Class-good-Designing Distribution Network and Application to E-business

© 2007 Pearson Education 4-1

Designing the Distribution Network in a Supply Chain


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


The Role of Distributionin 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


Factors InfluencingDistribution 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


Factors InfluencingDistribution Network Design

Elements of customer service influenced by network structure:– Response time

– Product variety

– Product availability

– Customer experience

– Order visibility

– Returnability

Supply chain costs affected by network structure:– Inventories

– Transportation

– Facilities and handling

– Information


Service and Number of Facilities (Fig. 4.1)

Number of Facilities

Response Time


The Cost-Response Time Frontier

Local FG

Mix

Regional FG

Local WIP

Central FG

Central WIP

Central Raw Material and Custom production

Custom production with raw material at suppliers

Cost

Response Time HiLow

Low

Hi


Inventory Costs and Numberof Facilities (Fig. 4.2)

Inventory Costs

Number of facilities


Transportation Costs andNumber of Facilities (Fig. 4.3)

TransportationCosts



Facility Costs and Numberof Facilities (Fig. 4.4)

FacilityCosts



TransportationTransportation

Total Costs Related to Number of Facilities

Tot

al C

osts

Tot

al C

osts

Number of FacilitiesNumber of Facilities

InventoryInventory

FacilitiesFacilities

Total CostsTotal Costs


Response TimeResponse Time

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

Number of FacilitiesNumber of Facilities

Total Logistics CostsTotal Logistics Costs


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?


Design Options for a Distribution Network

Manufacturer Storage with Direct Shipping Manufacturer Storage with Direct Shipping and In-

Transit 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


Manufacturer Storage withDirect Shipping (Fig. 4.6)

Manufacturer

Retailer

Customers

Product Flow

Information Flow


Manufacturer Storage withDirect 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.


Factors to discuss Elements of customer service influenced by network structure:

– Response time– Product variety– Product availability– Customer experience– Order visibility– Returnability

Supply chain costs affected by network structure:– Inventories– Transportation– Facilities and handling– Information



In-Transit Merge Network (Fig. 4.7)Factories

Retailer

Product Flow

Information Flow

In-Transit Merge by Carrier

Customers


In-Transit Merge Network (Fig. 4.7)

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

– Sophisticated Information technology needed.

–



Distributor Storage withCarrier Delivery (Fig. 4.8)

Factories

Customers

Product FlowInformation Flow

Warehouse Storage by Distributor/Retailer


Distributor Storage withCarrier 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.



Distributor Storage withLast Mile Delivery (Fig. 4.9)

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer Warehouse


Distributor Storage withLast 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.



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

Factories

Retailer

Pickup Sites

Product FlowInformation Flow

Cross Dock DC

Customer Flow

Customers


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.



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.



1= strongest performance, 6= weakest performance

Information

Facility & Handling

Transportation

Inventory

Returnability

Order Visibility

Customer Experience

Product Availability

Product Variety

Response Time

Manufacturer storage with pickup

Distributor storage with last

mile delivery

Distributor Storage with Package

Carrier Delivery

Manufacturer Storage with In-Transit Merge

Manufacturer Storage with Direct

Shipping

Retail Storage with Customer

Pickup

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

2

2

2

2

2

2

2

2

2

2

3

3

3

3

3

3

3

3

3

3

4

4

4

4

4

4

4

4

4

4

4

4

4

5

5

5

5

55

5

6

6

5

Comparative Performance of Delivery Network Designs (Table 4.7)


Linking Characteristics and Customer Preferences to Network Design+2= very suitable,+1=somewhat suitable, 0= neutral…….

Low customer effort

High product variety

Quick desired response

High product value

Many product sources

Very low demand product

Low demand product

Medium demand product

High demand product

Manufacturer storage with

pickup

Distributor storage with last mile delivery

Distributor Storage with Package Carrier

Delivery

Manufacturer Storage with In-Transit Merge

Manufacturer Storage with

Direct Shipping

Retail Storage with

Customer Pickup

+2

+2

+2

+2

+2

+2

+2 +2 +2

+2

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

0

0

0

0

0

0

0

0 0

0

-1

-1

-1

-1

-1 -1

-1

-1

-1

-1

-1

-2 -2

-2

-2

+2

-2 -2

-2


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


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 long-term 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


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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Class-good-Designing Distribution Network and Application to E-business

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