Supply Chain Management 2 nd Edition Chapter 4

Supply Chain Management (2 nd Edition) Chapter 4 Designing the Distribution Network in a Supply Chain © 2004 Prentice-Hall, Inc. 4 -1

Outline u The Role of Distribution in the Supply Chain u Factors Influencing Distribution Network Design u Design Options for a Distribution Network u The Value of Distributors in the Supply Chain u Distribution Networks in Practice u Summary of Learning Objectives © 2004 Prentice-Hall, Inc. 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 © 2004 Prentice-Hall, Inc. 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 © 2004 Prentice-Hall, Inc. 4

Factors Influencing Distribution Network Design u Elements of customer service influenced by network structure: – – – u Response time Product variety Product availability Customer experience Order visibility Returnability Supply chain costs affected by network structure: – – Inventories Transportation Facilities and handling Information © 2004 Prentice-Hall, Inc. 5

Service and Number of Facilities (Fig. 4. 1) Number of Facilities Response Time © 2004 Prentice-Hall, Inc. 6

The Cost-Response Time Frontier Hi Local FG Mix Regional FG Local WIP Cost Central FG Central WIP Central Raw Material and Custom production with raw material at suppliers Low © 2004 Prentice-Hall, Inc. Response Time Hi 7

Inventory Costs and Number of Facilities (Fig. 4. 2) Inventory Costs Number of facilities © 2004 Prentice-Hall, Inc. 8

Transportation Costs and Number of Facilities (Fig. 4. 3) Transportation Costs Number of facilities © 2004 Prentice-Hall, Inc. 9

Facility Costs and Number of Facilities (Fig. 4. 4) Facility Costs Number of facilities © 2004 Prentice-Hall, Inc. 10

Total Costs Related to Number of Facilities Total Costs Facilities Inventory Transportation Number of Facilities © 2004 Prentice-Hall, Inc. 11

Variation in Logistics Costs and Response Time with Number of Facilities (Fig. 4. 5) Response Time Total Logistics Costs Number of Facilities © 2004 Prentice-Hall, Inc. 12

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 Consumer Pickup u Retail Storage with Consumer Pickup u Selecting a Distribution Network Design © 2004 Prentice-Hall, Inc. 13

Manufacturer Storage with Direct Shipping (Fig. 4. 6) Manufacturer Retailer Customers Product Flow Information Flow © 2004 Prentice-Hall, Inc. 14

In-Transit Merge Network (Fig. 4. 7) Factories Retailer In-Transit Merge by Carrier Customers Product Flow Information Flow © 2004 Prentice-Hall, Inc. 15

Distributor Storage with Carrier Delivery (Fig. 4. 8) Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow © 2004 Prentice-Hall, Inc. 16

Distributor Storage with Last Mile Delivery (Fig. 4. 9) Factories Distributor/Retailer Warehouse Customers Product Flow Information Flow © 2004 Prentice-Hall, Inc. 17

Manufacturer or Distributor Storage with Customer Pickup (Fig. 4. 10) Factories Retailer Cross Dock DC Pickup Sites Customers © 2004 Prentice-Hall, Inc. Customer Flow Product Flow Information Flow 18

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 © 2004 Prentice-Hall, Inc. 19

Linking Product Characteristics and Customer Preferences to Network Design 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 © 2004 Prentice-Hall, Inc. 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 20

The Value of Distributors in the Supply Chain u Distributing Consumer Goods in India u Distributing MRO Products u Distributing Electronic Components © 2004 Prentice-Hall, Inc. 21

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 © 2004 Prentice-Hall, Inc. 22

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 What roles do distributors play in the supply chain? © 2004 Prentice-Hall, Inc. 23