LSCM 4a Designing Distribution Networks

8/9/2019 LSCM 4a Designing Distribution Networks

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Logistics and Supply Chain

Management 4a

Designing Distribution Networks(Refer Sunil Chopra Ch 4)

This material has been developed as classroom instructions,

learning and development tool for Alliance University. The posting

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Outline

• 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 aproduct from the supplier stage to the customerstage in a supply chain

•Distribution directly affects cost and thecustomer experience and therefore drivesprofitability

• Choice of distribution network can achieve supply

chain objectives from low cost to highresponsiveness

• Examples: Wal-Mart, Dell, Proctor & Gamble


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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


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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

– Returnability

• Supply chain costs affected by network structure:

–

Inventories – Transportation

– Facilities and handling

– Information


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The Cost-Response Time Frontier

Local FG – FMCG items

Mix

Regional FG

Local WIP –

PC Assemblers in India

Central FG - Dell

Central WIP - Dell

Central Raw Material and Custom production - Dell

Custom production with raw material at suppliers

– Capital Equipment

Cost

Response Time H iLow

Low

H i

5-6


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Service and Number of Facilities (Fig.

4.1)

Number of

Facilities

Response Time


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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



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Facility Costs and Number

of Facilities (Fig. 4.4)

Facility

Costs



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Response Time

Variation in Logistics Costs and Response

Time with Number of Facilities (Fig. 4.5)

Number of Facilities

Total Logistics Costs


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Design Options for a

Distribution Network

• Manufacturer Storage with Direct Shipping

• Manufacturer Storage with Direct Shipping andIn-Transit Merge

• Distributor Storage with Carrier Delivery• Distributor Storage with Last Mile Delivery

• Manufacturer or Distributor Storage with

Customer Pickup• Retail Storage with Customer 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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In-Transit Merge Network (Fig. 4.7)

Factories

Retailer

Product Flow

Information Flow

I n-Transit M erge byCarrier

Customers


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Distributor Storage with

Carrier Delivery (Fig. 4.8)

Factories

Customers

Product Flow

Information Flow

Warehouse Storage by

Distributor/Retailer


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Distributor Storage with

Last Mile Delivery (Fig. 4.9)

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer

Warehouse


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Manufacturer or Distributor Storage with

Customer Pickup (Fig. 4.10)

Factories

Retailer

Pickup Sites

Product FlowInformation Flow

Cross Dock DC

Customer Flow

Customers


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Comparative Performance of Delivery

Network Designs (Table 4.7)

Information

Facility & Handling

Transportation

Inventory

Returnability

Order Visibility

Customer Experience

Product Availability

Product Variety

Response Time

Manufacturer

storage with pickup

Distributor

storage with last

mile delivery

Distributor Storage

with Package

Carrier Delivery

Manufacturer

Storage with In-

Transit Merge

Manufacturer

Storage with Direct

Shipping

Retail Storage

with Customer

Pickup

1

1

1

1

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Performance of Delivery Networks for Different

Product/Customer Characteristics (Table 4-8)

Low customer effort

High product variety

Quick desired response

High product value

Many product sources

Very low demand product

Low demand product

Medium demand product

High demand product

Manufacturer

storage with

pickup

Distributor storage

with last mile delivery

Distributor Storage

with Package Carrier

Delivery

Manufacturer

Storage with In-

Transit Merge

Manufacturer

Storage with

Direct Shipping

Retail Storage

with

Customer

Pickup

+2

+2

+2

+2

+2

+2

+2 +2 +2

+2

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

+1

0

0

0

0

0

0

0

0 0

0

-1

-1

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-1

-1 -1

-1

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-1

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-2


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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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Impact of E-Business on Customer Service & Cost

• Impact of E-Business on Customer Service

• Response time

• Product variety• Product Availability

• Customer experience

• Time to market

• Order Visibility

• Returnability• Direct Sales to Customers

• Flexible Pricing, Product Portfolio, and Promotions

• Efficient Funds Transfer

• Impact of E-Business on Cost

• Inventory

• Facilities

• Transportation

• Information

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Distribution Networks in Practice

• The ownership structure of the distributionnetwork can have as big as an impact as the typeof distribution network

•

The choice of a distribution network has verylong-term consequences

• Consider whether an exclusive distributionstrategy is advantageous

• Product, price, commoditization, and criticalityhave an impact on the type of distribution systempreferred 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?

• How has E-Business affected the design of

distribution networks in different industries?

• What roles do distributors play in the supply

chain?


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TRADITIONAL INDIAN DISTRIBUTION

CHANNELS

• What characteristics of the traditional Indian agriculturalproduce distribution channels militate against deliveringsimultaneous benefits to the farmer and the consumer?

• What Supply Chain Best Practices do you see as being relevantto the Indian agricultural produce distribution system?

• Organised retailing underway in India is likely to impact thetraditional distribution channels and transform the sameradically. What major changes do you visualize taking placein the Agricultural Produce Distribution System in India andhow do you see the existing channels responding to thesame?

LSCM 4a Designing Distribution Networks

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