10019750_Global Supply Chain Management

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MBA Course Work: Global Supply Chain Management

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Coursework on the Module, Global Supply Chain Management

Course Code: MAN4106M

UB Number: XXXXXXX

Module Leader: XXXXXXX

I certify that this assignment is the result of my own work and does not exceed the

word count noted below.

Number of Words: 3500.

(Excluding this title page, Table of index, reference, bibliography, tables, figures, figure

captions)
https://evision.brad.ac.uk/urd/sits.urd/run/SIW_MOD.start_url?jRWeWW8JUU87%1Be=oqVD=pdi9ss36%15%1BT5rj%5FQ8wh=NuV%5F2S2p%15%1BzAuP%5Fwd1rXt=IUn=%7CLw4%5FSG9o%7CIIgO9asl%2FN%7C%2FJnQ%5FKeGL%7C%7CwLE%5FNfNZ%7CXXrkiZQF%2Fq%7C%2FnJs%5Ftbtg%7C%7CIjL%5FSG9o%7CgIyy%2Fw%7C%2F3fW%5FbMKr%7C%7CJyE%5F08pZ%7C%7C%2Fl2I%5F6NMW%7C%7CSOY5%5Fo4Uy%7ChHr%7C%2FBcpZ%5Ft0m3%7C%1BZAm=uGI%5FvjT%1BzOn=VV4DXtKb%1Bo9a=oc1%1BP4B=qqQiuEM6%1B4OR=IWf8IOf8IOlO4Bd3mNDdoKrXVbYY1KqThttps://evision.brad.ac.uk/urd/sits.urd/run/SIW_MOD.start_url?jRWeWW8JUU87%1Be=oqVD=pdi9ss36%15%1BT5rj%5FQ8wh=NuV%5F2S2p%15%1BzAuP%5Fwd1rXt=IUn=%7CLw4%5FSG9o%7CIIgO9asl%2FN%7C%2FJnQ%5FKeGL%7C%7CwLE%5FNfNZ%7CXXrkiZQF%2Fq%7C%2FnJs%5Ftbtg%7C%7CIjL%5FSG9o%7CgIyy%2Fw%7C%2F3fW%5FbMKr%7C%7CJyE%5F08pZ%7C%7C%2Fl2I%5F6NMW%7C%7CSOY5%5Fo4Uy%7ChHr%7C%2FBcpZ%5Ft0m3%7C%1BZAm=uGI%5FvjT%1BzOn=VV4DXtKb%1Bo9a=oc1%1BP4B=qqQiuEM6%1B4OR=IWf8IOf8IOlO4Bd3mNDdoKrXVbYY1KqT


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List of Content

Introduction: ................................................................................................................................. 3

Factors Influencing Distribution Network: .............................................................................. 4

Factors Influencing Distribution Network: .............................................................................. 4

Manufacturer storage with Direct Shipping: ............................................................................. 7

Manufacturer Storage with Direct Shipping and In-Transit Merge: ..................................... 9

Distributor Storage with Carrier Delivery: .............................................................................. 11

Distributor Storage with Last-Mile Delivery (LMD): ............................................................ 12

Manufacture or Distributor Storage with Customer Pickup: ............................................... 14

Retail Storage with Customer Pickup: ..................................................................................... 16

Conclusion: .................................................................................................................................. 18

Reference: .................................................................................................................................... 20

Bibliography: ............................................................................................................................... 20

List of Figures

Figure 1: Facilities Vs Response Time ............................................................................... 4

Figure 2: Inventory Cost Vs No. of Facilities ..................................................................... 5

Figure 3: Transportation Cost Vs No. of Facilities ............................................................. 6

Figure 4: Direct Shipping.................................................................................................... 7

Figure 5: In-Transit Merge .................................................................................................. 9

Figure 6: Warehouse by Retailer or Distributor ............................................................... 11

Figure 7: Last-Mile Delivery ............................................................................................ 13

Figure 8: Manufacturer or Distributor Warehouse Storage with Customer Pickup ......... 15

Figure 9: Retail Storage with Customer Pickup ............................................................... 17

Note: All the figures in this assignment are adapted from Supply Chain Management: Strategy, Planning and

Operation by Chopra and Meindle and are created using Microsoft Visio.


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Designing Distribution NetworkA critical review on the contemporary distribution models, pros and corns

Introduction:

Distribution is the series of activity taken in moving finished products from the

manufactures unit to the end customer. For any firm, Distribution is a key driver for the

overall profitability of an organization as it directly affects on the customer experience

and the supply chain cost. Designing effective distribution is very important as, on an

average, it costs about 20 percent of the total cost of manufacturing and in the US,

distribution related cost contribute 10.5 percent to the total economy (Chopra et al,

2010).

In this assignment, factors such as response time, number of facilities, transportation

cost and Inventory costs, which affect the distribution network design, are discussed.

Later, Different types of distributions networks are critical analyzed to evaluate the pros

and corns. Throughout this assignment, it is assumed that organizations know their

target customers and their buying behaviors. The aim is however, not to judge that one

type of distribution network is better over other or any one-distribution network fits for

all business requirements.

While discussing distribution network, different examples are consider, however, it is not

concluded that successful distribution network of an organization in a country will be

universally applied. As an example, the distribution network in Japan are more

relationship oriented when compared with pragmatic culture in the west. The element of

culture is not discussed as it will be beyond the scope of this assignment.


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Factors Influencing Distribution Network:

Distribution network once established can be cost incurring to change. Changing the

distribution network affects on supply chain drivers such as Inventories, Transportation,

Facilities and Handling, and Information (Chopra et al, 2010). The indirect drives that

are closely related to these drives, which influence the distribution networks, are:

1. Response time2. Customer Experience3. Product variety4. Product availability5. Time to market6. Order visibility7. Returnability

Having more number of facilities in a distribution network can significantly decree the

response time to the customer. However, this can increase the cost borne by the facility,

in addition to increase in handling cost.

Figure 1: Facilities Vs Response Time (Source: Adapted from Chopra, 2010)


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Retailers of fast moving consumer goods tend to establish number of facilities

(warehouses) to minimize the response time and to remain competitive, example of

ASDA has been discussed in the below section. However, with the increase in the

number of facilities, the overall inventory cost also rises. Perhaps, one reason to maintain

more facilities is to maintain certain level of inventory for fast moving goods. Amazon is

able to turn its inventory about times a year, with fewer facilities, on the other hand, US

book retailer Borders, achieves only about two turns per year with 400 facilities.(Chopra

et al, 2010)

Figure 2: Inventory Cost Vs No. of Facilities (Source: Adapted from Chopra, 2010)

Organization should think about establishing more number of facilities only when their

operations are to that scale. Seven-Eleven, Japanese retailer, has more than 12,000 stores

across Japan, with relatively very few strategically located warehouse facilities (Seven-

Eleven Corporate Profile 2010). As the number of facilities increase, the distance to thenearest retailer eventually decreases. However, the outbound transportation costs can

increase after certain number of facilities as it cannot take full advantage of the

transportation.


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Figure 3: Transportation Cost Vs No. of Facilities (Source: Adapted from Chopra, 2010)

Not every organization is completely focused on achieving quick response time, by

investing in establishing more facilities, similarly not every organization aims to invests in

establishing wide transportation. It is however assumed that a customer is ready to trade-

off quick delivery for variety, the best example is see with Amazon, where a customer is

ready to wait long to receive products when compared with customers how have very

low tolerance for response time.

Therefore, while designing distribution network it is important to identify the potential

customers and their shopping behavior. In the preceding sections different types of

distributions networks are discussed with there impact on response time, time to market,

customer experience and facilities.


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Manufacturer storage with Direct Shipping:

In this distribution system, products are shipped directly from the manufacturer to the

end customer, bypassing the intermediaries such as warehouse or retailers. This

distribution system is also referred as drop-shipping. The manufacture dispatches the

order on receiving the order from the customer either through a retailer or directly on

the manufactures website (which is also considered as virtual retailer). (Chopra et al,

2010)

Figure 4: Direct Shipping (Source: Adapted from Chopra, 2010)

TravelRest pillows are the first to manufacture unique travelers pillows, which can be

used by frequent air or rail travelers. The organization has a direct delivery of pillows to

the customer ordering on their website or through Amazon portal. Similarly, US leading


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up-market fashion specialist Nordstrom, does home delivery of garment and footwear

for orders placed on Nordstroms website, directly from production facility. (Nordstrom,

ND).

TravelRest pillows and Nordstrom garment are meant only for a sect of customers who

are either frequent traveler or niche customers. The demand for such products is very

less when compared with fast moving consumers goods. Therefore, direct-shipping

allows the manufactures to maintain low levels of inventory in their productions facility.

However, for fast moving consumer goods, with the increase in number of customers,

the complexity of transportation also increase, and as drop shipping delivery directly to

the customer using package carriers, the cost of transportation is also likely to be huge,

many times more than the cost of actual product.

As the product are packed at the manufacture itself, the cost on handling the finished

product is also significantly low in direct-shipping when compared with any other

distribution network. In addition, manufactures can also save on added fixed cost of

facilities by avoiding warehouse. (Chopra et al, 2010)

The biggest advantage of direct-shipping is the ability to centralize inventories at the

manufacture, by aggregating demand across all the retailers that is supplies (Chopra et al,

2010). Production customization can also be postpone by the manufacture until the

customer places an order, this in turn reduces the inventory further.

Amazon has been the most popular platform for customers who like to shopping from

home and get delivered at home. The primary reason for Amazons success is the order

visibility to the customer (CNET, 2009). Therefore, good information infrastructure isneeded between all the parties in the supply chain (i.e., manufacturer, retailer and

customer) so that information on product availability shared to enhance customer

experience. The complexity of information infrastructure is simpler so direct seller such

as Dell, TravelRest and Nordstrom their retailer (the web portal) is an integral part of

customer connect.


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TravelRest pillow manufacture assure their online customer to delivery the product

within 5 working day from the date of order. It is evident that the response time in direct

delivery is high. Time sensitive customers who has low tolerance for long response time,

can force to switch to alternative products. Nordstrom claims offer more than 800

different products for its online customers (Nordstrom, ND), this is possible for

Nordstrom as its centralizes all its inventory which helps to offer wide variety to

products to its customers.

Manufacturer Storage with Direct Shipping and In-Transit Merge:

In this option, different components of the final product are received at an In-Transit

facility by different manufacturer, which then assembles and delivers one piece to the

end customer. (Chopra et al, 2010).

Figure 5: In-Transit Merge (Source: Adapted from Chopra, 2010)


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Manufacturers such have Dell, Cisco and IKEA have practiced In-Transit merge

(Contantino et al, ND). The advantage of using In-Transit system is a manufacturer can

avoid all the costs related to intermediate warehouse, which in turn the cost of final

product and gaining high level of customer satisfaction.

Not all the components of the final product need to pass through the In-Transit facility,

as few manufactures can bypass the In-Transit facility and send their component directly

to the customer. However, this requires great collaborative communication between

different manufacturers so that the customer receives all the components with minimum

time different, otherwise there could be a loss of customer experience. While considering

only the cost of distribution without the handling or storage costs, direct shipping can

realize saving on information system and assembly. However In-transit merge

compliments this by high reduction of immobilization whilst transportation, loading and

unloading cost remain invariant. (Contantino et al, ND)

In-Transit merge is often seen for delivering valued products such has computers,

furniture and other valuable electronic items, which require careful handling raising the

handling cost. Therefore, handling costs are high when compared with drop shipping.

Starting from the design of the distribution chain, it is fundamental to accurately define

the location of the In-Transit merge location to minimize logistic costs and increase the

service level to the customer (Contantino et al, ND). The closer the In-Transit facility is

to the customer, the better is the response time. However, this can increase the cost of

facility.

Unlike in drop shipping, where the product is delivered to the customer directly from themanufacturing hub, the product in In-transit merge undergoes an additional stage (the

merging stage) which marginally increases the response time.


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Distributor Storage with Carrier Delivery:

In this option, inventory is held by Distributor or retailer at intermediate warehouse,

rather than by manufacturer. The products are delivered to the end customer using

package carriers.

Figure 6: Warehouse by Retailer or Distributor (Source: Adapted from Chopra, 2010)

Amazon opened its virtual doors in July 1995 with a mission to use the internet to

transform book and many other items to buying into fastest, easiest and most enjoyable

experience. The company offers huge collection of books, electronic gadgets, DVDs and

many other products. As on 2000, Amazon has five warehouses spread across USA.

When a customer orders a book on Amazons web portal, the order is passed to

publisher of that book to dispatch from the available warehouse. However, as different


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publishers stock book in the same warehouse, aggregation is difficult to achieve which

can increase the facility cost. Economic means of transportation such as postal service is

used for order dispatch. (Ranchhod et al, 2001)

The huge collection of books at the warehouse indicates high level of Inventory.

However, this offers customers with wide verity of products to choose. Transportation

from the manufactures to the warehouse can also be lower when compared manufacture

storage because an economic mode of transportation such as truckloads can be

employed to inbound shipment. As the five warehouse are located in strategic locations

(i.e., close to customer) across the USA, the repose time is also better than manufacture

storage.

Customer experience is not the best when compared with other types of distribution

network, nevertheless, customer are ready to trade-off for variety of choices.

Communication is important between the warehouse and the customer, however, it is

not important between customer and the warehouse, as product dispatch is the

responsibility of the distributor.

Distributor Storage with Last-Mile Delivery (LMD):

In Last-mile delivery, the distributor/retailer delivers the product directly to the end

customer (Chopra et al, 2010). As it is, the responsibility of the distributor to deliver the

product, for quick service, it is essential to have distributor within close reach of

customers. In addition to improved response time to customer, LMD also save on

transportation cost for the manufactures, however, the distributor incurs high

transportation cost, especially when delivering to individuals.


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Figure 7: Last-Mile Delivery (Source: Adapted from Chopra, 2010)

In conventional manufacturing industries, the information flows from the customer to

the distributor through either personal walk-in, internet or phone, the order is processed

and the stock is dispatched. Nevertheless, customer can place an order directly at the

manufactures facility (website), which could either process the request and deliver the

product or forward the request to a local distributor, as practiced by Dell and Amazon.

Sainsbury, one of the biggest retailers in the U.K, started its online store in the year 1999.

The internet based ordering service was available to almost 90% of U.K, making it

critical for over all business as it contributes 500 million to its revenue, annually. The

online food business operates from over 170 stores. (Bardwell, 2010)

Sainsburys distributions network adopted LMD system to support the online service.

Once an order is received, depending on the postcode of the delivery address, items are

picked from the nearest Sainsburys store or warehouse and a sequential delivery is made

to all the customers in that area. (Bardwell, 2010)


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The LMD system so far, has been proven successful for Sainsbury, as it caters the needs

of a sect of customers who enjoys shopping from home. However, it should also be

consider that, Sainsbury charges for home delivery. The success of Sainsbury should not

only be attributed for implementing LMD system, but also for placing 170 operating

stores (Bardwell, 2010) in strategy locations. This is supported by George, J., (2006)

suggestion of having repackages in strategic locations where there is a strong demand for

these types of services.

However, charging a premium for home delivery will not be successful in price sensitive

markets. Distributers/retailers can provide home or business deliveries free of charge, if

they could achieve economic of scale by delivering to large amount of customers,

thereby effectively reducingper person delivery cost. Populous economics such as China and

India could favor LMD at B-to-C level. As an example, LMD of water and large rice

bags has been proven successful in China (Chopra et al, 2010).

Although the response time, product return and customer experience are better when

compared with other distribution network options, LMD requires to maintain high levels

of inventory. Having high levels of inventory in strategic locations (i.e., close to

customers) can incur huge rental and handling costs. Hence, package carriers such as

Webvan, Peapod and Albertsons failed to survive LMD in the grocery industry (Chopra

et al, 2010).

Manufacture or Distributor Storage with CustomerPickup:

In this approach, the inventories are maintained at warehouse or (central) distributor.

Customers place their orders at a retailer, online or through phone. The retailer then

passes the information to the designated manufactures and the products are transported

to local pickup sites, from cross-docks (Distribution Center).


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Figure 8: Manufacturer or Distributor Warehouse Storage with Customer Pickup (Source: Adapted

from Chopra, 2010)

Seven-Eleven, founded in 1974, is the biggest small and mid size (in terms of market

share) retail chain in Japan allows customers to pick online orders at a designated store.

Seven-Eleven has strategically designed its local stores to serves as pickup points also.

(Seven-Eleven Corporate Profile, 2010)

The cost of maintaining inventories are lowers as the central distribution allows

aggregation of inventories, this also helps to reduce the transportation cost as truckloadsor less-than-truckload carriers can be used to transport orders to the pickup sites. Seven-

Eleven has simplified is transport system making 3 deliveries in a day from 70 delivery

since its start. This was possible for Seven-Eleven by using Combined Distribution

System, in which it uses it own existing transport system to deliver a dedicated list of


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items (especially fast moving consumer goods) for the strategically located pickup points.

(Seven-Eleven Corporate Profile, 2010)

Seven-Eleven successful implementation of pickup service could just be a derivate of it

vast chain of stores in Japan (12,771 nationwide), therefore, it may not be possible for a

new entrant to establish new facilities as it incurs huge capital investment, in addition,

distribution channels, in Japan are dominated by social and economic power which is

rooted in Japanese history. (Childs and Batista 1994)

Facilitating pickup service also requires significant investment in setting information

infrastructure, as order visibility is extremely important for both customer as well as to

the retailer. Gill and Allerheiligen (1996) claims that duplication of orders is a common

problem in pickup service, which can decrease the productivity of the system. They also

say that order miss-match also, remains a sever problem in pickup services.

Customer experience is however, lower when compared with Last-Mile delivery as the

order is not delivered to home, nevertheless, pickup service is for those customers with

busy lifestyle and consider shopping as an adjunct of regularly scheduled activities.

The biggest area of concern for pickup service is the increased handling cost at the

pickup site. However, this can be significantly reduced if existing facilities can be used as

pickup sites as Seven-Eleven is doing.

Retail Storage with Customer Pickup:

Retail Storage is often observed as the most traditional type of supply chain network. In

this model, inventory is stored locally at retail stores. Customers walk into the retail

stores or place an order online and pick-up from the retail store. (Chopra et al, 2010).


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Figure 9: Retail Storage with Customer Pickup (Source: Adapted from Chopra, 2010)

In retail storage, inventory costs are higher as there is a lack of aggregation. Nevertheless,

for retailer such as huge supermarkets who stocks fast moving consumer goods,

inventory costs are marginally increased. However, the cost of inventory can be further

reduced, in addition to reduced guess work for supply chain managers, when retailer and

manufactures collaborative share the demand forecast for products. Consider the

demand cycle of seasonal products, such as chocolates. The Demand for confectionary

items is high during Christmas, hence maintaining inventory during summer is a loss of

storage capacity, in addition to adding overhead of the facility on confectionary stock.

Transportation cost is much lower when compared with other distribution network as

inexpensive modes of transportation can be used to replenish product at the retail store

(Chopra et al, 2010). However, transportation cost can increase if retailers stock


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inventories in their own warehouse instead of stocking directly in the retail facility.

ASDA has 24 distribution centers in the U.K, which acts as distribution warehouse for

ASDA stores throughout the U.K (ASDA, ND). Manufactures supply stocks to the

ASDA warehouse and ASDA schedules road transport deliveries to stores within the

radius of that warehouse. One advantage for ASDA by having warehouses is, it could

control inventory at the retail outlets and enforce postponement on the manufactures.

However, ASDA had to incur warehouse establishment cost as well as multiple handling

costs at the warehouse, which can be avoided if items are stocked directly the retail

facility.

Response time is best when compared with any other distribution system as customer

directly walk into the retail facility and makes a buy decision. Product return can also be

best practiced in this kind of delivery system, as customer can have direct interaction

with retailers.

Conclusion:

Throughout this assignment, it is observed that customers in todays fast communication

markets are valuing product variety and customizations. Personal computers assembled

at few sources by an organizations but with high variety of end products. However,

demand for any one type tends to be low or variable. Organizations are not aligning to

one particular mode of distributions network but are adopting Hybrid model, take

advantageous parts from each type which best suits their business requirement. As an

example, Dell once used to do In-transit merge, however, now it sells its generic models

laptops through retailers.

It is, therefore hard to underline one particular model to fits for every industry forever.

Supply chain must to robust to adapt to the changing consumer behavior and buying

patterns.


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It is also observed that the value added increases if distributors carries products from

more than one manufacturer as it reduces inbound and outbound transportation cost,

reduces inventory and streamline order processing.


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Reference:

Childs, N.C. and Batista, B.L. (1994), Japanese food wholesaling: US comparison and

future issues, The International Journal of Physical Distribution & Logistics

Management,Vol. 24 No. 7

Chopra, S., Meindl, P., Kalra, D.V., (2010), Supply Chain Management: Strategy,

Planning and Operation, 4th

Edition, Dorling Kindersley (India) Pvt., Ltd., licensees of

Pearson Education, pp. 89

Gill, L.E. and Allerheiligen, R.P. (1996), Co-operation in channels of distribution:

physical distribution leads the way,International Journal of Physical Distribution &

Logistics Management, Vol. 26 No. 5

Online Reference: (ND, No Date)

ASDA, (ND), Distribution Locations, http://www.asda.jobs/all-

about/locations/distribution_locations.html [Accessed on 03/04/2011]

Bardwell, C., (2010): Sainsburys Last Mile Delivery: Case Study, [online]

http://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-

170835.pdf[Accessed on 02/04/2011]

CNET News, (2009), Amazon Customer satisfaction gets a boots, but why?

http://news.cnet.com/8301-1023_3-10191867-93.html [Accessed on 02/04/2010]

Nordstrom, (ND), http://shop.nordstrom.com/c/about-us [Accessed on 02/04/2011]

Ranchhod, A., Gurau, C., and Hackney, R., (2000), Internet Transactions and PhysicalLogistic: Conflict or Complementarily, AMCIS 2000 Proceedings, Paper 241,

http://aisel.aisnet.org/cgi/viewcontent.cgi?article=1682&context=amcis2000 [Accessed

on 02/04/2011]

Seven-Eleven Corporate Profile (2010),

http://www.sej.co.jp/mngdbps/_template_/_user_/_SITE_/localhost/_res/pdf/en/e-

yokogao2010-2011.pdf [Accessed on 03/04/2011]

Bibliography:

Oloruntoba, R. and Gray, R. (2006). Humanitarian aid: An agile supply chain?. Supply

Chain Management: An International Journal, Vol.11, No.1, pp. 115-120
http://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdfhttp://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdfhttp://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdfhttp://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdf


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Sohal, Amrik S. Millen, Robert. and Moss, Simon. (2002). A comparison of the use of

third-party logistic services by Australian firms between 1995 and 1999.International

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Battezzati, L. and Magnani, R. (2000). Supply Chains for FMCG and industrial product

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10019750_Global Supply Chain Management

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