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Designing the Distribution Network in a Supply Chain

2007 Pearson Education 4-1

Outline
The Role of Distribution in the Supply Chain Factors Influencing Distribution Network Design Design Options for a Distribution Network E-Business and the Distribution Network Distribution Networks in Practice Summary of Learning Objectives

2007 Pearson Education

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The Role of Distribution in the Supply Chain


Distribution: the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain Distribution directly affects cost and the customer experience and therefore drives profitability Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger
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Factors Influencing Distribution Network Design


Distribution network performance evaluated along two dimensions at the highest level:
Customer needs that are met Cost of meeting customer needs

Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service

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Factors Influencing Distribution Network Design


Elements of customer service influenced by network structure:
Response time Product variety Product availability Customer experience Order visibility Returnability Inventories Transportation Facilities and handling Information
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Supply chain costs affected by network structure:

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Service and Number of Facilities (Fig. 4.1)


Number of Facilities

Response Time
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The Cost-Response Time Frontier


Hi
Local FG Mix Regional FG

Cost

Local WIP Central FG Central WIP Central Raw Material and Custom production Custom production with raw material at suppliers

Low Low
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Response Time

Hi
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Inventory Costs and Number of Facilities (Fig. 4.2)


Inventory Costs

Number of facilities
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Transportation Costs and Number of Facilities (Fig. 4.3)


Transportation Costs

Number of facilities
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Facility Costs and Number of Facilities (Fig. 4.4)


Facility Costs

Number of facilities
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Total Costs Related to Number of Facilities


Total Costs

Total Costs

Facilities Inventory Transportation

Number of Facilities
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Variation in Logistics Costs and Response Time with Number of Facilities (Fig. 4.5)
Response Time

Total Logistics Costs

Number of Facilities
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Distribution network---- 1- Will the goods be delivered to the customers location or goods to be picked up from predetermined place ? 2- Will the goods flow through an intermediary?

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Design Options for a Distribution Network


Manufacturer Storage with Direct Shipping Manufacturer Storage with Direct Shipping and InTransit Merge Distributor Storage with Carrier Delivery Distributor Storage with Last Mile Delivery Manufacturer or Distributor Storage with Consumer Pickup Retail Storage with Consumer Pickup Selecting a Distribution Network Design
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Manufacturer Storage with Direct Shipping (Fig. 4.6)


Manufacturer

Retailer

Customers Product Flow Information Flow


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Manufacturer Storage with Direct Shipping (Fig. 4.6)


Suit for high value, low demand items with unpredictable demand.
E-bag, dell, w.w grainger.

advantage is to aggregate the demand at manufactures place. Centralize the inventories. Information investment needs to be strong. Little postponement possible.

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Factors to discuss
Elements of customer service influenced by network structure:
Response time Product variety Product availability Customer experience Order visibility Returnability Inventories Transportation Facilities and handling Information
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Supply chain costs affected by network structure:

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In-Transit Merge Network (Fig. 4.7)


Factories

Retailer

In-Transit Merge by Carrier

Customers

Product Flow Information Flow


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In-Transit Merge Network (Fig. 4.7)


Ex: Dell.
Pc from dell, monitor from sony, microchips from Intel.

Sophisticated Information technology needed.

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Distributor Storage with Carrier Delivery (Fig. 4.8)


Factories

Warehouse Storage by Distributor/Retailer

Customers Product Flow Information Flow


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Distributor Storage with Carrier Delivery (Fig. 4.8)


Inv. is not held at factory but is held by distributors and package carrier are used to transport the goods from distributors to final customers. Well suited for medium to fast moving goods.

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Distributor Storage with Last Mile Delivery (Fig. 4.9)


Factories

Distributor/Retailer Warehouse

Customers Product Flow Information Flow


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Distributor Storage with Last Mile Delivery (Fig.4.9)


Distributor/ retailers deliver products to the customers home not through package carrier like predecessor option. here distributor warehouse to be much closer to the customer. More warehouse required as compared to package delivery. More inventory and suit for fast moving goods. Ex. Grocery items or FMCG. Transp. Cost is highest because delivery aggregation across many retailers is not possible like package carriers.

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Manufacturer or Distributor Storage with Customer Pickup (Fig. 4.10)


Factories

Retailer

Cross Dock DC

Pickup Sites Customers Customer Flow Product Flow Information Flow

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Inventory stored at manufacturer or distributor place but customers place orders online or by phone and then travel to designated pick-up points to collect their merchandise. Orders are shipped from storage site to pick-up points as needed.

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Retail Storage with Consumer Pickup


Most traditional type of supply chain, inventory is stored locally at retail store. Customer can purchase from retail store or can place order at retail store or can place order on-line and pick up from retail store.

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Comparative Performance of Delivery Network Designs (Table 4.7) 1= strongest performance, 6= weakest performance
Retail Storage with Customer Pickup Manufacturer Storage with Direct Shipping Manufacturer Storage with InTransit Merge Distributor Storage with Package Carrier Delivery Distributor storage with last mile delivery Manufacturer storage with pickup

Response Time Product Variety Product Availability Customer Experience Order Visibility Returnability Inventory Transportation Facility & Handling Information 2007 Pearson Education

1 4 4 5 1 1 4 1 6 1

4 1 1 4 5 5 1 4 1 4

4 1 1 3 4 5 1 3 2 4

3 2 2 2 3 4 2 2 3 3

2 3 3 1 2 3 3 5 4 2

4 1 1 5 6 2 1 1 5 5
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Linking Characteristics and Customer Preferences to Network Design

+2= very suitable,+1=somewhat suitable, 0= neutral.


Retail Storage with Customer Pickup Manufacturer Storage with Direct Shipping Manufacturer Storage with InTransit Merge Distributor Storage with Package Carrier Delivery Distributor storage with last mile delivery Manufacturer storage with pickup

High demand product Medium demand product Low demand product Very low demand product Many product sources High product value Quick desired response High product variety Low customer effort

+2 +1 -1 -2 +1 -1 +2 -1 -2

-2 -1 +1 +2 -1 +2 -2 +2 +1

-1 0 0 +1 -1 +1 -2 0 +2

0 +1 +1 0 +2 +1 -1 +1 +2

+1 0 -1 -2 +1 0 +1 0 +2

-1 0 +1 +1 0 +2 -2 +2 -1
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2007 Pearson Education

E-Business and the Distribution Network


Impact of E-Business on Customer Service Impact of E-Business on Cost Using E-Business: Dell, Amazon, Peapod, Grainger

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Distribution Networks in Practice


The ownership structure of the distribution network can have as big as an impact as the type of distribution network The choice of a distribution network has very longterm consequences Consider whether an exclusive distribution strategy is advantageous Product, price, commoditization, and criticality have an impact on the type of distribution system preferred by customers
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Summary of Learning Objectives


What are the key factors to be considered when designing the distribution network? What are the strengths and weaknesses of various distribution options? What roles do distributors play in the supply chain?

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