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Designing the Distribution

Network in a Supply Chain

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Factors Influencing

Distribution Network Design

Elements of customer service influenced by network structure:

% &esponse time

% "roduct variety

% "roduct availability

% Customer experience

% 'rder visibility

% &eturnability

(upply chain costs affected by network structure:

% )nventories

% *ransportation

% +acilities and handling

%)nformation

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Service and Number of Facilities

,umber of

+acilities

&esponse *ime

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The CostResponse Time Frontier

ocal +$

ix

&egional +$

ocal W)"

Central +$

Central W)"

Central &aw aterial and Custom production

Custom production with raw material at suppliers

Cost

&esponse *ime HiLow

Low

Hi

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Inventory Costs and Number

of Facilities

)nventory

Costs

,umber of facilities

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Transportation Costs and

Number of Facilities

*ransportation

Costs

,umber of facilities

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TransportationTransportation

Total Costs Related to

Number of Facilities

TotalC

osts

TotalC

osts

Number of FacilitiesNumber of Facilities

InventoryInventory

FacilitiesFacilities

Total CostsTotal Costs

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$anufacturer Storage with

Direct Shipping

Manufacturer

Retailer

Customers

Product Flow

Information Flow

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InTransit $erge Network

Factories

Retailer

Product Flow

Information Flow

In-Transit Merge byCarrier

Customers

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Distributor Storage with

Carrier Delivery

Factories

Customers

Product Flow

Information Flow

Warehouse Storage by

DistributorRetailer

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Distributor Storage with

"ast $ile Delivery

Factories

Customers

Product Flow

Information Flow

DistributorRetailer

Warehouse

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$anufacturer or Distributor Storage

with Customer %ickup

Factories

Retailer

!ic"u# Sites

Product FlowInformation Flow

Cross Doc" DC

Customer Flow

Customers

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Comparative %erformance of Delivery

Network Designs

)nformation

+acility # .andling

*ransportation

)nventory

&eturnability

'rder /isibility

Customer Experience

"roduct 0vailability

"roduct /ariety

&esponse *ime

Manufacturer

storage with picup

!istributor

storage with last

mile delivery

!istributor "torage

with Pacage

Carrier !elivery

Manufacturer

"torage with In#

Transit Merge

Manufacturer

"torage with !irect

"hipping

Retail "torage

with Customer

Picup

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

2

2

2

2

2

2

2

2

2

2

3

3

3

3

3

3

3

3

3

3

4

4

4

4

4

4

4

4

4

4

4

4

4

5

5

5

5

55

5

6

6

5

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"inking %roduct Characteristics and

Customer %references to Network Design

ow customer effort

.igh product variety

7uick desired response

.igh product value

any product sources

/ery low demand product

ow demand product

edium demand product

.igh demand product

Manufacturer

storage with

picup

!istributor storage

with last mile delivery

!istributor "torage

with Pacage Carrier

!elivery

Manufacturer

"torage with In#

Transit Merge

Manufacturer

"torage with

!irect "hipping

Retail "torage

with Customer

Picup

82

82

82

82

82

82

82 82 82

82

81

81

81

81

81

81

81

81

81

81

81

81

81

81

81

9

9

9

9

9

9

9

9 9

9

-1

-1

-1

-1

-1 -1

-1

-1

-1

-1

-1

-2 -2

-2

-2

-2

-2 -2

-2

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Distribution Networks in %ractice

*he ownership structure of the distribution networkcan have as big as an impact as the type of distribution

network

*he choice of a distribution network has very long-term conseuences

Consider whether an exclusive distribution strategy isadvantageous

"roduct! price! commoditi;ation! and criticality havean impact on the type of distribution system preferred

by customers

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Network Design Decisions

+acility role

+acility location

Capacity allocationarket and supply allocation

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Factors Influencing

Network Design Decisions

(trategic

*echnological

acroeconomic"olitical

)nfrastructure

Competitive

ogistics and facility costs

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Customer

!C

$here inventory needs to be for a one wee order$here inventory needs to be for a one wee order

response time # typical results ##% & !Cresponse time # typical results ##% & !C

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$h i d b f ) d d

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Customer

!C

$here inventory needs to be for a ) day order$here inventory needs to be for a ) day order

response time # typical results ##% ' !Csresponse time # typical results ##% ' !Cs

i f$h i t d t b f t d d

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Customer

!C

$here inventory needs to be for a ne*t day order$here inventory needs to be for a ne*t day order

response time # typical results ##% &) !Csresponse time # typical results ##% &) !Cs

$h i d b f d +$h i t d t b f d + t

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Customer

!C

$here inventory needs to be for a same day + ne*t$here inventory needs to be for a same day + ne*t

day order response time # typical results ##% (, !Csday order response time # typical results ##% (, !Cs

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' Framework for

(lobal Site "ocation

".0(E )

(upply Chain

(trategy

".0(E ))&egional +acility

Configuration

".0(E )))

Desirable (ites

".0(E )/

ocation Choices

Competitive (*&0*E$