———— Wet Eww Role of Distribution in Supply Chain = Factors influencing Distribution networ} design - Design options for Distribution Network Distribution Network in Practice - Role of network Design in Supply Chain ~ Framework for network Decisions. 2.1, ROLE OF DISTRIBUTION IN THE SUPPLY CHAIN Ty Distribution refers to the steps taken to _move and store a product from Te _~ i sepplierstage to a customer stage inthe supply chain.” (Soin cee nee init up ha CY 7S) Raw Toaterials “and components are moved from suppliers to menufacturers, whereas finished ‘products are moved. fom the ~ manufacturer to the end consumer, istribution is a key driver of the overall Profitability of a firm because it affects boththe supply chain cost customer experience directly. _ % The appropriate distribut ution network can be. used to achieve a variety of supply chainobjectives Tanging from low cost to high responsiveness. Wo), (4's «wy companies to same indy itn al ey ite distributionnetworks, + Dal dts sy el enum, wes ong such as HPdistribute through Del customers wait sever days to get a PC, whereas customers can walk away withan HP PC from a reseller, PG tas chosen wo dibue diel 1 lage nee while obligatingsmaller players to buy P&G products from distributors, +Se et OOo © @ Ee @ ®68e@ o92885 \z Supply Chain Management \ : Performance of « distribution netwo giwo Y Dimensions; a @_. | Orb. 6 i 2 ; 8 ’® © Customer needs that are met #7] Cost of meeting customer needs . The customer's’ needs that are met: influence the company’s revenues, which along with cost decide the profitability of the delivery network. PY, CUSTOMER SERVICE COMPONENTS % Response time: ~ Amount of time it takes for a customer to receive an order: % Product variety: ~ Number of different products/configurations offered bythe distribution network. +. Product availability: - Probability of having a ict in stock when a andreceive orders as well as the extent to which this experience is J cmmcan [ Uv * ‘Time to market: — Time it takes to bring a new product to the market. * Order visipilty: Ability of customers to track theit orders ftom % stn ~ Dae with wooo cn eben Ierchandiseand the ability of the network tohandle such retwins. % ‘It may seem at first that.a customer olways wants the highest level of performance along all these dimensions, : ’_ Firms that target customers who can tol sine require efoto eer a?“Supply Chain Network Design 4 These companies can focus on increasing the capacity of each location, ‘In contrast, firms that target customers who value short response times need to locate facilities close to Sa 4 These firms must have many facilities, each with a low capacity. + Thus, a decrease in the response time customer's desire increases the number of facilities required in the network as shown in Figure 2.1 { . Required Number i of Facities Fig. 2.1. Relationship between Desired Response Time and Number of Facilities % Changing the distribution network design affects the followin; Inventories ‘Transpoitation Facilities ond handling + Information _ 4K decrease in the response tine customer's desire increases thie mumber of: facilities required inthe network. : oye. | i i i [2aq Supply Chain Management i As the number of facilities in a supply chain increases, the inventory and resulting inventory costs also increase as shown in Figure 2,2, {9° Inbound transportation costs are-the costs incurred in bringing material See j into a facitity, i she Outbound transportation costs are the costs of sefding materi out of a j «TL facitty, ee . * © ‘Oiubound transporiation costs per uit tend 10 higher than iabound | costs because inbound fot sizes ae typically large. For exampl, she ; : , Amazon warchouse receives fll uckload shipments of books on the c 4 | Inbound side, but ships out smiall packages with only a few books per ; customer on the outbound side, "® Increasing the nimber of warehouse locations deoreases the average Outbound distance to the customer and makes outbound transportation distance a smaller fraction ofthe total distan ° Thus, as long as inbound transportation economies " jnereasing the number of facilites decreases transportation cost, as shown in Figure 2.3. inbound transportation, increasing the numberof facilities increases totalsupply Chain Network Design > Facility costs decrease as the number of facilities is reduced, as shown in Figure 2.4, because a consolidation of facilities allows a firm to exploit ccondmies of scale, Tea Facilty Costs: . Faciilles Fig. 2.4, Relationship between Number of Facilities and Facility Cost © Tonal logistics conte the sum of inventory, transportation, and fclity costs for u supply chain network, % As the number of facilities increases, total logistics costs first decrease and __then increase as shown in Bigure 2.5. pre Each firm should have at least the number of facilities that minimize total logistics costs. For examplé, Amazon has more than one warehouse primarily to reduce its logistics costs (and improve response time), | Numoer of i Number of Facitlos Fig. 2.5, Variation in Logistics cost and Response Time with Number of Facity % Asa firm wants to reduce the response time to its customers further, it may have to increase the number of facilites beyond the point that minimizes logistics costs. % A fitm should add facilities beyond the cost-minimizing point only if ‘managers are confident that the increase in revenues because of betterSupply Chain Management ‘Supp responsiveness is greater than the increase in costs’ because of the j additional facilities. % Thus, it is important to ensure that the strengths of the distribution network 1 fit with the strategic position of the firm. IGN OPTIONS FOR A DISTRIBUTION NETWORK (f) Manufacturer storage with direct shipping: % Product is shipped directly from the manufacturer to the end customers bypassing the retailer (Who, takes the order and initiates the delivery |, request). 4 This’option is also referred to as drop shipping, with product delivered directly from the marifacturer to the customer. It is best. suited for a large variety of Jow-demand, high-value items for ‘which customers are willing to wait for delivery and accept several partial “shipments, + 7 ——— Product Flow ay ile os 2 see Inormaton Fw 7 Fe 26 ‘ ~ Berformanes Characteristics of Manufacturer Storage wth ‘Shipping Network Direct: Lower’ costs becausé af aggregation. Benefits of ‘sggregation are highest for low demand, high value ®@®660680866608008066686686_——— de eH YT | or FIR 1 emen! + supply Chain Network Design [7] of the | rrsissportation Higher tiansportation” costs because of increased | distance and disaggregate shipping, work ‘, ca Lower facility costs because of aggregation. Some Facilites and handling saving on handling costs if manufacturer can manage small shipments. ! Ainformation Significant investment in information infrastructure | to integrate manuftcturer and retailer. i [Link] time of one to two weeks because of | increased distance and two stages for order : processing: Response time may vary by product, thus complicating receiving A : Response Time A = fot | ip smanufacturer storage with direct shipping and in-transt merge : 4 Unlike pare drop shipping, under wihich each product in'the order is sent directly from its manufacturer to the end customer, jin-transit_merge combines piéces of the order coming from different locations ‘so. that the peo eee é customer gets.a single delivery. es. Fatios Rc? et, when a cstomes order PC from Dell long with a Sony monitor, the package carer picks up the PC fom the Del fctry and he monitor Pi i ' i | | | ELSupply Chain Management ee SL. from the Sony factory; it then merges the fwo togehér at a hub beforé | making a single delivery to the customer, ; * uit Sr orn ino el igh ils Sof et | sourcing from a limited nuniber of manufacturers. » Performance Characteristics of In-Transit Merge2.9 Supply Chain Network Design package carriers are used to transport products from the intermediate location to the final customer. + Itis well suited for medium- to-fast moving items. & Italso'makes sense when customers want delivery faster than is offered by manufacturer storage but do not need it immediately, Performance Characteristics of Distributor storage with Carrier Delivery Inventory Higher than manufacturer storage. Difference is not large for faster- moving items, ‘Transportation Lower than manufacturer storage. Reduction is highest for faster- moving items. Facilities and | Somewhat higher than tanufacturer storage. The handling difference can be large for very slow-moving items. Information ‘Simpler infrastructure compared to manufacturer storage. | Response Time Faster than manufacturer storage: ; We) Distributor storage with Last-Mile Delivery ~~ Last-mile delivery refers to the distributor/retailer delivering the product to. aa GOSS SSSSSGORHSSEHSSEIn areas with high labor costs, it is very. hard to Justify distributor storage ‘With last mile delivery on the basis of efficiency oF improved margin. % Aneeffort should be made to couple last» mile delivery with an existing Supply Chain Management ca distribution network to exploit economies of scale and improve. Performance Characteristics of Distributor: ‘Storage with Lest-Mile Delivery age Sal "Inventory Higher than distributor storage with package carrier . delivery. | Transportation Very high cost. given mininial scale economies. than any other distribution option. Facilities and handling | Pocilities costs higher than manufacturer storage or distributor storage. with package carrier delivery, but Jower than a chain of retail stores, Similar to distibutor storage with package cartier S®eeeeeeeoeeeeoeoeooeaea0ed— eB Supply Chain Network Design SS—= (at) & lnventoryk js stored -at the manufacturer or met_ot distributor warehouse but astomers place. their orders online ot on the Phone and then travel to, ~ designated pickup points to Collect their merchandise, Orders wre shipped from the storage site to the Pickup points as needed. Such a network is likely to be most effective if existing ‘2earions such as caffe shops, convenience sto eS, OF Grocery stores are used as pickup Sites, beotuse this type of network improves the economics fom erxisting infrastructure, * Performance Characteristics of Distributor Storage with Customer: Pickup | ER Tce pee Inventory Can match any other option, spending on the location of inventory, i | i ae an lca! | Transportation” Lower than the use of package camiers, epgecilly if “+ [using a existing delivery network. Facility costs can be very high if mew facies have i to-be bull, Costs are lower if exiting fciities are used, The increase in handling cost atthe Pika ite can be significant, Significant investment in infrastructure required. Similar to package carrier. delivery with manufacturer or distributor’ storage, Same day delivery possible for items stored loeally at pick-up i sites (vi) Retailer storage with Customer Pickup ‘Inventory is stored lolly ot rel stores. Customers Walk ito se rll ! store or place an order online or by phone and pick itp the retail store; 2) Rite ne ten ev sorts fr which este’ vale| | ‘Supply Chain Management I = _—_———$$<$—$——$———_——=— Performance Characteristics of Retaller storage with Customer Pickup i mas Higher than all other éptions. Transportation Lower than all other options. i Facilities and handling | Higher than other options. The increase in handling cost I at pickup site can be [Link] online and phone a orders. Information Some investment in infrastructure required for online j and phone orders. . Response Time Same-day pickup possible for items stored locally at L pickup site, ae (vi) E-Business and the Distribution Network : # tof E-Business on Customer Service: _» Response time to customers: . ae 3; , * Is sling pila hat eg bs ates : without a physical retail outlet takes longer to fulfill a customer request than a retail store because of the shipping time involved, if There is no such delay, bower fr produ that be downloaded ite appa Le z Product Variety J 5 7 ‘s Aa bn ner ft a son af oc an bricks- and-mortar store, e Oink nape wad i gaan e ‘tha corespoadngy lage amount of invesSupply Chain Network Design a3] °* These improved forecasts and the more accurate view of customer demand Jeads to a better match between supply and demand. Customer Experience * ‘An. e-business . affects customer experience in terms of accéss, Customization and convenience, Unlike most retail stores'that are open only during business hours, am ¢- business allows access to customers who may aot be able to place odes uring regular business hours, ‘An e-business allows a firm to access ciistomers who are geographically distant. Firms that focus on mass cystomization can use the Infemet to help customers select a product that suits their needs. Oniintemet, customers have the édse of not necding to leave home or work to make a purchase, , Faster time to market. a} Pain sel en ciao ee « * ‘An chusines in contest introduces anew prodict by making it availble ’ ‘han a itm that ues phiyscal channels, gn the west adsibaton ig fl the eal store not resect Order Visibility ~~” +. The internet makes it possibie to provide visibility of order status, which is very crucial in online order as it [Link] physical equivalent to a customer shopping. s i de aie hk paleo ig cid Iocation."The proportion of returis isals6 likly to be’ much higher for: _ line orders beni the curtomers are ule to touch. and fel the¢ 2.14 , Supply Chain Management Direct Sales to Customers. An e-business allows manufucturers, and other members of the supply chain that do not have direct contact with customers in traditional channels to enhance revenues by. bypassing intermediaries and selling directly to customers, thereby collecting the intermediary's incremental revenue. Fewile Pricing, Product Portfolio and Promotions 4 An e-business can daily alter prices by changing one entry inthe database linked to its website. This ability allows an e-business 10 maximize revenues by setting ‘prices based on current iriveritories and demand. + Foreg, the airlines make last-minute, low cost fares available on the Web con routes with unsold seats. Can-easily alter the product portfolio that it offers as well as the promotions itis rurining. Efficient Funds Transfer a ‘An.e-business can enhance reveriues by speedirig up collection, pennisrene NETWORKS IN PRACTICE ‘The ownership structure of the distribution nétwork can have 4s big an impact as ‘the type of distribution networks % Distribution networks ‘that have exactly the same physical flow but different ovmership structures can have vastly different performance. “+ For eg, a manufacturer that owns its distribution network can control the network's actions, ‘+ However, if the manufacturer does not own the distribution network, a wide vty of ses ned be taken into account optnze oer the network, The choice of «ditebution network hs very lng tem consequences: The sition of atten itr | i 0 ; is one of the most ditt @800060605666666666806ae (ais) % For eg, Inthe early days, PC manufacturers sold throtigh independent distributors and retailers. Dell's emergence was a clear example of how ‘the direct model was often superior to the traditional model. © Other PC manufacturers, such as HP, made forays into selling PCs directly. ae Consider whettier an exclusive distribution strategy is advantageous: A manufacturer of consumer electronics ‘such as Sony could choose to have relationships with many distributors such as eZone: Product price, commoditization, and criticality affect the type of distribution system preferred by customers: Interactions between’a buyer and a seller take'time and:resources. Many buyers would like to establish a’ relationship’ with'a single enterprise that can deliver a full line of products. ¢ This ca be accomplished by a manfacturés with abroad lin of products However, this is often accomplished more effectively by @ distributor 2) eamying products fromiany manufeetmers.- > 2A. INTEGRATE THE INTERNET WITH THE EXISTING PHYSICAL NETWORK: ¢ To entrct maximum Senet fom ebaoesies, fits shold itt with their existing supply chain’ ‘networks. uae * Separating the two networks oft win nics wine supply chain. ss > This coupling of e-business with the exis gee neti has been referred to as clicks-and-mortar, For eg. Placing order online and ing goods from the physical store. :Supply Chain Manageme” Capadty allocation: 4 | How much capacity should be allocated to each facility? Market and supply allocation: Id What markets should each facility serve? Which supply sources shoul feed cachfacility? 2.6, FACTORS INFLUENU'NG NETWORK DESIGN DECISIONS —*_ = 26.1. STRATEGIC FACTORS A firm's competitive strategy has a significant impact on network design decisions Within the supply chain. : Firms that foous on cost leadership tends to [Link] lowest cost location - for their manufucturng facilites, even if that mgans locating very far fom the markets they serve, ie | @” Firms that focus on responsiveness tend to | _ market and may select a high-cost location if this choice allows the firm to” react quickly to changing market needs j Classification of possible. Strategic roles for various facilities: | na, low-cost facility for export production ; | * & - Serves the role of being a low-cos supply source for markets located © ouitside the country where the facili J Ct facitysiow-cos facity for global production eee 50s Oe pinay suc of rd forthe entire slobal network, ~~ Secverh preglonal production facility : . : * _ Objective is t0supply the market where it is located A. serv fit is © built because of tax, incentives, tft bares oF high logistics cost to | supply the region from elsewhere, \ : & er Sua eno ei sh mse unit fn India {0 serve Indian market, aSupply Chain Network Design mez) Contributor facility: regional production facility with development skills ‘erves the market where it is located but also assumes responsibility for product customization, process improvements, product modifications or oduct development, eS Wee FACTORS If product i signi nomies of scale, a few fproduetion technology ‘displays significant eco hi ipacity locations are most effective. If facilities have lower fixed costs, many local facilities are preferred because this helps lower transportation costs. If the fixed cost of setfing up fatility is high, fow facility location is. a feasible option but if setting up fixed cost is low, more number of facilities should be established, © Macroeconomic Factors Tariffs and Tax Incentives ° a equipment are moved across international, state, or city boundaries. Ifa country, has very high tariffs, companies either do not serve the focal market or set up manufacturing plants within the country to save on duties. $ Tax incentives are a teduction in tariffs or taxes that countries, states and cities often provide to encourage firms to locate ther facilities in specific areas a Exchange Rate and Demand oa) ° Exchange rae is noting but one counties money in terms of other countries money. | ° © ositons in exchange ates aré:common and have a significant impact * "onthe profits of any supply chain serving global markets. A firm that sells its product in the United States with production in India is exposed fo the F tisk of appreciation of the rupee. — 4 4 Companies must also take into account fluctuations in demand caused by changes in the economies of different countries. Tariffs refer to any duties that must be paid when _ptoduct and/or. @ ® @ @ oa @ @ 6 @ o.@eeceeeseaseseseoeoed . ——— ‘ » A Sail : e & ie eae a o Supply Chain Management ————___Sipaly Chain Management ZG POLITICAL FACTORS, ry Companies prefer to locate facilities in Politically stable countries where ‘herules of commerce and ovmerchip are well defined * £ounties with independent and clear legal systems allow firms o fel that they have recourse inthe courts should they need it INFRASTRUCTURE FACTORS, Key infrastructure eleinems, to be cobsidered: during network design include availability of sites, labor availability, proximity to transportation _ Jerminals, rail service, proximity to airports and seaports, lighway access, | congestion and local ut 2.86 COMPETITIVE FACTORS $ Companies. must consider competitor's strategy, size and location when designing their supply chain networks: 2.7. FRAME WORK FOR NETWORK DESIGN DECISIONS Phase : Design a Supply Chan Strategy e Stats wit a lear definition of tif’ competitive saya thst of customer needs that the supply chain ‘sims to satisfy, Managers must forecast the “likely ‘evolution f global competition and whether competitors in each market will be local or global players. Constraints on available capital anid whether growth will be accomplished by acquiring existing facilities, building new facilites or partnering, Phase i: Define the Reglonal Fadllty Configuration ‘Forecast: of the dentand by country, Include a measure of the size of the demand as well asa determination of wheter the customer requirements are homogenous or variable across different countries. : A % Homogenous requirements favor large consolidated facilities whereas ‘ requirements that viry across countries favor smaller, localized facilites.arsenal Supply Chan Network Design v . Phase Ill Select a Set of Desirable Potential sites © Hlard inffastracture requirements ‘include’ che availability of suppliers, | transportation services, communication, utilities’ ‘and “warehousing infrastructure, : Soft infrastructure facilities include the availability of skiiled workforce, workforce tumover and the community receptivity to business and Phase IV: Location Choices : Maximize total profits taking into account the expected margin and i demand in each market, various logistics and facility costs, and the taxes | and tariffs at each location, TWO MARK QUESTIONS AND ANSWERS 3 Define supply chain strategy. ' Supply chain strategy is an iterative process that eveluatés the cost-benefit = trade- offs of operational component®) Business st i sis srategy invélves leveraging the | core competences ofthe organizafon to achieve a defied high-level goal or | ., este. ie 3 : 2. What i the need for integrated supplychain? i _& End-to-end collaboration of dynamic supply network. ; 4° Tronspareticy of materials supply, flow, and iiventories.' +. The nimble orchestration of production networks. _, ‘Real time communication about product information. How is strategic fit achieved? Consistency between customer priorities of competitive strategy and | supply chan capabilites specified bythe supply cain staegy. : ae : a * Compettv oad ply. ti dalep Rab hse nls in 3,4. Define Cycle time in SCM, ‘Cyele time or lead time is the end-to-end delay in a business process. For ~ Supply chains, the business processes of interest ae the supply chain provess and the order-to-delivery process. If the items are in stock, then it would be equal to the distribution lead time and order management time. (@) A span oftime reqitired to perform a process, @) Time between recognition of the need for an ofder and the receipt of goods, SX What is meant by facility Decisions? Facility location decisions play a crucial role in the logistics activities involved in supply chain management. In real-life settings, the optimization of tocation and allocation decisions is often preceded by an evaluation of the existing distribution network system. & Define distribution network, : A distribution network is’ an interconnected group of storage facilities and ‘transportation systems that receive inventories of goods and then deliver them to customers. It is an intermediate point to get products from: the manufacturer to the end customer, either directly or through a retail network. 7. . How to create the effective supply chain process? Supply chain management (SCM) is the broad range of sctvities required to plan, ‘contiol and execute a product's flow, from acquiring raw materials and productionthrough distribaton,to the final eastomer, ini the miost streamlined "and cost-effective way possible... ae ie : e What are the varius fattrs tobe considered before selecting the ste for'a _* Cost of distribution from warehouse to narket area. ‘ +e Availability of transportation and Infistraare-cost of ‘transportation e ‘Availability and cost of labor-Cost of land2.21} Supply Chain Network Design es 9; «Whe are the ‘participants of supply chain management? The participants of supply chain management are Suppliers, wholesalers, distributors, retailers and customers, 10. What is network planning in supply chain? Supply Chain Network Design (SNDC) also known as strategic supply chain Planning’ is the process for building and modelling the supply chain’ to understand the costs and, time to brinig gobds dnd. services to market within an organizations available resources. - 44, What is meant by netork optimization models in supply chain? Supply chain network optimization secks to find an optimal combination of factories and distribution centers in the supply chain, Based on the optimization results,'a manager can compare potential network designs and evaluate the maximum profitability of each of them. 12. What do you mean by decision making under uncertainty in supply chain? | Decision-making environments for Supply Chain Network Design(SNDC) _ tnder uncertainty, Several parameters of a. Supply Chain’ Network Design (SNDC) problem, such as costs, demand, and supply, have inherent uncertainty. The objective of Supply:Chain ‘Network Design (SNDC) under ‘uncertainty is to achieve @ configuration so that it can perform well under any possible realization of uncertain parameters. . j A Name th alae ado pes ta suppy chain : ae + {abound logis Receiving; warehousing, and inventory contol of apt actin in : * Opertons Tasting nts io hf prot or siesta ie , om it e; including warehousing and order’ 14. List the any benefits of using decision Better collaboration,Supply Chain Manageme! “Higher efficiency rate. o Keeping up with demand. Pee. imizatic % Reduced overhead costs. © Improved cash flow, ee sot cama te ly Lee aio ~REEW QUESTIONS <1) Bilan vacious desi opions avaiable fo & Distribution Network. Oc, Elucidate the frame work for network design decisions. 42 Explain the Role of Distribution in the supply chain. 4- explain the factors influencing Distribution network design. 5. State the role of network desiga in Supply Chain. 6 Cone in mt et pe deni i