Chopra and Meindl PPts

Designing Distribution Networks4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.The Role of Distributionin the Supply ChainDistribution the steps taken to move and store a product from the supplier stage to the customer stage in a supply chainDrives profitability by directly affecting supply chain cost and the customer experienceChoice of distribution network can achieve supply chain objectives from low cost to high responsiveness4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Factors InfluencingDistribution Network DesignDistribution network performance evaluated along two dimensionsCustomer needs that are metCost of meeting customer needsEvaluate the impact on customer service and cost for different distribution network optionsProfitability of the delivery network determined by revenue from met customer needs and network costs4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Factors InfluencingDistribution Network DesignElements of customer service influenced by network structure:Response timeProduct varietyProduct availabilityCustomer experienceOrder visibilityReturnability4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Factors InfluencingDistribution Network DesignSupply chain costs affected by network structure:InventoriesTransportationFacilities and handlingInformation

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Desired Response Time and Number of Facilities

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Notes: Increasing the number of facilities moves them closer to the end consumer. This reduces the response time. As Amazon has built warehouses, the average time from the warehouse to the end consumer has decreased. McMaster-Carr provides 1-2 day coverage of most of the U.S from 6 facilities. W.W. Grainger is able to increase coverage to same day delivery using about 370 facilities.Inventory Costs and Numberof Facilities

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.

Transportation Costs andNumber of Facilities4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.Facility Costs and Numberof Facilities

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.Logistics Cost, Response Time, and Number of Facilities

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Design Options for a Distribution NetworkDistribution network choices vary from the manufacturer to the end consumerTwo key decisionsWill product be delivered to the customer location or picked up from a prearranged site?Will product flow through an intermediary (or intermediate location)?4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Design Options for a Distribution NetworkOne of six designs may be usedManufacturer storage with direct shippingManufacturer storage with direct shipping and in-transit mergeDistributor storage with carrier deliveryDistributor storage with last-mile deliveryManufacturer/distributor storage with customer pickupRetail storage with customer pickup4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Manufacturer Storage withDirect Shipping

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Manufacturer Storage with Direct Shipping NetworkCost FactorPerformanceInventoryLower costs because of aggregation. Benefits of aggregation are highest for low-demand, high-value items. Benefits are large if product customization can be postponed at the manufacturer.TransportationHigher transportation costs because of increased distance and disaggregate shipping.Facilities and handlingLower facility costs because of aggregation. Some saving on handling costs if manufacturer can manage small shipments or ship from production line.InformationSignificant investment in information infrastructure to integrate manufacturer and retailer.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Manufacturer Storage with Direct Shipping NetworkService FactorPerformanceResponse timeLong response time of one to two weeks because of increased distance and two stages for order processing. Response time may vary by product, thus complicating receiving.Product varietyEasy to provide a high level of variety.Product availabilityEasy to provide a high level of product availability because of aggregation at manufacturer.Customer experienceGood in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments.Time to marketFast, with the product available as soon as the first unit is produced.Order visibilityMore difficult but also more important from a customer service perspective.ReturnabilityExpensive and difficult to implement.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.In-Transit Merge Network

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.In-Transit MergeCost FactorPerformanceInventorySimilar to drop-shipping. TransportationSomewhat lower transportation costs than drop-shipping.Facilities and handlingHandling costs higher than drop-shipping at carrier; receiving costs lower at customer.InformationInvestment is somewhat higher than for drop-shipping.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.In-Transit MergeService FactorPerformanceResponse timeSimilar to drop-shipping; may be marginally higher.Product varietySimilar to drop-shipping.Product availabilitySimilar to drop-shipping.Customer experienceBetter than drop-shipping because only a single delivery has to be received.Time to marketSimilar to drop-shipping.Order visibilitySimilar to drop-shipping. ReturnabilitySimilar to drop-shipping.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

Distributor Storage withCarrier Delivery4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Distributor Storage withCarrier DeliveryCost FactorPerformanceInventoryHigher than manufacturer storage. Difference is not large for faster moving items but can be large for very slow-moving items. TransportationLower than manufacturer storage. Reduction is highest for faster moving items.Facilities and handlingSomewhat higher than manufacturer storage. The difference can be large for very slow-moving items.InformationSimpler infrastructure compared to manufacturer storage.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Distributor Storage withCarrier DeliveryService FactorPerformanceResponse timeFaster than manufacturer storage. Product varietyLower than manufacturer storage.Product availabilityHigher cost to provide the same level of availability as manufacturer storage.Customer experienceBetter than manufacturer storage with drop-shipping. Time to marketHigher than manufacturer storage. Order visibilityEasier than manufacturer storage. ReturnabilityEasier than manufacturer storage.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Distributor Storage withLast Mile Delivery

4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Distributor Storage withLast Mile DeliveryCost FactorPerformanceInventoryHigher than distributor storage with package carrier delivery.TransportationVery high cost given minimal scale economies. Higher than any other distribution option.Facilities and handlingFacility costs higher than manufacturer storage or distributor storage with package carrier delivery, but lower than a chain of retail stores.InformationSimilar to distributor storage with package carrier delivery.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Distributor Storage withLast Mile DeliveryService FactorPerformanceResponse timeVery quick. Same day to next-day delivery.Product varietySomewhat less than distributor storage with package carrier delivery but larger than retail stores.Product availabilityMore expensive to provide availability than any other option except retail stores.Customer experienceVery good, particularly for bulky items. Slightly higher than distributor storage with package carrier delivery.Time to marketLess of an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery.Order visibilityEasier to implement than other previous options. ReturnabilityHarder and more expensive than a retail network.Table 4-44-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

Manufacturer or Distributor Storage with Customer Pickup4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Manufacturer or Distributor Storage with Customer PickupCost FactorPerformanceInventoryCan match any other option, depending on the location of inventory.TransportationLower than the use of package carriers, especially if using an existing delivery network.Facilities and handlingFacility costs can be high if new facilities have to be built. Costs are lower if existing facilities are used. The increase in handling cost at the pickup site can be significant.InformationSignificant investment in infrastructure required.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Manufacturer or Distributor Storage with Customer PickupService FactorPerformanceResponse timeSimilar to package carrier delivery with manufacturer or distributor storage. Same-day delivery possible for items stored locally at pickup site.Product varietySimilar to other manufacturer or distributor storage options. Product availabilitySimilar to other manufacturer or distributor storage options.Customer experienceLower than other options because of the lack of home delivery. Experience is sensitive to capability of pickup location.Time to marketSimilar to manufacturer storage options. Order visibilityDifficult but essential. ReturnabilitySomewhat easier given that pickup location can handle returns.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Retail Storage with Customer PickupCost FactorPerformanceInventoryHigher than all other options. TransportationLower than all other options.Facilities and handlingHigher than other options. The increase in handling cost at the pickup site can be significant for online and phone orders.InformationSome investment in infrastructure required for online and phone orders.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.Retail Storage with Customer PickupService FactorPerformanceResponse timeSame-day (immediate) pickup possible for items stored locally at pickup site.Product varietyLower than all other options.Product availabilityMore expensive to provide than all other options.Customer experienceRelated to whether shopping is viewed as a positive or negative experience by customer.Time to marketHighest among distribution options. Order visibilityTrivial for in-store orders. Difficult, but essential, for online and phone orders. ReturnabilityEasier than other options because retail store can provide a substitute.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.4-#Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.