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  • Notes: Increasing the number of facilities moves them closer to the end consumer. This reduces the response time. As Amazon has built warehouses, the average time from the warehouse to the end consumer has decreased. McMaster-Carr provides 1-2 day coverage of most of the U.S from 6 facilities. W.W. Grainger is able to increase coverage to same day delivery using about 370 facilities.
  • Notes: As the customer is willing to tolerate longer lead times, the pull phase of the supply chain increases. The supply chain design must try and exploit this increase by centralizing assets to the extent possible.
    Local finished goods: Borders (Immediate response)
    Mix: W.W. Grainger (same day to next day response)
    Regional: McMaster Carr (next day response)
    Local WIP: PC assembler in India
    Central FG/WIP: Dell
    Central Raw Material and custom production: furniture manufacture (Amish in particular)
  • Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.
  • Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.
  • Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we increase the number of facilities.
  • Notes: Total costs decrease and then increase as we increase the number of facilities. The responsiveness improves as we increase the number of facilities. A supply chain should always operate above the lowest cost point. Operating beyond that point makes sense if the revenue generated from better responsiveness exceeds the cost of better responsiveness.
  • Notes: Total costs decrease and then increase as we increase the number of facilities. The responsiveness improves as we increase the number of facilities. A supply chain should always operate above the lowest cost point. Operating beyond that point makes sense if the revenue generated from better responsiveness exceeds the cost of better responsiveness.
  • Identify the best and worst network along various dimensions.
    Response time: (B) retail stores (W) Manufacturer storage with direct ship
    Product variety: (W) retail stores (B) Manufacturer storage with direct ship
    Product availability: (W) retail store (B) Manufacturer storage
    Inventory: (W) retail store (B) manufacturer storage
    Transportation: (B) retail store (W) last mile delivery
    Facility: (W) retail store (B) manufacturer storage
    Handling: (W) Distributor storage with last mile delivery (B)
    Information: Retail stores may be less complex; manufacturer storage with pickup may be very complex
  • When designing the delivery network we should account for product and market characteristics.
    High demand products will have transportation cost play a significant role. Use network with good transportation cost (retail stores)
    Very low demand products will have inventory play a significant role. Use network with low inventory costs (direct shipping)
    Many product sources: transportation + information plays a role. Distributor storage with package carrier
    Few product sources but high customization: manufacturer storage with merge in transit
    High product variety: inventory cost will be significant. Use distributor storage
    Low customer effort: Distributor storage with package carrier delivery or last mile delivery depending upon desired response time

Transcript

  • 1. 4-1© 2007 Pearson Education Chapter 4 Designing the Distribution Network in a Supply Chain Supply Chain Management (3rd Edition)
  • 2. © 2007 Pearson Education 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
  • 3. © 2007 Pearson Education The Role of Distribution in 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
  • 4. © 2007 Pearson Education 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
  • 5. © 2007 Pearson Education 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
  • 6. © 2007 Pearson Education Service and Number of Facilities (Fig. 4.1) Number of Facilities Response Time
  • 7. © 2007 Pearson Education 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
  • 8. © 2007 Pearson Education Inventory Costs and Number of Facilities (Fig. 4.2) Inventory Costs Number of facilities
  • 9. © 2007 Pearson Education Transportation Costs and Number of Facilities (Fig. 4.3) Transportation Costs Number of facilities
  • 10. © 2007 Pearson Education Facility Costs and Number of Facilities (Fig. 4.4) Facility Costs Number of facilities
  • 11. © 2007 Pearson Education TransportationTransportation Total Costs Related to Number of Facilities TotalCostsTotalCosts Number of FacilitiesNumber of Facilities InventoryInventory FacilitiesFacilities Total CostsTotal Costs
  • 12. © 2007 Pearson Education 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
  • 13. © 2007 Pearson Education 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
  • 14. © 2007 Pearson Education Manufacturer Storage with Direct Shipping (Fig. 4.6) Manufacturer Retailer Customers Product Flow Information Flow
  • 15. © 2007 Pearson Education In-Transit Merge Network (Fig. 4.7) Factories Retailer Product Flow Information Flow In-Transit Merge by Carrier Customers
  • 16. © 2007 Pearson Education Distributor Storage with Carrier Delivery (Fig. 4.8) Factories Customers Product Flow Information Flow Warehouse Storage by Distributor/Retailer
  • 17. © 2007 Pearson Education Distributor Storage with Last Mile Delivery (Fig. 4.9) Factories Customers Product Flow Information Flow Distributor/Retailer Warehouse
  • 18. © 2007 Pearson Education Manufacturer or Distributor Storage with Customer Pickup (Fig. 4.10) Factories Retailer Pickup Sites Product Flow Information Flow Cross Dock DC Customer Flow Customers
  • 19. © 2007 Pearson Education 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
  • 20. © 2007 Pearson Education 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
  • 21. © 2007 Pearson Education 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
  • 22. © 2007 Pearson Education 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
  • 23. © 2007 Pearson Education 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?