2. 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
Wikipedia
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3. 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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4. ► Elements of customer
service influenced by
network structure:
》Response time
》Product variety
》Product availability
》Customer experience
》Order visibility
》Returnability
Factors Influencing Distribution Network
Design
► Supply chain costs affected
by network structure:
》Inventories
》Transportation
》Facilities and handling
》Information
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5. Transportation Network
Design of transportation network
impacts the performance of a supply
chain.
It establishes the infrastructure in which
operational transportation decisions
regarding scheduling and routing are
made.
A well designed network allows a supply
chain to achieve the desired degree of
responsiveness at low cost.
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6. Design Options for a Distribution Network
► Direct Shipping Network
► Direct Shipping with Milk Runs
► All Shipments via central DC
► Shipping via DC using Milk Runs
► Tailored Network
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7. Direct Shipping Network
Shipments come directly from suppliers
to retailers.
SC manager only needs to decide on
the quantity to ship and the mode of
transportation.
Elimination of intermediate warehouses
& simplicity of operation and
coordination.
Decision for one shipment does not
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9. Direct Shipping with Milk
Runs
A milk run is a route in which a truck
either delivers product from a single
supplier to multiple retailers or goes
from multiple suppliers to a single
retailer.
Indirect shipping with milk runs, a
supplier delivers directly to multiple
retail stores on a truck or a truck picks
up deliveries from many suppliers
destined for the same retail store
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11. All Shipments via Central DC
Suppliers send their shipments to the DC
and the DC then forwards appropriate
shipments to each retail store.
DC is to store inventory and to serve as
transfer location.
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13. Shipping via DC using Milk
Runs
Suppliers send their shipments to an
intermediate transit point
They are cross-docked and sent to
buyer locations without storing them
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15. Tailored Network
This is a combination of previous
options that reduce the cost and
improves responsiveness of the
supply chain.
The goal is to use the appropriate
option in each situation.
The complexity of managing this
transportation network is high because
different shipping procedures are used
for each product and retail outlet,.
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16. Tailored Network
Network Structure Pros Cons
Direct shipping No intermediate warehouse
Simple to coordinate
High inventories (due to large lot
size)
Significant receiving expense
Direct shipping with milk
runs
Lower transportation costs for small lots
Lower inventories
Increased coordination
complexity
All shipments via central
DC with inventory
storage
Lower inbound transportation cost
through consolidation
Increased inventory cost
Increased handling at DC
All shipments via central
DC with cross-dock
Low inventory requirement
Lower transportation cost through
consolidation
Increased coordination
complexity
Shipping via DC using
milk runs
Lower outbound transportation cost for
small lots
Further increase in coordination
complexity
Tailored network Transportation choice best matches
needs of individual product and store
Highest coordination complexity
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