4-1 © 2007 Pearson Education Chapter 4 Designing the Distribution Network in a Supply Chain Supply Chain Management (3rd Edition)
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?