Chapter 11 DISTRIBUTION: Managing Fulfillment Operations.

Chapter 11

DISTRIBUTION:DISTRIBUTION:Managing Fulfillment Operations

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After reading this chapter, you should be able to do the following:

Learning Objectives

●Study the strategic value-adding role distribution plays in the supply chain.

●Appreciate the tradeoffs between distribution and other supply chain functions.

●Understand the analytical framework for distribution planning decisions.

●Evaluate fulfillment strategies and distribution methods.

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●Study the primary fulfillment processes and support functions in distribution center (DC) operations.

●Apply productivity and quality metrics to fulfillment performance analysis.

●Appreciate how information technology supports distribution operations.

●Study the objectives, principles, and equipment for materials-handling

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Learning Objectives, continued


●Balance supply and demand.

●Protect against uncertainty.

●Allow quantity purchase discounts.

●Support production requirements.

●Promote transportation economies.

The Role of Distribution Operations in SCM


●Distribution Facility Functionality• Acquisition

• Storage (accumulation)

• Assortment

• Allocation

• Disbursement

●Distribution Tradeoff decisions• Inventory cost at DC vs. transportation cost

• Inventory level vs. customer service level

• Space vs. equipment vs. people

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The Role of Distribution Operations in SCM, continued


Figure 11.1

The DC’s Accumulation Role

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Source: Brian J. Gibson, Ph.D.


Figure 11.2

DC’s Mixing (Assortation) Capability

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Table 11.1Value Adding Role of Distribution Operations

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Figure 11.3

Functional Tradeoffs

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Figure 11.4

Strategic Distribution Decisions

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●Capability requirements• Product characteristics e.g., product value, durability,

temperature sensitivity, obsolescence, and volume must drive the design of the distribution process.

• Two options for product flow: ○Direct shipment of goods

from the manufacturer to retailer from the retailer to consumer

○Movement of goods through distribution facilities to customers

• Must analyze the inventory, transportation, and service trade offs before choosing between direct shipping and the use of distribution facilities.

Distribution Planning and Strategy


●Network Design Issues• Inventory positioning

○Inventory is in a single location○Inventory is in multiple locations

• The number and locations of distribution facilities within the supply chain, based on factors below:

○Transportation costs○Cost of lost sales○Warehousing costs○ Inventory costs

• DC ownership (owned or contract?)○ Internal facilities owned by the organization○External warehousing (owned by a third party; a traditional

approach)○Contract warehousing (a customized version of external

warehousing) 12

Distribution Planning and Strategy, continued


●Facility Considerations• the size of warehouse operation

• Products to be warehoused in the facility

• Warehouse layout.○Space for load and unload○An area for rework and returns ○Space for other and miscellaneous requirements (such as

sortation and packaging) ○Office space for administrative and clerical activities

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Distribution Planning and Strategy, continued


Figure 11.6

Distribution Cost Tradeoffs

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Source: Edward J. Bardi, Ph.D.


Figure 11.7

Distribution Cost Comparison

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Source: Edward J. Bardi, Ph.D.


Table 11.2Factors Affecting Distribution Facility Ownership

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Table 11.3

Facility Layout Principles

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●Product-Handling Functions• Receiving – transferring goods into facility

• Put away – moving goods into storage locations

• Order picking – selecting goods for customers

• Replenishment – moving product from storage locations to picking slots

• Shipping – loading goods for delivery

●Support Functions • Inventory control

• Safety, maintenance, and sanitation

• Security

• Performance analysis

• Information technology

Distribution Execution


Figure 11.8

Primary DC Processes

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Table 11.4

Best Practices in Order Picking

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Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2


●Measures of Customer Service • Order accuracy and order completeness

○Customers want to receive the exact products and quantities that they ordered, not substitute items, incorrectly shipped items, or wrong quantities

○Timeliness is a critical component of customer service

○Perfect order index (POI) Delivered to the right place at the right time in defect-free condition with the correct documentation, pricing, and invoicing

Distribution Metrics


●Internal Measures• Distribution cost efficiency• Aggregate cost efficiency

○Total distribution spending versus goal or budget

• Asset utilization

• Resource productivity○Distribution costs averaging nearly 10 percent of a sales

dollar

• Resource efficiency

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Distribution Metrics, continued


Table 11.5

DC Metrics and Benchmarks

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Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44


●Warehouse Management Systems• Software control system that improves product

movement and storage operations

• Value-added capabilities○Generate performance reports○Support paperless processes○Enable integration of materials handling equipment ○Picking systems ○Sorting systems○Leverage wireless communication

Distribution Technology


●Automatic Identification Tools • Technologies helping machines identify

objects.○Magnetic strips and readers○Barcodes and scanners○Mobile computers & wireless local area networks

(LAN)○RFID and transponders

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Distribution Technology, continued


Summary

● Distribution operations perform inventory handling, storage, and processing activities to create time and place utility for the supply chain.

● A variety of supply chain challenges—balancing supply and demand, protecting against uncertainty, and promoting transportation economies, among others—can be addressed by distribution facilities.

● Four primary functions that are carried out by traditional distribution facilities: (1) accumulation, (2) sortation, (3) allocation, and (4) assortment.

● Distribution operations are taking on value-adding roles—assembly, kitting, product postponement, sequencing, etc.—to complement their basic functionality and to support evolving supply chain needs. 26


● Tradeoffs must be made between space, equipment, and people—the primary resources available to distribution managers.

● It is critical to match distribution processes to the items being handled to protect product integrity, promote customer service and satisfaction, and provide greater control of the inventory.

● Distribution network design issues involve centralization/decentralization of inventory, the number and location of facilities, and facility ownership.

● Effective facility planning—operational size, layout, and product placement—positively impacts labor productivity and response time.

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Summary, continued


● Distribution execution involves five primary processes related to the handling and storage of product: (1) receiving, (2) put-away, (3) order picking, (4) replenishment, and (5) shipping.

● Fulfillment support functions provide coordination between key processes and across the supply chain, protect the organization’s inventory investment, and improve working conditions within the facility.

● Distribution KPIs address asset utilization, labor productivity, and cost efficiency of the operation, as well as customer service quality issues and the ultimate goal of perfect order fulfillment.

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Summary, continued


● Warehouse management systems software solutions improve product movement and storage operations through efficient management of information and completion of distribution tasks.

● Barcodes and RFID are the automatic identification tools of choice in distribution to help track, locate, and move product quickly—with near-perfect accuracy rates to their consumers.

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Summary, continued

Chapter 11 DISTRIBUTION: Managing Fulfillment Operations.

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