Designing the Distribution

Network in a Supply Chain

CC
3.0
(1) Designing the Distribution Network in a Supply Chain

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Outline
The Role of Distribution in the Supply Chain
Factors Influencing Distribution Network Design
Design Options for a Distribution Network
The Value of Distributors in the Supply Chain
Distribution Networks in Practice
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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
Wikipedia
3
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
PZB Parasuraman, ZeithamlBerry
PZB1985

Supply chain costs affected
by network structure:
Inventories
Transportation
Facilities and handling
Information
5
Service and Number of Facilities
Number of
Facilities
Response Time
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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
Supply chain costs affected
by network structure:
Inventories
Transportation
Facilities and handling
Information
7
Service and Number of Facilities
Number of
Facilities
Response Time
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Inventory Costs and Number
of Facilities
Inventory
Costs
Number of facilities
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Transportation Costs and
Number of Facilities
Transportation
Costs
Number of facilities
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Facility Costs and Number of Facilities
Facility
Costs
Number of facilities
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Total Costs Related to
Number of Facilities

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Number of Facilities
Total Costs
Inventory
Transportation
Facilities
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Response Time
Variation in Logistics Costs and Response Time
with Number of Facilities
Number of Facilities
Total Logistics Costs
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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
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Manufacturer Storage with Direct Shipping
Manufacturer
Customers
Product Flow
Information Flow
Retailer
Microsoft
Flickr.com Mooi
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Manufacturer Storage with Direct Shipping
Cost Factor Performance
Inventory
Lower cost because of aggregation
Low demand high value; product customization
can be postponed
Transportation
High cost due to long distance and
disaggregate shipping
Facilities and
handling
Lower facility cost; handling cost may lower if
small shipment can be managed
Information
Significance investment in infrastructure to
integrate the supplier and buyers
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Manufacturer Storage with Direct Shipping
Service factor Performance
Response time
High response time, complicated receiving
Product variety
Easily provide high level variety
Product
availability
Easily provide high level product availability

Customer
experience
Good as home delivery but suffer as partial
shipment from different suppliers
Order visibility
More difficult but more important
Returnability
Expensive and difficult to implement
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In-Transit Merge Network
Factories
Retailer
Customers
In-Transit Merge by
Carrier
Product Flow
Information Flow
Wikipedia
Wikipedia
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In-Transit Merge Network
Cost Factor Performance
Inventory
Similar to drop-shipping
Transportation
Lower than drop-shipping

Facilities and
handling
Receiving cost lowers at customer; handling
cost are higher drop-shipping
Information
Investment is higher than drop-shipping

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In-Transit Merge Network
Service factor Performance
Response time
Similar to drop-shopping; may be higher
Product variety
Similar to drop-shopping
Product
availability
Similar to drop-shopping

Customer
experience
Better than drop-shopping because of single
delivery
Order visibility
Similar to drop-shopping
Returnability
Similar to drop-shopping
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Distributor Storage with Carrier Delivery
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
Distributor/Retailer
Wikipedia
VECTORLOGO Wikipedia
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Distributor Storage with Carrier Delivery
Cost Factor Performance
Inventory
Higher than manufacturer storage. Difference is
not large for faster moving items
Transportation
Lower than manufacturer storage. Reduction is
higher for faster moving items
Facilities and
handling
Higher than manufacturer storage. Difference is
large for slow-moving items

Information
Simple infrastructure
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Distributor Storage with Carrier Delivery
Service factor Performance
Response time
Faster than manufacturer storage
Product variety
Lower than manufacturer storage
Product
availability
Higher cost to provide the same level of product
availability as manufacturer storage
Customer
experience
Better than manufacturer storage with drop-
shipping
Order visibility
Easier than manufacturer storage
Returnability
Easier than manufacturer storage
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Distributor Storage with Last Mile Delivery
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer
Warehouse
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Distributor Storage with Last Mile Delivery
Cost Factor Performance
Inventory
Higher than distributor storage with carrier
delivery
Transportation
Very high cost given minimal scale economies.
Higher than any other distribution option.
Facilities and
handling
Higher than manufacturer storage or
distribution with carrier delivery, but lower than
a chain of retail stores.
Information
Similar to distributor storage with carrier
delivery
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Distributor Storage with Last Mile Delivery
Service factor Performance
Response time
Very quick. Same day to next day delivery.
Product variety
Easily provide high level variety
Product
availability
Less than distributor storage with carrier delivery
but larger than retail stores.

Customer
experience
Very good, particularly for bulky items.
Order visibility
Easier to implement than manufacturer storage or
distributor storage with carrier delivery
Returnability
Easier to implement than other options. Harder
and more expensive than a retail network.
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Manufacturer or Distributor Storage with
Customer Pickup
Factories
Retailer
Pickup Sites
Product Flow
Information Flow
Cross Dock DC
Customer Flow
Customers
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Manufacturer or Distributor Storage with
Customer Pickup
Cost Factor Performance
Inventory
Can match other options depending on the
location of inventory
Transportation
Lower than the use of package carriers,
especially if using an existing delivery network
Facilities and
handling
Facility cost will be very higher if new facilities
need to be built. The increase in handling cost
at the pickup site is significant.
Information
Significance investment in infrastructure
required
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Manufacturer or Distributor Storage with
Customer Pickup
Service factor Performance
Response time
Similar to carrier delivery with manufacturer or
distributor storage. Same day delivery possible
for items stored locally at pickup site
Product variety
Similar to other manufacturer or distributor
storage options
Product
availability
Similar to other manufacturer or distributor
storage options
Customer
experience
Lower than other options. In high density area
loss of convenience may be small
Order visibility
Difficult but essential
Returnability
Somewhat easier given that pickup location can
handle returns
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Retail Storage at Consumer
Pickup Sites
Cost Factor Performance
Inventory
Higher than all other options
Transportation
Lower than all other options
Facilities and
handling
Higher than all other options The increase in
handling cost at the pickup site is significant for
online and phone orders.
Information
Some investment in infrastructure required for
online and phone orders.
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Retail Storage at Consumer
Pickup Sites
Service factor Performance
Response time
Same day pickup possible for items stored locally
at pickup site
Product variety
Lower than all other options
Product
availability
More expensive to provide than all other options.
Customer
experience
Related to whether shopping is viewed as a
positive or negative experience by customer.
Order visibility
Trivial in-store orders. Difficult, but essential, for
online and phone orders.
Returnability
Easier than other options given that pickup
location can handle returns
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Comparative Performance of Delivery
Network Designs
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


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Linking Product Characteristics and Customer
Preferences to Network Design
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
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The Value of Distributors in the Supply Chain
Distributing Consumer Goods in India:
Lower transportation cost and improve replenishment response
time
Distributing MRO Products:
Order unplanned, a few items with lower value
Aggregate safety inventory and consolidate outbound shipment
Distributing Electronic Components:
Move components from manufacturers to small OEMs.
Maintenance, Repair, and Operation
Microsoft
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The Value of Distributors in the Supply Chain
Reduce inbound cost
Reduce outbound cost
Reduce safety stock and inventory costs
Stable order to manufacturers to allow effective
production planning
Provide better response time
Offer one-stop shopping with products from several
manufacturers
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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 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
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Wikimedia Commons

http://commons.wikimedia.org/wiki/File:Dell_Logo.png
2011/12/28
15
Flickr.comMooi
(http://www.flickr.com/photos/mooitw/4086539757/sizes/t/i
n/photostream/)CC
2.0
15
Microsoft Office 2007
Microsoft 465265
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WIKIPEDIA
(http://en.wikipedia.org/wiki/File:Amazon.com-Logo.svg)
2011/11/29
21
VECTORLOGO(http://www.allfreelogo.com/logo/hp-logo.html)
VECTORLOGO
(http://www.allfreelogo.com/privacy-policy/)
465265
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WIKIPEDIA
(http://zh.wikipedia.org/wiki/File:IBM_logo.svg)
2012/3/8
21
WIKIPEDIA
(http://en.wikipedia.org/wiki/File:Toshiba_logo.svg)
2011/11/29

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Microsoft Office 2007
Microsoft 465265
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