Distribution Network Design

distribution networks design

Presented by:Shaghayegh ParhiziZeinab Bagherpour

Distribution definition : Distribution means , making product available in the markets. In the other words , distribution means to reach the appropriate product to the appropriate place , in the appropriate time.

The two general aspects of product availability : Preparing product for sailing to the end customerMaking product available via taking possession of it by the end customer

Distribution (5)

Distribution channel definition : It is a way that product and its ownership rights flow through it. Distribution channels are mostly chains of different organizations that except the main distributor and the end customer are nominated “wholesalers”.Activities in a distribution channel :

1. Activities are related to changing ownership 2. Activities are related to physical supply of product3. Lateral activities

Distribution (5)

physical distribution : formal management of physical distribution is analyzing , programming and controlling a level of product availability that is proportional with demands of the market area and resources of the firm.

The important points in distribution decisions : 1.Product inventory 2. Facilities 3. Relationships4. Transportation 5. The size of unit load

Distribution (5)

Distribution (5)

The difference between physical distribution & transportation

Factors influencing distribution network design (3)

Response time Product varietyProduct availabilityCustomer experienceOrder visibilityReturn ability

Literature review (4)

Tow key dicisions

Will product be delivered to the customer location or picked up from a preordained site ?

Will product flow through an intermediary?

Design options for a distribution network(3)

Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit mergeDistributor storage with package carrier delivery Distributor storage with last mile delivery

Manufacturer/ Distributor storage with customer pick upRetail storage with customer pick up

Manufacturer storage with direct shipping (3)

manufacturer

retailer

customers

Product flow

Information flow

Performance characteristics of Manufacturer storage with direct shipping (3)

higher transportation cost because of increased distance and disaggregate shipping

Transportation

Lower cost because of aggregation . Benefits of aggregation are highest for low-demand , high value items.

Benefits are very large if product customization can be postpone at the manufacturer

Inventory

PerformanceCost factor


Significant investment in information infrastructure to integrate manufacturer & retailer

Information

Lower facility cost because of aggregation . Some saving on handlingcosts if manufacturer can manage small shipments or ship from production line

Facilities & handling



Easy to provide a very high level of variety

Product variety

High response time of between 1 to 2 weeks because of increased distanceand two stages for order processing.

Response time may vary by product , thus complicating receiving .

Response timePerformanceService factor


Good in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments

Customer experience

Easy to provide a high level of Product availability because of aggregation at manufacturer .

Product availability

PerformanceService factor


Expensive & difficult to implementReturnability

More difficult but also more important from a customer service perspective

Order visibility PerformanceService factor

Manufacturer storage with direct shipping and in-transit merge (3)

Factories

Retailer In – Transit merge by carrier

Customer

Information flow

Product flow

Performance characteristics of in-transit merge (3)

Handling cost higher than drop-shipping at carrier

Receiving cost lower at customer


Somewhat lower transportation cost than drop-shipping

Transportation

Investment is somewhat higher than for drop-shipping

Information

Similar to drop-shippingInventoryPerformanceCost factor

Similar to drop-shippingProduct variety

Similar to drop-shippingProduct availability

Similar to drop-shipping may be marginally higher


Performance characteristics of in-transit merge(3)

Performance characteristics of in-transit merge (3)

Similar to drop-shippingOrder visibility

Better than drop-shipping because a single delivery has to be received.

Customer experience

Similar to drop-shippingReturnability


Distributor storage with package carrier delivery (3)

Factories

Customer

Warehouse storage by distribution / retailer

Product flow

Information flow

Performance characteristics of Distributor storage with package carrier delivery (3)

Somewhat higher than manufacturer storage . The difference can be large for slow- moving items .


Lower than manufacturer storage . Reduction is higher for faster moving

Transportation

Simpler infrastructure compare to manufacturer storage .

Information

Higher than manufacturer storage . Difference is not large for faster moving items

Inventory



Lower than manufacturer storage Product variety

Higher cost to provide the seem level of availability as manufacturer storage


Faster than manufacturer storage Response timePerformanceService factor

Easier than manufacturer storage .Order visibility

Better than manufacturer storage with drop-shipping.

Customer experience

Easier than manufacturer storage .Returnability



Distributor storage with last mile delivery (3)

Factories

Customer

distribution / retailer warehouse

Product flow

Information flow


Facility costs higher than manufacturer storage or distribution storage with package carrier delivery , but lower than a chain of retail stores .


Very high cost given minimal scale economies . Higher than any other distribution option .

Transportation

Similar to distributor with package carrier delivery

Information

Higher than distributor with package carrier delivery.

Inventory



Somewhat less than distributor storage with package carrier delivery but larger than retail stores

Product variety

More expensive to provide availability than any other option except retail stores


Very quick. Same day to next day delivery


Less of and issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery

Order traceability

Very good particularly for bulky items

Customer experience

Easier to implement than other options. Harder and more expensive than a retail network

Returnability



Manufacturer/ Distributor storage with customer pick up (3)

Factories

Cross Dock DCRetailer

Customer

Information flowProduct flowCustomer flow

Pick up site


Facility costs can be very high if a new facilities have to built

Costs are lower if existing facilities are used

The increase in handling cost at the pick up site can be significant


Lower than the use of package carrier , specially if using delivery network

Transportation

significant investment infrastructure required

Information

Can match any other option depending on the location of inventory

InventoryPerformanceCost factor

Similar to other manufacturer or distributor storage options

Product variety

Similar to other manufacturer or distributor storage options


Similar to package carrier delivery with manufacturer or distributor storage. Same day delivery possible for items stored locally at pick up site

Response time



Difficult but essential Order visibility

Lower than other options because of the lack of home delivery

In areas with high density of population loss of convenience may be small

Customer experience

Somewhat easier given that pick up location can handle returns .

Returnability



Retail storage with customer pick up (3)

Higher than all other optionsThe increase in handling cost at the

pick up site can be significant for online and phone orders


Lower than all other optionsTransportation

some investment in infrastructure required for online and phone orders

Information

Higher than all other optionsInventoryPerformanceCost factor

Lower than all other optionsProduct variety

More expensive to provide than all other options


Very quick. Same day pick up possible for items stored locally at pick up site



Trivial for in-store orders difficult , but essential , for online and phone orders

Order traceability

Related to whether shopping is viewed positive or negative experience by Customer

Customer experience

Easier than other options given that pick up location can handle returns

Returnability



Selecting a distribution network design (3)

523441info

543216Faci&ha

152341Transpo

132114Invent

234551Return

623451Ord visi

512345Cust exp

132114Pro avail

132114Pro var423441Res Time

Man.. Storage (pick up)

Dis.. Storage (last mile delivery)

Dis.. Storage (package carrierDelivery)

Man Storage ( in –transit merge )

Man.. Storage (direct shipping)

Retailer storage (customer pick up)

Traditional combat service support.

CASE 1: A dynamic distribution model for combat logistics (2)

Combat service support for OMFTS.

CASE 1: A dynamic distribution model for combat logistics (2)

Problem definition (2)Indices & Sets :i; j : nodes or locations (i = 0 is the sea base)k : commoditiest : time periodsI : set of all nodesIs : set of supply nodesIc : set of combat nodesIsl : set of land-based supply nodesIcl :set of land-based combat nodesIl : set of land-based nodesIb : set of beach nodes accessible by watercraftIi : set of inland (not beach) nodesK : set of commoditiesT : set of time periods

Dataws : weight of a support unitwc : weight of a combat unitsij : distance from node i to node j bit maximum total

inventory that can be held at node i in period tDjkt : demand for commodity k at node j in period tN : maximum number of support unitsLa : available air lift in a period (in lb mile)Ls : available ship-shore lift in a period (in lb mile)Tijt : indicates movement of a combat unit from i to j in

period tM : a large number

Problem definition (2)

Decision variables :Xijt : equals 1 if a unit moves from node i to

node j in period t, and 0 otherwiseIikt : inventory of commodity k held at node i

in period tYijkt : quantity of commodity k shipped from

node i to j in period t

Problem definition (2)

Problem formulation (2)

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CASE 2:Designing logistics networks in divergent process industries:methodology and its application to the lumber industry (1)The proposed approach involves five steps:1. The definition of the product-markets, sourcing context and planning horizon.2. The definition of product families and the elaboration of themanufacturing-storage activities process graph.3. The definition of potential network resources (facilities location, layouts, technologies and capacity options) and of technology dependent recipes for production activities.4. The definition of the revenues and costs associated to the network design and activity decisions.5. The optimal mapping of the process graph onto the potential network resources.

CASE 2:Designing logistics networks in divergent process industries:methodology and its application to the lumber industry (1)

markets :the spot marketlarge retailersindustrial customers

Source:Producers have little control over their supply of raw

material.

ModelModeling the supply marketModeling production-distribution facility layouts and capacity optionsModeling flows and inventoriesObjective function


MAXIMIZATION

subject toSupply market constraints (1). Facility layout, space and exclusive options constraints (5), (6) and (7).Seasonal capacity option usage constraints (8).Production activities flow equilibrium constraints (9) and (10).Storage activities inventory accounting constraints (11) and (12).Production and storage capacity constraints (14), (15) and (16).Sales market constraints (17) and (18).Facilities total cost and revenue definitions (19),(20) and (21).


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References1.Designing logistics networks in divergent process industries:A

methodology and its application to the lumber industry; Didier Vila, Alain Martel, Robert Beauregarda;(Int. J. Production Economics 102 (2006) 358–378)

2.A dynamic distribution model for combat logistics,Kevin R. Gue,Computers & Operations Research 30 (2003) 367–381

3.Supply chain management,Stratrgy, Planning,Operation;SUNIL CHOPRA, PETER MEINDL

و رضا زنجيراني فراهاني ،“طبقه بندي مسائل توزيع در مديريت زنجيره تامين ”.4)اولين كنفرانس ملي لجستيك و زنجيره تامين (پناه مهسا الهي

، احمد اخوی ) علمی و عملی ( مديريت توزيع .5

Distribution Network Design

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