Unit II

Role of distribution in Supply

Chain

For Internal Circulation and Academic Purpose Only

 Programme Educational Objectives
Our program will create graduates who:

1. Will be recognized as a creative and an enterprising team leader.

2. Will be a flexible, adaptable and an ethical individual.
3. Will have a holistic approach to problem solving in the dynamic business
environment.

For Internal Circulation and Academic Purpose Only

 Logistics and Supply Chain Management
Course Outcomes
• CO1-Given a business situation containing the data (material and information flow) from
supplier to manufacturer to the retailer, the student manager will be able to identify and explain
the best Supply Chain strategy from the five supply chain strategies.

• CO2-Given a particular type of product, its manufacturer and customer, the student manager
will be able to select, construct and explain the appropriate distribution network design type.

• CO3-Supplier is not able to deliver the products to the manufacturer because of one of the
reasons (such as exchange rates, reliability of transportation channels, transfer price, political
stability, and natural calamity). Student manager will be able to explain different types of
uncertainties its solutions.

For Internal Circulation and Academic Purpose Only

• CO4-Student manager will be able to explain all the modes of transportation and for
given a situation, would be able to identify the appropriate mode of transportation.

• CO5-Student manager will be able to explain the role of technology in intermodal freight
transportation and enlist and explain various technological tools, for intermodal freight
security.

For Internal Circulation and Academic Purpose Only

 Distribution
• Distribution refers to the steps taken to move and store a
product from the supplier stage to a customer stage in the
supply chain.

• Distribution is a key driver of the overall profitability of a firm

because
•
• It directly impacts both the supply chain cost and the
customer experience.
Good distribution can be used to achieve a variety of supply chain objectives
ranging…………

from low cost to high responsiveness.

Response time
Changing the distribution network design affects the following supply chain costs:

• Inventories
• Transportation
• Facilities and handling
• Information
 Contd….

• Product variety
• Product availability
• Customer experience (Amazon vs. Borders) • Order visibility
• Returnability
 Unit II

Factors influencing distribution

network design
 AMAZON.COM
• Drop-shipping fulfillment.
• Under an alternative arrangement.
• Ingram Amazon.
• Return Rates.
• Customer Centric Model
 Amazon Vs. Borders
E-books vs. Printed books

Social media, DVRs, search engines, caller ID, vs.

Cold-calling, TV advertisements, and the Yellow Pages

Electronic vs. Retail market

Attention vs. No attention

 Factors Influencing Distribution Network Design

At the highest level, performance of a distribution network should be

evaluated along two dimensions:
1. Customer needs that are met
2. Cost of meeting customer needs

The customer needs that are met influence the company's revenues,
which along with cost decide the profitability of the delivery network.
• While customer service consists of many components, we will
focus on those measures that are

• influenced by the structure of the distribution network. These

include:
• Response time (Less vs Max facilities)
 Factors Influencing
Distribution Network Design

► Elements of customer ► Supply chain costs affected

service influenced by by network structure:
network structure:
》 Inventories
》 Response time
》 Transportation
》 Product variety
》 Facilities and handling
》 Product availability
》 Information

18
Response time
 Borders Mismanagement
Outsourcing its online book sales to Amazon from 2000-08
Failure to enter the e-book market fast enough

Betting on the physical distribution (e.g., CDs) of music precisely as the

music industry was switching to online distribution

Overinvesting in physical stores with poor sales

 Distribution
Distribution refers to the steps taken to move and store a product
from the supplier stage to a customer stage in the supply chain.

Distribution is a key driver of the overall profitability of a firm

because

It directly impacts both the supply chain cost and the

customer experience.
 Contd….
• Good distribution can be used to achieve a variety of supply chain objectives
ranging…………

• from low cost to high responsiveness.

Changing the distribution network design affects the
following supply chain costs:

• Inventories
• Transportation
• Facilities and handling
• Information
 Contd….

• Product variety
• Product availability
• Customer experience (Amazon vs. Borders) • Order visibility
• Returnability
 Network Design Decisions
• Facility role: What role should each facility play? What processes
should be performed at each facility?

• Facility location: Where should facilities be located?

• Capacity allocation: How much capacity should be allocated to

each facility?

• Market and supply allocation: What markets should each facility

serve? Which supply sources should feed each facility?

• (How many plants, DC’s, retail stores, etc. to build?)

 Unit II
Design options for a distribution network

Dr. Dipesh Uike

Based on the choices for the two decisions, there are six distinct
distribution network designs that are classified as follows:

1. Manufacturer storage with direct shipping

2. Manufacturer storage with direct shipping and in-transit merge

3. Distributor storage with package carrier delivery

 Contd…..
4. Distributor storage with last mile delivery

5. Manufacturer / distributor storage with costumer pickup

6. Retail storage with customer pickup

 Unit II
Design options for a distribution network

Dr. Dipesh Uike

Based on the choices for the two decisions, there are six distinct
distribution network designs that are classified as follows:

1. Manufacturer storage with direct shipping

2. Manufacturer storage with direct shipping and in-transit merge

3. Distributor storage with package carrier delivery

 Contd…..
4. Distributor storage with last mile delivery

5. Manufacturer / distributor storage with costumer pickup

6. Retail storage with customer pickup

 Types of E-business
Business-to-Business (B2B)
Business-to-Consumer (B2C)
Consumer-to-Consumer (C2C)
Consumer-to-Business (C2B).
Business-to-Administration (B2A)
Consumer-to-Administration (C2A)
 Unit II
Distribution network design
advantages to business
Aligning Your Distribution Network for Competitive
Advantage

Identify Scope and Current Network Constraints

Determining the scope of design in a distribution network strategy is crucial. One reason
is that the distribution network needs to realign with shifts in business. For example,
a change in your sales volume, customer base, requirements, geographic markets, etc.
may necessitate a change in your network strategy.
 Contd….
Determine Your Goals
If you are experiencing customer service problems, you may be trying to shift your cost
versus service curve. Or perhaps you are simply trying to reduce costs. Identifying
these goals up front will drive decisions about where the distribution network
strategy may be concentrated.
 Contd….

Gather Data on the Current Network Situation

Understanding the current network is the most difficult and time-

consuming step associated with any distribution network strategy.
When done properly, it allows informed decision-making and
confidence in the output of the modelling tools. The saying, “garbage
in, garbage out,” applies here.
 Contd….
Data that needs to be collected and verified may include:
• Description of all items distributed— dimensions, weight, classifications, units/carton,
units/pallet, unit of measure, unit cost, etc.
• Physical addresses of suppliers, customers, and facilities
• Historical line-item demand by SKU by customer for a 12-month period
• Historical line-item supply by SKU by vendor for a 12-month period
• Historical line-item production and/or throughput by SKU by facility for a 12-month period
• Historical transportation costs and modes (LTL, parcel, truckload, rail, etc.) for all
shipments being analyzed
• Historical facility labor and operating costs for each facility in the network
• Historical inventory level snapshots by SKU or product category
• Historical storage and production utilization rates
 Contd….

• Current productivity measures for each facility or process being studied

• Current throughput and storage capacities for each facility being studied
• Transportation rate tables for any mode of transportation being used in the
network
• Service level requirements by customer and product category
• Growth forecast information for a planning horizon, including:
 Contd….
Select Design Tools
There are several tools that can shorten the time it takes to develop the network design,
provide greater insight into the current network situation and how changes will impact
the network, and provide better decision-making information. Network design tools
include:
• Database analysis software and spreadsheet software: used to cleanse and verify data
and to analyze alternatives for simple networks or small segments of large networks.
• Mapping software: illustrates changes in network structure without relying solely upon
tables and graphs. Software that can illustrate changes in product flow and costs from
location to location within a network provides valuable insight into the impact of “what
if” type questions.
 Contd….

Transportation rating packages: used for rating thousands of shipments at once

for different transportation modes. Parcel and LTL rating packages are
particularly useful as different weights impact the cost of a shipment (unlike
truckload, rail or container shipments that operate primarily on a cost per mile
or a cost per shipment basis).
• Mileage calculation software: provides distance calculations between
addresses, zip codes, or cities. These are extremely helpful with a network
realignment in determining the impact on overall transit time and transportation
cost (if lane costs are provided on a cost per mile basis).
 Contd…..

Supply chain optimization software: does an excellent job of providing the best
answer for particular time snapshots of a network, while taking into consideration
the constraints outlined in Steps 1 and 2 (minimize cost, maximize revenue,
improved customer service, etc.) There are a number of optimization tools available
at varying levels of price and complexity.
• Dynamic supply chain simulation software: simulates the day-to-day operation of
a network. Simulation software goes a step beyond optimization software by using
randomized order profiles based on your network constraints. Network costs,
volumes, inventories, production capacity, distribution capability, and customer
service can be evaluated at a tactical level with this type of software.
Why do you need to model your Supply Chain, Logistics or Distribution
Network Design?

Reduced distribution costs

Improved understanding of customer service needs and options
Improved understanding of service costs
Appropriate balance of storage, inventory and transport costs
Graphical mapping of customer demand and density
Access to leading distribution network modelling tools and methods
Also, this type of work is often linked with customer profitability analysis,
 The Symptoms of a Misaligned Distribution Network Design

Increasing Costs and Shrinking Margins

too Much Inventory
Falling Levels of Customer Service
Network Inflexibility
 Unit II
Distribution Network Design
Advantages To Business
Business requirements of a network will change because
of….
mergers and acquisitions,
entering new markets,
expanding product ranges or
indeed changes to the regulatory environment.
 Risk of old Distribution Network

Network costs could be 10-15% higher than expected norms.

Service lead times may be adversely impacted.
Excessive product damage could be occurring.
Inventory investment is abnormally high.
Product availability is a major issue.
 DN modelling factors
Networks can be modelled from factory to the consumer, taking into account
all the key cost and service drivers such as:
Customer location
Order size and frequency
Transport costs
Transport vehicle types
Transport modes
Warehouse (Distribution Centre) size, location, resources, costs…
Service level requirements
Factory and supplier locations
Ports of entry for imported products
and many more key variables
 Features and Benefits include:
Reduced distribution costs
Improved understanding of customer service needs and options
Improved understanding of service costs
Appropriate balance of storage, inventory and transport costs
Graphical mapping of customer demand and density
Access to leading distribution network modelling tools and methods
Also, this type of work is often linked with customer profitability analysis,
product profitability analysis and Cost To Serve (CTS) audits
 Aligning Your Distribution Network for Competitive
Advantage

Identify Scope and Current Network Constraints

Determining the scope of design in a distribution network strategy is crucial.
One reason is that the distribution network needs to realign with shifts in
business. For example, a change in your sales volume, customer base,
requirements, geographic markets, etc. may necessitate a change in your
network strategy.

Determine Your Goals

If you are experiencing customer service problems, you may be trying to shift
your cost versus service curve. Or perhaps you are simply trying to reduce
costs. Identifying these goals up front will drive decisions about where the
distribution network strategy may be concentrated.
 Contd….
Gather Data on the Current Network Situation

Understanding the current network is the most difficult and time-consuming step associated with any
distribution network strategy. When done properly, it allows informed decision-making and
confidence in the output of the modelling tools. The saying, “garbage in, garbage out,” applies here.
 Contd….
Select Design Tools
There are several tools that can shorten the time it takes to develop the
network design, provide greater insight into the current network
situation and how changes will impact the network, and provide better
decision-making information. Network design tools include:
• Database analysis software and spreadsheet software: used to cleanse
and verify data and to analyze alternatives for simple networks or small
segments of large networks.
• Mapping software: illustrates changes in network structure without
relying solely upon tables and graphs. Software that can illustrate
changes in product flow and costs from location to location within a
network provides valuable insight into the impact of “what if” type
questions.
 Why do you need to model your Supply Chain, Logistics or Distribution
Network Design?

Reduced distribution costs

Improved understanding of customer service needs and options
Improved understanding of service costs
Appropriate balance of storage, inventory and transport costs
Graphical mapping of customer demand and density
Access to leading distribution network modelling tools and methods
Also, this type of work is often linked with customer profitability
analysis,
 The Symptoms of a Misaligned Distribution Network Design

Increasing Costs and Shrinking Margins

too Much Inventory
Falling Levels of Customer Service
Network Inflexibility
Thank You