Designing Distribution Networks and Applications to E-Business Fall, 2014 Supply Chain Management: Strategy, Planning, and Operation Chapter 4 Byung-Hyun.

Designing Distribution Networks and Applications to E-Business

Fall, 2014

Supply Chain Management:Strategy, Planning, and Operation

Chapter 4

Byung-Hyun Ha

2

Contents

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

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Role of Distribution in the Supply Chain

Distribution The steps taken to move and store a product from the supplier st

age to the customer stage in a supply chain Affecting the cost and the customer experience, and therefore dr

iving profitability• Efficiency vs. responsiveness

Different choice for similar distribution Examples

• Wal-Mart, Seven-Eleven Japan, Webvan

• Dell, Gateway, Apple

• Proctor & Gamble

Terms SKU, truckload (TL), less-than-truckload (LTL), package-load Inventory turnover, fast-moving, slow-moving

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Factors Influencing Network Design

Dimensions for evaluating network performance Customer needs that are met Cost of meeting customer needs

Tradeoff customer service vs. cost to provide this level of service

Customer service influenced by network structure Response time Product variety Product availability Customer experience Order visibility Returnability

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Relationship to the number of facilities

RequiredNumber of Facilities

Response Time

Inventory Costs

Number of facilities

TransportationCosts


FacilityCosts


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Inventory costs and number of facilities

Response Time

Number of Facilities

Total Logistics Costs

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Design Options for Distribution Network

Two key decisions Delivered or customer pickup? Intermediate locations or not?

Classification Retail storage with customer pickup 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 customer pickup and others

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Retail (manufacturer) storage with customer pickup

Retailers (manufacturers)

Suppliers/distributers

Customers

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Manufacturer storage with direct shipping

Manufacturer

Retailer

Customers

Product Flow

Information Flow

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Manufacturer storage with direct shipping (cont’d) Characteristics

• Slow-moving items

• Mixed with other type of networks for fast-moving items

• Aggregation

• Ownership structure of inventory at manufacturers

• Postponement and customization

• Build-to-order

• Usually employing package carriers

Performance• Inventory, transportation, facilities and handling, information

• Response time, product variety, product availability, customer experience, time to market, order visibility, returnability

Best for low-demand and high-value items, customers who are willing to wait for delivery and accept several partial shipment

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Manufacturer storage with direct shipping and in-transit merge

Factories

Retailer

Product Flow

Information Flow

In-Transit Merge by Carrier

Customers

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Manufacturer storage with direct shipping and in-transit merge (cont’d) e.g., Dell + Sony Using package carrier Very sophisticated information infrastructure

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Distributor storage with carrier delivery

Factories

Customers

Product FlowInformation Flow

Warehouse Storage by Distributor/Retailer

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Distributor storage with carrier delivery (cont’d) e.g., Amazon Slow-moving items in factories, fast-moving items in warehouse

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Distributor storage with last mile delivery

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer Warehouse

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Distributor storage with last mile delivery (cont’d) e.g., Webvan, Peapod, Albertson, automotive spare parts industr

y More warehouses are required (need to be close to customers) Higher transportation cost

• Package carriers can aggregate delivery across retailer.

• Less expensive in large, dense cities

• Best if large quantity purchasing

Processing cost• Much higher because all customer participation is eliminated

• Higher labor cost

Information handling• Scheduling

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Manufacturer or distributor storage with customer pickup

Factories

Retailer

Pickup Sites

Product FlowInformation Flow

Cross Dock DC

Customer Flow

Customers

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Selecting a distribution network design

Retail storage with customer pickup


Manufacturer storage with in-transit merge


Distributor storage with last-mile delivery

Manufacturer storage with customer pickup

Response time 1 4 4 3 2 4

Product variety 4 1 1 2 3 1

Product availability 4 1 1 2 3 1

Time to market 1 to 5 4 3 2 1 5

Customer experience 4 1 1 2 3 1

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 and handling 6 1 2 3 4 5

Information 1 4 4 3 2 5

* 1: strongest, 6: weakest (relatively)

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Selecting a distribution network design

Retail storage with customer pickup


Manufacturer storage with in-transit merge


Distributor storage with last-mile delivery

Manufacturer storage with customer pickup

High-demand product +2 2 1 0 +1 1

Medium-demand product +1 1 0 +1 0 0

Low-demand product 1 +1 0 +1 1 +1

Very-low-demand product 2 +2 +1 0 -2 +1

Many product sources +1 1 1 +2 +1 0

High product value 1 +2 +1 +1 0 +2

Quick desired response +2 2 2 1 +1 2

High product variety 1 +2 0 +1 0 +2

Low customer effort 2 +1 +2 +2 +2 1

* +2: very suitable, 2: very unsuitable (relatively)

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E-business and Distribution Network

E-business online sales

Impact of e-business on customer service Response time Product variety Product availability Customer experience

• Personalized buying experience

Time to market Order visibility Returnability Direct sales to customers Flexible pricing, product portfolio, and promotions Efficient funds transfer

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E-business and Distribution Network

Impact of e-business on cost Inventory Facilities Transportation Information

Cases Dell Amazon Peapod

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Distribution Networks in Practice

Ownership structure of distribution network As big an impact as the type of distribution network

• e.g., a 3PL who pursuits its own profit

Long-term consequences of choice of network type e.g., car dealers

Exclusive distribution strategy or not

Customer preference on network type Product price, commoditization, criticality

Integration of Internet and existing physical network

Designing Distribution Networks and Applications to E-Business Fall, 2014 Supply Chain Management: Strategy, Planning, and Operation Chapter 4 Byung-Hyun.

Documents

network design dimensions

network design relationship

direct shipping slide

network design inventory

supply chain distribution

slowmoving slide

customer stage

practice slide