SCM-Lec-5_(Chopra-Chapter_4)
Transcript of SCM-Lec-5_(Chopra-Chapter_4)
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Supply Chain Management
Sunil Chopra(3rd Edition)
Chapter 4 Designing the Distribution Network in a Supply Chain
M. A. Khan
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Today’s Discussion
• 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 Distributionin the Supply Chain
• Distribution: the steps taken to move and store a product from the supplier stage to the customer stage in a supply chain
• Distribution directly affects cost and the customer experience and therefore drives profitability
• Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness
• Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger
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Factors InfluencingDistribution 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 InfluencingDistribution Network Design
• Elements of customer service influenced by network structure:– Response time– Product variety– Product availability– Customer experience– Order visibility– Return-ability
• Supply chain costs affected by network structure:– Inventories– Transportation– Facilities and handling– Information
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Service and Number of Facilities (Fig. 4.1)
Number of Facilities
Response Time
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The Cost-Response Time Frontier
Local FG
Mix
Regional FG
Local WIP
Central FG
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
Cost
Response Time HiLow
Low
Hi
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Inventory Costs and Numberof Facilities (Fig. 4.2)
Inventory Costs
Number of facilities
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Transportation Costs andNumber of Facilities (Fig. 4.3)
TransportationCosts
Number of facilities
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Facility Costs and Numberof Facilities (Fig. 4.4)
FacilityCosts
Number of facilities
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TransportationTransportation
Total Costs Related to Number of Facilities
Tot
al C
osts
Tot
al C
osts
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
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Response TimeResponse Time
Variation in Logistics Costs and Response Time with Number of Facilities (Fig. 4.5)
Number of FacilitiesNumber of Facilities
Total Logistics CostsTotal Logistics Costs
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Design Options for a Distribution Network
• Manufacturer Storage with Direct Shipping• Manufacturer Storage with Direct Shipping and
In-Transit Merge• Distributor Storage with Carrier Delivery• Distributor Storage with Last Mile Delivery• Manufacturer or Distributor Storage with
Consumer Pickup• Retail Storage with Consumer Pickup• Selecting a Distribution Network Design
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Manufacturer Storage withDirect Shipping (Fig. 4.6)
Manufacturer
Retailer
Customers
Product Flow
Information Flow
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DR
OP
SH
IPP
ING
DR
OP
SH
IPP
ING
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In-Transit Merge Network (Fig. 4.7)
Factories
Retailer
Product Flow
Information Flow
In-Transit Merge by Carrier
Customers
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In-Transit Merge Network
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Distributor Storage withCarrier Delivery (Fig. 4.8)
Factories
Customers
Product FlowInformation Flow
Warehouse Storage by Distributor/Retailer
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Distributor Storage withLast 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
Factories
Retailer
Pickup Sites
Product FlowInformation Flow
Cross Dock DC
Customer Flow
Customers
(Fig. 4.10)
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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
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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Linking Product Characteristics and Customer Preferences to Network Design
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
-1
-1
-1 -1
-1
-1
-1
-1
-1
-2 -2
-2
-2
-2
-2 -2
-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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Distribution Networks in Practice
• The ownership structure of the distribution network can have as big as an impact as the type of distribution network
• The choice of a distribution network has very long-term consequences
• Consider whether an exclusive distribution strategy is advantageous
• Product, price, commoditization, and criticality have an impact on the type of distribution system preferred 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?
• What roles do distributors play in the supply chain?
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