Supply Chain Management
Sunil Chopra(3rd Edition)
Chapter 4
Designing the Distribution Network in a Supply Chain
M. A. Khan
SCM-Sp-SemesterIV
(M A Khan)
Todays Discussion
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
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The Role of Distribution
in 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
SCM-Sp-SemesterIV
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Factors Influencing
Distribution 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
SCM-Sp-SemesterIV
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Factors Influencing
Distribution Network Design
Elements of customer service influenced by network
structure:
Response time
Product variety
Product availability
Customer experience
Order visibility
Return-ability
Supply chain costs affected by network structure:
Inventories
Transportation
Facilities and handling
Information
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Service and Number of
Facilities (Fig. 4.1)
Number of
Facilities
Response Time
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The Cost-Response Time
Frontier
Hi
Local FG
Mix
Regional FG
Local WIP
Cost
Central FG
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
Low
Low
Response Time
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Hi
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Inventory Costs and Number
of Facilities (Fig. 4.2)
Inventory
Costs
Number of facilities
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Transportation Costs and
Number of Facilities (Fig. 4.3)
Transportation
Costs
Number of facilities
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Facility Costs and Number
of Facilities (Fig. 4.4)
Facility
Costs
Number of facilities
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Total Costs Related to
Number of Facilities
Total Costs
Total Costs
Facilities
Inventory
Transportation
Number of Facilities
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Variation in Logistics Costs and Response
Time with Number of Facilities (Fig. 4.5)
Response Time
Total Logistics Costs
Number of Facilities
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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
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Manufacturer Storage with
Direct Shipping (Fig. 4.6)
Manufacturer
Retailer
Customers
Product Flow
Information Flow
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DROP SHIPPING
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In-Transit Merge Network
(Fig. 4.7)
Factories
In-Transit Merge by
Carrier
Retailer
Customers
Product Flow
Information Flow
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In-Transit Merge Network
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Distributor Storage with
Carrier Delivery (Fig. 4.8)
Factories
Warehouse Storage by
Distributor/Retailer
Customers
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Product Flow
Information Flow
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Distributor Storage with
Last Mile Delivery (Fig. 4.9)
Factories
Distributor/Retailer
Warehouse
Customers
Product Flow
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Information Flow
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Manufacturer or Distributor
Storage with Customer Pickup
Factories
Cross Dock DC
Retailer
Pickup Sites
Customers
(Fig. 4.10)
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Customer Flow
Product Flow
Information Flow
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Comparative Performance of
Delivery Network Designs (Table 4.7)
Response Time
Retail
Storage with
Customer
Pickup
Manufacturer
Storage with
Direct Shipping
Manufacturer
Storage with InTransit Merge
Distributor
Storage with
Package Carrier
Delivery
Distributor
storage with
last mile
delivery
Manufacturer
storage with
pickup
Product Variety
Product Availability
Customer
Experience
Order Visibility
Returnability
Inventory
Transportation
Facility & Handling
Information
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Linking Product Characteristics and
Customer Preferences to Network Design
Retail
Storage
with
Customer
Pickup
High demand product
Medium demand product
Low demand product
Very low demand
product
Many product sources
High product value
Quick desired response
High product variety
Low customer effort
Manufacturer
Storage with
Direct
Shipping
Manufacturer
Storage with
In-Transit
Merge
Distributor
Storage with
Package Carrier
Delivery
Distributor
storage with last
mile delivery
Manufacturer
storage with
pickup
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-1
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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
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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 longterm 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
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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?
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