4-1© 2007 Pearson Education

Chapter 4Designing the Distribution Network in a Supply Chain

Supply Chain Management(3rd Edition)

4-2© 2007 Pearson Education

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

4-3© 2007 Pearson Education

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

4-4© 2007 Pearson Education

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

4-5© 2007 Pearson Education

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

4-6© 2007 Pearson Education

Service and Number of Facilities (Fig. 4.1)

Number of Facilities

Response Time

4-7© 2007 Pearson Education

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

4-8© 2007 Pearson Education

Inventory Costs and Numberof Facilities (Fig. 4.2)

Inventory Costs

Number of facilities

4-9© 2007 Pearson Education

Transportation Costs andNumber of Facilities (Fig. 4.3)

TransportationCosts

Number of facilities

4-10© 2007 Pearson Education

Facility Costs and Numberof Facilities (Fig. 4.4)

FacilityCosts

Number of facilities

4-11© 2007 Pearson Education

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

4-12© 2007 Pearson Education

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

4-13© 2007 Pearson Education

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

4-14© 2007 Pearson Education

Manufacturer Storage withDirect Shipping (Fig. 4.6)

Manufacturer

Retailer

Customers

Product Flow

Information Flow

4-15© 2007 Pearson Education

In-Transit Merge Network (Fig. 4.7)Factories

Retailer

Product Flow

Information Flow

In-Transit Merge by Carrier

Customers

4-16© 2007 Pearson Education

Distributor Storage withCarrier Delivery (Fig. 4.8)

Factories

Customers

Product FlowInformation Flow

Warehouse Storage by Distributor/Retailer

4-17© 2007 Pearson Education

Distributor Storage withLast Mile Delivery (Fig. 4.9)

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer Warehouse

4-18© 2007 Pearson Education

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

Factories

Retailer

Pickup Sites

Product FlowInformation Flow

Cross Dock DC

Customer Flow

Customers

4-19© 2007 Pearson Education

Comparative Performance of Delivery Network Designs (Table 4.7)

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

4-20© 2007 Pearson Education

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

+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

4-21© 2007 Pearson Education

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

4-22© 2007 Pearson Education

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

4-23© 2007 Pearson Education

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?