DISTRIBUTION AND TRANSPORTATION

MANAGEMENT - MSDY 111

Historical perspective of
Distribution
 1950s and early 1960s -Distribution systems were unplanned and
unformulated. Manufacturers manufactured, retailers retailed, and
in some way or other the goods reached the shops.
 1960s and early 1970s -the concept of physical distribution was
developed with the gradual realization that the ‘dark continent’ (as
distribution was described in early academic literature) was indeed
a valid area for managerial involvement.
 Recognition that there was a series of interrelated physical activities
such as transport, storage, materials handling and packaging that
could be linked together and managed more effectively.
 1970 - important decade in the development of the distribution
concept. One major change was the recognition by some
companies of the need to include distribution in the functional
management structure of an organization
Cont..
 1980s - fairly rapid cost increases and the clearer definition of the
true costs of distribution contributed to a significant increase in
professionalism within distribution.
 Late 1980s and early 1990s - Advances in information technology
enabled organizations to broaden their perspectives in terms of the
functions that could be integrated. The term ‘logistics’ was used to
describe this concept.
 1990s - The process of integration was developed even further to
encompass not only the key functions within an organization’s own
boundaries but also those functions outside that also contribute to
the provision of a product to a final customer. This became known
as supply chain management
 2000 to 2010 -Logistics and the supply chain finally became
recognized as an area that was key to overall business success
Supply Chain Management
 Supply chain management is the handling of the entire
production flow of a good or service — starting from the raw
components all the way to delivering the final product to the
consumer.
 SCM is important because it increases competitiveness and
customer satisfaction.
 SCM attempts to centrally control or link the production,
shipment, and distribution of a product. By managing the
supply chain, companies are able to cut excess costs and
deliver products to the consumer faster.
 A supply chain starts with the delivery of raw materials from
a supplier to a manufacturer and ends with the delivery of the
finished product or service to the end consumer
 Example: A supply chain is dynamic and involves the
constant flow of information, product, and funds between
different stages.
Cont..
 Wal-Mart provides the product, as well as pricing and availability
information, to the customer. The customer transfers funds to Wal-
Mart. Wal-Mart conveys point-of-sales data as well as replenishment
orders to the warehouse or distributor, who transfers the replenishment
order via trucks back to the store. Wal-Mart transfers funds to the
distributor after the replenishment. The distributor also provides pricing
information and sends delivery schedules to Wal-Mart. Wal-Mart may
send back packaging material to be recycled. Similar information,
material, and fund flows take place across the entire supply chain.
 A typical supply chain may involve a variety of stages. These
supply chain stages include:
 • Customers • Retailers Wholesalers/distributors • Manufacturers
 • Component/raw material suppliers.
 The objective of every supply chain should be to maximize the
overall value generated
Cont..
Logistics Management
 Logistics management is a component of supply chain
management that is used to meet customer demands through
the planning, control and implementation of the effective
movement and storage of related information, goods and
services from origin to destination.
 The logistics management process begins with raw material
accumulation to the final stage of delivering goods to the
destination
 SCM = Suppliers+ Logistics + Customer
 Logistics = Materials Management + Distribution
SCM & Logistics
Distribution
 Distribution management refers to the process of overseeing the
movement of goods from supplier or manufacturer to point of sale.
 It is an overarching term that refers to numerous activities and
processes such as packaging, inventory, warehousing, supply chain,
and logistics.
 Distribution management is an important part of the business
cycle for distributors and wholesalers. The profit margins of
businesses depend on how quickly they can turn over their goods.
The more they sell, the more they earn, which means a better future
for the business.
 Modern distribution management encompasses more than
just moving products from point A to point B. It also
involves gathering and sharing relevant information that can be
used to identify key opportunities for growth and competitiveness
in the market. Most progressive companies now use their
distribution forces to obtain market intelligence which is vital in
assessing their competitive position.
Cont..
 There are basically two types of distribution: commercial
distribution (commonly known as sales distribution) and physical
distribution (better known as logistics).
 Distribution involves diverse functions such as customer service,
shipping, warehousing, inventory control, private trucking-fleet
operations, packaging, receiving, materials handling, along with
plant, warehouse, store location planning, and the integration of
information.
 Effective distribution management involves selling the product
while assuring sufficient stocks in channels while managing
promotions in those channels and their varying requirements. It also
involves making sure a supply chain is efficient enough
that distribution costs are low enough to allow a product to be sold
at the right price, thus supporting your marketing strategy and
maximizing profit.
Objectives of Distribution
 To Ensure Consumer Convenience
 To Facilitate Continuous Production
 To Achieve Economy
 To Reduced Degree of Damage/Wastage
 To Increase Competitiveness
 To Lower Idle Stocks
 To Achieve Rapid Turnover of Stock
Features/ Characteristics
 Physical distribution, also known as distribution network, refers to
a range of activities and services required for moving products from
producers to ultimate users.
 Physical distribution involves various parties, such as producers,
middlemen (wholesalers, retailers, agents, etc.), owners of
warehouses, bankers, insurance companies, transporters,
communication service providers, and many other similar parties,
who can facilitate a smooth flow to goods from producers to
consumers.
 Physical distribution involves a large number of activities like (i)
Order processing (ii) Handling products (iii) Sorting and packing
(iv) Warehousing (v) Transportation (vi) Insurance and banking
(vii) Inventory control (viii) Customer service.
 Distribution involves, in an average, 20% to 25% costs
 Physical distribution is flexible in nature
Channels of Distribution
 The term ‘Distribution Channel’ connotes a route or pathway taken by
products as they flow from the point of production to the point of
ultimate consumption.
 According to William J. Stanton, “ A distribution channel consists of the
set of people and firms involved in the transfer of title to a product as the
product moves from product to ultimate consumer or business user.”
 Characteristics of Channels of Distribution
 1. Place utility, as they help in moving the goods from one place to
another.
 2. Time utility, as they bring goods to the consumers when needed.
 3.Convenience value, as they bring goods to the consumers in conve­
nient shape, unit, size, style and package
 4. Possession value, as they make it possible for the consumers to obtain
goods with ownership title
Cont..
 Physical distribution channel is the term used to describe the
method and means by which a product or a group of products are
physically transferred, or distributed, from their point of production
to the point at which they are made available to the final customer.
 Trading or transaction channel. The trading channel is also
concerned with the product, and with the fact that it is being
transferred from the point of production to the point of consumption.
 The trading channel, however, is concerned with the non-physical
aspects of this transfer
Physical distribution channel types
 1. Manufacturer direct to retail store
 2. Manufacturer via manufacturer’s distribution operation to retail
store
 3. Manufacturer via retailer distribution centre to retail store
 4. Manufacturer to wholesaler to retail shop
 5. Manufacturer to cash-and-carry wholesaler to retail shop
 6. Manufacturer via third-party distribution service to retail store
 7. Manufacturer via small parcels carrier to retail shop
 8. Manufacturer via broker to retail store
 Channel alternatives: direct deliveries
 Mail order
 Factory direct to home
 Internet and shopping from home
 Factory to factory/business to business (B2B).
Channel Objectives
 To make the product readily available to the market consumers at
which it is aimed
 To enhance the prospect of sales being made
 To achieve cooperation with regard to any relevant distribution
factors
 To achieve a given level of service
 To minimize logistics and total costs
 To receive fast and accurate feedback of information
 Factors Influencing to Choose Channels
 Market characteristics – Long Channel or Short Channel
 Product characteristics
 Competitive characteristics
 Company resources
Role of Distribution in SCM
 Distribution as being "the steps taken to move and store a product from
the supplier/manufacturing stage to a customer stage within the supply
chain".
 Key to successful distribution today is the model of demand
management. Demand management is regarded as "the process of
anticipating and fulfilling orders against defined customer service
goals“
 Effective distribution system in a modern firm is often linked with
reducing operational costs.
 Enhanced customer service is not the sole rationale for inserting
distribution operations into the supply chain. Other roles include the
following.
 1. Balancing supply and demand - distribution facilities can stockpile
inventory to buffer supply and demand.
Cont..
 II. Protecting against uncertainty.-Distribution facilities can hold
inventory for protection against forecast errors, supply disruptions,
and demand spikes.
 III. Allowing quantity purchase discounts
 IV. Supporting production requirements
 V. Promoting transportation economies.
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.
 Location to the customer and infrastructure quality are two of the
most important aspects of a distribution network.
 There are many types of distribution networks, such as a hub-and-
spoke or decentralized, that work best for different types of
products.
 Distribution network is one of the most critical aspects of the
success of a company , that allows a company's products to reach
customers quickly and efficiently while at the same time keeping
costs low for the company
Design Distribution Network
 Factors Influencing to Design
 Performance of Distribution Network Evaluated by
 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.
 Customer service consists of many components, we focus on those
measures that are influenced by the structure of the distribution
network.
 1. Response time - Amount of time it takes for a customer to
receive an order
 II.Product variety - Number of different products
Cont..
III. Product availability- Probability of having a product in stock
when a customer order arrives.
IV. Customer experience - Ease with which customers can place and
receive orders
V. Time to market -Time it takes to bring a new product to the
market
VI. Order visibility - Ability of customers to track their orders from
placement to delivery.
VII. Return ability – Ease with which a customer can return
unsatisfactory merchandise
Change of Network Design Costs affected by network structure
◦ Inventories  Transportation  Facilities and handling
  Information
Response time and Number of
Facilities
Inventory Costs and Number
of Facilities
Transportation Costs and
Number of Facilities
Facility Costs and Number of
Facilities
Variation in Logistics Costs and Response
Time with Number of Facilities
DESIGN OPTIONS FOR A
DISTRIBUTION NETWORK
 When considering distribution between any other pair of stages,
such as supplier to manufacturer or even a service company serving
its customers through a distribution network, many of the same
options still apply.
 Two key decisions when designing a distribution network:
 1. Will product be delivered to the customer location or picked up
from a preordained site?
 2. Will product flow through an intermediary (or intermediate
location)?
 Six distinct distribution network designs may be used to move
products from factory to customer which are classified as follows
Manufacturer storage with direct
shipping
Cont..
Cont..
Manufacturer storage with direct shipping and
in-transit merge
Cont..
Distributor storage with package
carrier delivery
Cont..
Distributor storage with last-mile
delivery
Cont..
Cont..
Manufacturer/distributor storage
with costumer pickup
Cont..
Cont..
Retail storage with customer pickup
Cont..
SELECTING A DISTRIBUTION NETWORK
DESIGN

 A network designer needs to consider product characteristics as well as

network requirements when deciding on the appropriate delivery network.
Cont..
Online Sales and Distribution Network
 E-business or Online business means business transactions that take
place online with the help of the internet.
 Ecommerce, also known as electronic commerce or internet
commerce, refers to the buying and selling of goods or services
using the internet, and the transfer of money and data to execute
these transactions.
 Whereas e-business refers to all aspects of operating an online
business, ecommerce refers specifically to the transaction of goods
and services.
 Different categories of e-commerce
 BUSINESS-TO-BUSINESS (B2B)
◦ B2B e-commerce refers to all electronic transactions of goods
and sales that are conducted between two companies.
Cont..
 BUSINESS-TO-CONSUMER (B2C)
◦ B2C e-commerce deals with electronic business relationships between
businesses and consumers.
 CONSUMER-TO-CONSUMER (C2C)
◦ This level of e-commerce encompasses all electronic transactions that
take place between consumers
 CONSUMER-TO-BUSINESS (C2B)
◦ C2B e-commerce is when a consumer makes their services or products
available for companies to purchase.
 BUSINESS-TO-ADMINISTRATION (B2A)
◦ This e-commerce category refers to all transactions between companies
and public administration.
 CONSUMER-TO-ADMINISTRATION (C2A)
◦ Another popular e-commerce category, C2A e-commerce encompasses all
electronic transactions between individuals and public administration
E-BUSINESS AND THE DISTRIBUTION
NETWORK
 E-business affects a supply chain's ability to meet customer needs and
the cost of meeting those needs.
 IMPACT OF E-BUSINESS ON CUSTOMER SERVICE
 Response Time to Customers
 In selling physical products that cannot be downloaded, an e-business
without a physical retail outlet takes longer to fulfill a customer
request than a retail store because of the shipping time involved.
 Product Variety
 An e-business finds it easier to offer a large selection of products than
a bricksand- mortar store.
 Customer Experience
 An e-business affects customer experience in terms of access,
customization, and convenience.
Cont..
 Product Availability
 An e-business can greatly increase the speed with which information on
customer demand is disseminated throughout the supply chain, giving rise to
more accurate forecasts. These improved forecasts and the more accurate view
of customer demand leads to a better match between supply and demand.
 Faster Time to Market ;;..
 A firm can use e-business to introduce new products much more quickly than
a firm that uses physical channels.
 Order Visibility
 The Internet makes it possible to provide visibility of order status.
 Returnability
 Returnability is harder with online orders, which typically arrive from a
centralized location
 Direct Sales to Customers and Flexible Pricing, Product Portfolio, and
Promotions and Efficient Funds Transfer
IMPACT OF E-BUSINESS ON COST

 Inventory
 An e-business can lower inventory levels and inventory cost by improving
supply chain coordination and creating a better match between supply and
demand.
 Facilities
 Two basic types of facilities costs must be included in the analysis: costs related
to the number and location of facilities in a network, and costs associated with
the operations that take place in these facilities. An e-business can reduce
network facility costs by centralizing operations, thereby decreasing the number
of facilities required.
 Transportation
 If a firm can put its product in a form that' can be downloaded, the Internet will
allow it to save on the cost and time for delivery
 Information
 An e-business can share demand information throughout its supply chain to
improve visibility
Cont..
 
 USING E-BUSINESS TO SELL PCs
  
 USING E-BUSINESS TO SELL BOOKS
  
 USING E-BUSINESS TO SELL GROCERIES
  
 USING E-BUSINESS TO SELL MRO SUPPLIES (B2B)
Distribution Networks in Practice

 1-The ownership structure of the distribution network can have

as big an impact as the type of distribution network.
◦ Distribution networks that have exactly the same physical flow but different
ownership structures can have vastly different performance. Attempting to
optimize over a distribution network with multiple enterprises requires great skill
in coordinating the incentives of each of the players and in creating the right
relationships.
 2-The choice of a distribution network has very long-term
consequences.
◦ The structure of the distribution network is one of the most difficult decisions to
change. The impact often lasts for decades, amplifying the importance of the
choice.
 3-Consider whether an exclusive distribution strategy is
advantageous.
Cont..
 4-Product price, commoditization, and criticality affect the type
of distribution system preferred by customers.
◦ Different Distribution for PC and Pen or Paper
 5-Integrate the Internet with the existing physical network
◦ To extract maximum benefit from e-business, firms should integrate it with their
existing supply chain networks. Separating the two networks often results in
inefficiencies within the supply chain. This coupling of e-business with the
existing physical network has been referred to as clicks-and-mortar
Designing Resilient Distribution Networks
 Crossdocking
 Crossdocking refers to docking products from distribution. This means
when inventory arrives at a distribution center, it is not stocked; instead, it
is immediately dispatched to customers – possibly after performing value-
adding activities.
 Kitting
 Kitting is the process of shipping a set of products used for one application
together. For example, an enterprise that assembles, stocks, and distributes
personal computers can stock and distribute the components as a kit rather
than individually.
 Segmentation
 Segmentation refers to the process of moving away from the one-size-fits-
all approach.
 Layout-oriented storage control