Chapter 4 Designing Distribution Networks and Applications to

Outline u. The Role of Distribution in the Supply Chain u. Factors Influencing Distribution Network Design u. Design Options for a Distribution Network u. E-Business and the Distribution Network u. Distribution Networks in Practice u. Summary of Learning Objectives Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -2

The Role of Distribution in the Supply Chain u. Distribution: the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain u. Distribution directly affects cost and the customer experience and therefore drives profitability u. Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness u. Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -3

Factors Influencing Distribution Network Design u. Distribution network performance evaluated along two dimensions at the highest level: – Customer needs that are met – Cost of meeting customer needs u. Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -4

Factors Influencing Distribution Network Design u Elements of customer service influenced by network structure: – – – Response time Product variety Product availability Customer experience Order visibility Returnability u Supply chain costs affected by network structure: – – Inventories Transportation Facilities and handling Information Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -5

Service and Number of Facilities (Fig. 4. 1) Number of Facilities Response Time Copyright

Inventory Costs and Number of Facilities (Fig. 4. 2) Inventory Costs Number of facilities

Transportation Costs and Number of Facilities (Fig. 4. 3) Transportation Costs Number of facilities

Facility Costs and Number of Facilities (Fig. 4. 4) Facility Costs Number of facilities

Variation in Logistics Costs and Response Time with Number of Facilities (Fig. 4. 5) Response Time Total Logistics Costs Number of Facilities Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -10

Design Options for a Distribution Network u. Manufacturer Storage with Direct Shipping and In. Transit Merge u. Distributor Storage with Carrier Delivery u. Distributor Storage with Last Mile Delivery u. Manufacturer or Distributor Storage with Customer Pickup u. Retail Storage with Customer Pickup u. Selecting a Distribution Network Design Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -11

Manufacturer Storage with Direct Shipping (Fig. 4. 6) Manufacturer Retailer Customers Product Flow Information

In-Transit Merge Network (Fig. 4. 7) Factories Retailer In-Transit Merge by Carrier Customers Product

Distributor Storage with Carrier Delivery (Fig. 4. 8) Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -14

Distributor Storage with Last Mile Delivery (Fig. 4. 9) Factories Distributor/Retailer Warehouse Customers Product Flow Information Flow Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -15

Manufacturer or Distributor Storage with Customer Pickup (Fig. 4. 10) Factories Retailer Cross Dock DC Pickup Sites Customers Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Customer Flow Product Flow Information Flow 4 -16

Comparative Performance of Delivery Network Designs (Table 4. 7) Retail Storage with Customer Pickup Response Time Manufacturer Storage with Direct Shipping Manufacturer Storage with In. Transit Merge Distributor Storage with Package Carrier Delivery Distributor storage with last mile delivery Manufacturer storage with pickup 1 4 4 3 2 4 4 1 1 2 3 1 Customer Experience 5 4 3 2 1 5 Order Visibility 1 5 4 3 2 6 Returnability 1 5 5 4 3 2 Inventory 4 1 1 2 3 1 Transportation 1 4 3 2 5 1 Facility & Handling 6 1 2 3 4 5 Information 1 4 4 3 2 5 Product Variety Product Availability Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -17

Performance of Delivery Networks for Different Product/Customer Characteristics (Table 4 -8) Retail Storage with Customer 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 Manufacturer Storage with Direct Shipping Manufacturer Storage with In. Transit Merge Distributor Storage with Package Carrier Delivery Distributor storage with last mile delivery Manufacturer storage with pickup +2 -2 -1 0 +1 0 0 -1 +1 0 +1 -1 +1 -2 +2 +1 0 -2 +1 +1 -1 -1 +2 +1 0 -1 +2 +1 +1 0 -2 +2 -2 -2 -1 +1 -2 -1 +2 0 +1 0 +2 -2 +1 +2 +2 +2 -1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -18

TRADITIONAL INDIAN DISTRIBUTION CHANNELS u What characteristics of the traditional Indian agricultural produce distribution channels militate against delivering simultaneous benefits to the farmer and the consumer? u What Supply Chain Best Practices do you see as being relevant to the Indian agricultural produce distribution system? u Organised retailing underway in India is likely to impact the traditional distribution channels and transform the same radically. What major changes do you visualize taking place in the Agricultural Produce Distribution System in India and how do you see the existing channels responding to the same? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

E-Business and the Distribution Network u. Impact of E-Business on Customer Service u. Impact of E-Business on Cost u. Using E-Business: Dell, Amazon, Peapod, Grainger Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -20

Impact of E-Business on Customer Service u. Response time u. Product variety u. Product Availability u. Customer experience u. Time to market u. Order Visibility u. Returnability u. Direct Sales to Customers u. Flexible Pricing, Product Portfolio, and Promotions u. Efficient Funds Transfer Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -21

Impact of E-Business on Cost u. Inventory u. Facilities u. Transportation u. Information Copyright

Distribution Networks in Practice u. The ownership structure of the distribution network can have as big as an impact as the type of distribution network u. The choice of a distribution network has very longterm consequences u. Consider whether an exclusive distribution strategy is advantageous u. Product, price, commoditization, and criticality have an impact on the type of distribution system preferred by customers Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -23

Summary of Learning Objectives u. What are the key factors to be considered when designing the distribution network? u. What are the strengths and weaknesses of various distribution options? u. How has E-Business affected the design of distribution networks in different industries? u. What roles do distributors play in the supply chain? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4 -24