation (e.g. truckload) can be employed Ior
inbound shipments to the warehouse, which is closer to the customer. Unlike manuIacturer
storage where multiple shipments may need to go out Ior a single customer order with multiple
items, distributor storage allows outbound orders to the customer to be bundled into a single
shipment Iurther reducing transportation cost. Transportation savings Irom distributor storage
relative to manuIacturer storage increase Ior Iaster moving items. Compared to manuIacturer
storage, Iacility costs are somewhat higher with distributor storage because oI a loss oI
aggregation. !rocessing and handling costs are comparable to manuIacturer storage unless the
Iactory is able to ship to the end customer directly Irom the production line. In that case,
distributor storage will have higher processing costs. From a Iacility cost perspective, distributor
storage is not appropriate Ior extremely slow moving items.
Response time with distributor storage is better than with manuIacturer storage because
distributor warehouses are, on average, closer to customers and the entire order is aggregated at
the warehouse when shipped. arehouse storage will limit to some extent the variety oI products
that can be oIIered. Grainger does not store very low volume items at its warehouse, relying on
manuIacturers to drop ship those products to the customer. Customer convenience is high with
distributor storage because a single shipment reaches the customer in response to an order. Order
visibility becomes easier than with manuIacturer storage because there is a single shipment Irom
the warehouse to the customer and only one stage oI the supply chain is directly involved in
Iilling the customer order. Returnability is better than with manuIacturer storage because all
returns can be processed at the warehouse itselI. The customer also has to return only one
package even iI the items are Irom several manuIacturers. Distributor storage with carrier
delivery is well suited Ior medium to Iast moving items. Distributor storage also makes sense
when customers want delivery Iaster than oIIered by manuIacturer storage but do not need it
immediately. Distributor storage can handle somewhat lower variety than manuIacturer storage
but can handle a much higher level oI variety than a chain oI retail stores (Chopra and Meindl,
2004).
Distributor Storage with Last Mile Delivery
This is a distribution network design where the distributor / retailer deliver the product to the
customer's home instead oI using a package carrier. Unlike package carrier delivery, last mile
delivery requires the distributor warehouse to be much closer to the customer, increasing the
number oI warehouses required. It requires higher levels oI inventory than all options other than
retail stores, because it has a lower level oI aggregation. From an inventory perspective,
warehouse storage with last mile delivery is suitable Ior relatively Iast moving items where
disaggregation does not lead to a signiIicant increase oI inventory. Staple items in the grocery
industry Iit this description. Transportation costs are highest using last mile delivery. This is
because package carriers aggregate delivery across many retailers and are able to obtain better
economies oI scale than available to a distributor / retailer attempting last mile delivery (Chopra,
2003).
Facility and processing costs are very high using this option given the large number oI Iacilities
required. Facility costs are somewhat lower than a network with retail stores but much higher
than either manuIacturer storage or distributor storage with package carrier delivery. !rocessing
costs, however, are much higher than a network oI retail stores because all customer participation
is eliminated. A grocery store doing last mile delivery perIorms all the processing until the
product is delivered to the customer's home unlike a supermarket where there is much more
customer participation. The inIormation inIrastructure with last mile delivery is similar to
distributor storage with package carrier delivery. It requires, however, the additional capability
oI scheduling deliveries. Response times are Iaster than the use oI package carriers. !roduct
variety is generally lower than distributor storage with carrier delivery.

The cost oI providing product availability is higher than every option other than retail stores. The
customer experience is very good using this option, particularly Ior bulky, hard to carry items.
Order visibility is less oI an issue given that deliveries are made within 24 hours. The order-
tracking Ieature does become important to handle exceptions in case oI incomplete or
undelivered orders. OI all the options discussed, returnability is best with last mile delivery
because trucks making deliveries can also pick up returns Irom customers. Returns are more
expensive to handle than at a retail store where a customer can bring the product back. In areas
with high labour cost, it is very hard to justiIy distributor storage with last mile delivery on the
basis oI eIIiciency or improved margin. It can only be justiIied iI there is a large enough
customer segment willing to pay Ior this convenience. In that case, an eIIort should be made to
couple last mile delivery with an existing network to exploit economies oI scale and improve
utilisation (Chopra and Meindl, 2004).

Manufacturer / Distributor Storage with Costumer Pickup
ManuIacturing / distribution storage with consumer pickup involves the storage oI inventory at
the manuIacturer or distributor warehouse and customers place their orders online or on the
phone and then come to designate pickup points to collect their orders. Orders are shipped Irom
the storage site to the pickup points as needed. Inventory costs using this approach can be kept
low with either manuIacturer or distributor storage to exploit aggregation. Transportation cost is
lower than any solution using package carriers because signiIicant aggregation is possible when
delivering orders to a pickup site. This allows the use oI truckload or less-than-truckload carriers
to transport orders to the pickup site. !rocessing costs at the manuIacturer or the warehouse are
comparable to other solutions. !rocessing costs at the pick up site are high because each order
must be matched with a speciIic customer when they arrive. Creating this capability can increase
processing costs signiIicantly iI appropriate storage and inIormation systems are not provided.
Increased processing cost at the pickup site is the biggest hurdle to the success oI this approach
(Chopra and Meindl, 2004).
A signiIicant inIormation inIrastructure is needed to provide visibility oI the order until the
customer picks it up. Very good coordination is needed between the retailer, the storage location,
and the pickup location. A response time comparable to the use oI package carriers can be
achieved in this case. Variety and availability comparable to any manuIacturer or distributor
storage option can be provided. There is some loss oI customer experience because unlike the
other options discussed, customers must come and pick up their orders. On the other hand,
customers who do not want to pay online can pay by cash using this option. In some cases, this
option can be considered more convenient because it does not require the customer to be at home
at the time oI delivery.

Order visibility is extremely important Ior customer pickups. The customer must be inIormed
when the order has arrived and the order should be easily identiIied once the customer arrives to
pick it up. Such a system will be hard to implement because it requires integration oI several
stages in the supply chain. Returns can potentially be handled at the pickup site. From a
transportation perspective, however, return Ilows can be handled using the delivery trucks. For
customers, returning a product will be easy because they have a physical location to bring it to.
Overall, returnability is Iairly good using this option. The main advantage oI a network with
consumer pickup sites is that it can lower delivery cost, thus expanding the set oI products sold
as well as customers served online. The major hurdle is the increased handling cost at the pickup
site. Such a network is likely to be most eIIective iI existing locations such as convenience or
grocery stores are used as pickup sites because such a network improves the economies Irom
existing inIrastructure. UnIortunately, such sites are typically designed to allow the customer to
do the picking and will need to develop the capability oI picking a customer speciIic order
(Maloni and Benton, 1997).
Retail Storage with Customer Pickup
Here, inventory is stored locally at retail stores. Customers either walk into the retail store or
place an order online or on the phone, and pick it up at the retail store. Local storage increases
inventory costs because oI lack oI aggregation. For very Iast moving items, however, there is
marginal increase in inventory even with local storage. Transportation cost is much lower than
other solutions because inexpensive modes oI transport can be used to replenish product at the
retail store. Facility costs are high because many local Iacilities are required. A minimal
inIormation inIrastructure is needed iI customers walk into the store and place their order.
For online orders, however, a signiIicant inIormation inIrastructure is needed to provide visibility
oI the order until the customer picks it up. Very good response times can be achieved in this case
because oI local storage. !roduct variety stored locally will be lower than other options. It is
more expensive than all other options to provide a high level oI product availability. Order
visibility is extremely important Ior customer pickups where orders are placed online or on the
phone. Returns can be handled at the pickup site. Overall, returnability is Iairly good using this
option (Chopra, 2003).
The main advantage oI a network with local storage is that it can lower the delivery cost and
provide a Iaster response than other networks. The major disadvantage is the increased inventory
and Iacility costs. Such a network is best suited Ior Iast moving items or items where customers
value the rapid response.
DETERMNNG FACTORS FOR EFFECT'E DSTRBUTON NETWORK
In distribution network planning, there is a well established relationship between the number oI
distribution points, transportation costs and customer service targets. In a graphical sense, the
point at which these three entities merge is the optimum balance oI Iacility and transportation
costs to develop a low-cost, high service distribution network. Normally, as distribution
networks become more centralised, so do the internal support structures such as Iacility
management, order entry, customer service and data processing. Depending on the degree oI
centralisation achieved in support staIIs, it is not uncommon to see cost savings oI 50 or higher
over decentralised networks. The service levels, limitations on total Iacility size; risk mitigation
and throughput peaks must be Iactored into the decision matrix.
Sreenivas and Srinivas, 2008 identiIied the Iollowing Iactors (centralised vs. regional and
regional vs. centralised) as determinants oI distribution network eIIectiveness:
1. Energy: Any signiIicant shiIt in the cost oI energy could have an impact on operating costs
and distribution. Many distribution projects that are otherwise viable Iail once the cost oI energy
becomes a Iactor. This is especially true Ior energy-intensive Iacilities such as reIrigerated
warehouses. For this reason, it is crucial to work with all energy providers to determine the load
that a prospective operation would put on the local energy system and develop solutions that
conserve energy while achieving goals. Some interesting energy solutions are: abatement
program, high-eIIiciency units, cube out containers, modes oI assessment, transportation
management systems (TMS), private Ileet concerns.
2. Flexibility: It is a key to continued success Ior some and survival Ior others. hen designing
a distribution Iacility, speciIying versatile equipment is a critical requirement. The latest
technology may look nice at start up, but iI it cannot keep pace with unpredictable events, it is
simply a waste oI money. !lanning Ior likely (and unlikely) changes in the distribution proIile
should drive the warehouse design and equipment speciIications. For the majority oI distribution
operations, Ilexible equipment is the more practical choice.
3. Global Marketplace: In the ever-changing supply chain, global impact must always be
considered. This could be as minor as a domestic customer wanting direct shipments to an
international location, or as major as an acquisition by a global company or addition oI a key
global account. SuccessIul distribution operations are ready Ior this type oI change.
Transportation systems should be designed with exports in mind; there should be contingencies
Ior customs documentation and international shipping paperwork. Operations should be designed
in a manner that product relabeling or special packaging Ior international customers can be
accomplished easily. Facilities may need to accommodate inbound or outbound airIreight or
ocean Ireight containers. Customer service Iunctions may need to operate in 24-hour mode to
assist customers in all time zones. !reparedness is the critical element in a global marketplace. II
you are not a global company today, your success will drive you into that marketplace sooner
rather than later.
4. Government nvolvement: Just as government involvement has an impact on distribution,
distribution leadership has an obligation to be involved and aware oI legislation that involves
their industry. Many decisions are made daily at a local, state, and Iederal level that impact
distribution operations. Taxes, labour regulations, transportation restrictions, and inIrastructure
decisions are continually up Ior review and discussion at every level oI government. ithout
proper input, uninIormed decisions oIten have a dramatic eIIect on the distribution community.
In addition, involvement in proIessional societies (many oI which conduct lobbying activities) is
an eIIective way to track the pulse oI legislative movement and also an ideal Iorum to make our
concerns known. For some ambitious souls, a direct role in local or municipal government may
be an eIIective and IulIilling way to make an impact. By being proactive, distribution leaders can
ensure that distribution and government entities can collaborate to provide beneIit to both sides
without unpleasant surprises.
5. nformation Systems: In today`s e-enabled world, timely and accurate inIormation is a
requirement. The days oI keypunching in daily distribution activity and nightly updates to host
Iinancial systems are becoming a distant memory Ior successIul distribution operations. Today`s
reality is that distribution execution systems must be:
O Real-time - Customer requirements are moving toward being able to instantly track an
order through very step oI the IulIilment process to delivery. Optimally, this inIormation
is linked to an Internet Iront-end where a customer can easily log in and see the exact
status oI their order. Real-time interIaces and host system updates enable this customer-
Iocused initiative.
O Paperless - The reality is that paper equates to errors. Language and educational barriers
result in pick documents that are oIten misinterpreted, at best resulting in lost dollars
within the distribution operation or, worse still, lost customers due to IulIilment issues
that escape even the best inspection processes. The solution is paperless systems
requiring operator validation that the right steps were Iollowed and that the correct
product was picked and packed.
6. Standardised: ith the high growth associated with a successIul distribution operation, many
oI these companies are Iinding that the investment to develop and maintain an in-house system
no longer is viable. Standardised, industry-tailored soItware is now the rule rather than the
exception. SoItware companies leverage their client base to continually update their product,
adding Iar more base Iunctionality than inIlexible legacy systems.
7. Modularity: As companies in the distribution space come and go, their business will typically
move to a new distributor or distributors. The ability to quickly take on signiIicant business
volumes dictates that modularity is a necessity Ior a thriving distribution organisation.
Modularity must be evident in: assets, work assignment, labour management systems.
8. Off-Highway 'ehicles: Globally, issues regarding the environment and air quality continue to
be under scrutiny. The push Ior more stringent air-quality regulations will impact the warehouse.
Electric vehicles will take over as the preIerred models in the warehouse, displacing non-electric
vehicles in the process. As this evolution occurs, manuIacturers oI electric rolling stock will
respond with higher power, higher eIIiciency vehicles to Iacilitate this process.
9. Pace: Anyone with access to eb sites can now order product, speciIy their service
requirements, pay Ior their order online, and track the order right to their doorstep. For
distributors, this means that the pace oI distribution must increase signiIicantly to account Ior the
reduced lead times, shorter product lives, increased inventory turnover, and greater customer
expectations that is considered standard in the modern business-to-business and business-to-
consumer marketplace. II a customer places an order today with next-day delivery, a company
that picks and ships the order the next day will not be competitive Ior long. The entire supply
chain needs to keep pace, Irom vendor compliance to inIormation and execution systems in order
to support the new economy that the Internet has enabled.
10. People: Success demands a team-based, participatory organisational culture and a total
dedication to customer satisIaction. There are many ways to achieve this, ranging Irom simple
solutions such as employee celebration days, employee suggestion programs, and other simple
programs to more structured approaches such as revised organisational designs,
compensation/incentive/bonus plans, and other processes that is directly tie the distribution
associates on the Iloor to satisIied customers.
11. Price: hile service and quality are key Iactors in selecting a distribution partner, Ior many
companies, decisions still comes down to price. SuccessIul past relationships are no longer a
good indicator oI the Iuture. Modern Iree enterprise demands eIIicient, eIIective, and low-cost
distribution. Competition is Iierce and many low-cost providers will not be here tomorrow as
they undercut the market to get short-term volumes at an operating loss. The goal oI a successIul
distribution operation should be to operate within their core values at the lowest cost possible.
The path to competitive pricing is to operate eIIiciently and Ilexibly at low cost-to oIIer low
prices any other way is inviting Iailure.
12. Accountability: A successIul distribution operation must have accountability. Accountability
is made possible by eIIective leadership, clear communications, and eIIicient systems and
equipment to enable productive operations and a IulIilling work environment. Accountability
requires that leadership make diIIicult decisions while maintaining the commitment oI the
organisation. Accountability requires establishing standards, identiIying improvement
opportunities and measuring perIormance. Also required is some Iorm oI a reward process that
answers the inevitable question, 'hat is in this Ior me? Care must be taken that any rewards
are tied to something that can be quantiIied as a true beneIit to the organisation; rewards without
a basis will result in lack oI credibility and a process that will ultimately Iail.
13. Reverse Logistics: How to handle the products that are coming back into the operation as
well as any returnable packaging that must be accounted Ior on a regular basis is a challenge.
The decision on whether to accept the product, whether a reIused shipment, an authorised
customer return, or an unexpected return must be planned Ior and communicated with the
distribution operation as well as the receiving and handling process Ior the product or chaos will
likely ensue.
14. Third Party Logistics (3PL): A growing number oI companies are turning to 3!L
organizations to handle the customer IulIilment portion oI their supply chain. Companies that are
accustomed to true partnering with customers and suppliers have less trouble migrating to the
3!L world and achieving the potential cost savings. The key steps are to conduct a
comprehensive search Ior the right 3!L vendor, thoroughly review cost proposals and contracts
to ensure there is Iinancial beneIit, and work with the 3!L to make their operation is a seamless
extension oI your company. This may involve shared management, integrated execution systems
and a uniIied appearance to partners and customers.
15. 'ariety: Special packaging, unitising, pricing, labelling, kitting and delivery requirements
are becoming the norm and must be addressed in any distribution plan. These tasks should be
designed into the operation, not 'tacked on as a reactive aIterthought. Many companies invest
large amounts oI capital setting up specialised packing or value-added services (VAS) lines with
the mandate to gain competitive advantages and in hindsight gain little except increased costs
and headaches. A Iew key points need to be concentrated when setting up these operations:
beneIit oI the process, recoup the investment, charge the customer Ior the services, outsource the
operation.

CONCLUSONS
Choosing a distribution network design is one the important decisions that determines the
success oI a Iirm. Globalisation is inevitable. As we are looking Iive to ten years down the road,
we are sure about one thing that is the continual liberalisation oI trade. As more and more
countries get opened up to world trade, more and more companies are seeking Ior the most cost
eIIective way to produce and deliver products. Companies oI various sizes realise that they have
to be part oI the global supply chain in order to stay competitive and remain in business.
Distribution network conIiguration involves management`s making decisions regarding
warehouse locations and capacities; determining production levels Ior each product at each plant;
and set transportation Ilows between Iacilities to minimise total production, inventory, and
transportation costs and satisIy service level requirements. The sharing oI data, inIormation, and
knowledge is a challenge oI virtually integrating a supply chain. It must be noted that a large
extent oI corporate technical knowledge is diIIicult to articulate and tacitly resides in the minds
oI knowledge workers. To what extent can emerging inIormation technologies help explicate
complex tacit knowledge so that they can be shared across dispersed or virtual organisational
environments?
Finally, intermediaries such as distributors add value to a supply chain between a supply stage
and a customer stage iI there are many small players at the customer stage, each requiring a small
amount oI the product at a time. The value added increases iI distributors carry products Irom
many manuIacturers. Improvement in supply chain perIormance occurs Ior the Iollowing reasons:
O Reduction in inbound transportation cost because oI truckload shipments Irom
manuIacturers to distributor
O Reduction in outbound transportation cost because the distributor combines products
Irom many manuIacturers into a single outbound shipment
O Reduction in inventory costs because distributor aggregates saIety inventory rather than
disaggregating at each retailer
O A more stable order stream Irom distributor to manuIacturer (compared to erratic orders
Irom each retailer) allows manuIacturers to lower cost by planning production more
eIIectively
O By carrying inventory closer to the point oI sale, distributors are able to provide a better
response time than manuIacturers can
O Distributors are able to oIIer one stop shopping with products Irom several manuIacturers.

REFERENCES
Abdinnour-Helm, Sue, 1999. 'Network Design in Supply Chain Management, nternational
Journal of Agile Management Systems, Vol. 1 pp.99-106.
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Magretta, J., 1998. 'The power oI virtual integration: An interview with Dell computer`s
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