9780357132302_Langley11e_ch10_LEAP-N.pptx

1
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Supply Chain
Management,
11e
Chapter 10: Distribution—Managing
Fulfillment Operations

2
Discussion Outline
• Roles and functionality
• Trade-offs and challenges
• Planning and strategy
• Execution
• Metrics
• Technology

3
Roles & Functionality

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The Role of Distribution Operations in SCM
1. Enhance customer service
2. Balance supply & demand
3. Protect against uncertainty
4. Allow quantity purchase discounts
5. Support production requirements
6. Fulfill omni-channel demand
7. Promote transport economies

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Distribution Facility Functionality
• Primary Functions
1. Accumulation
2. Sortation
3. Allocation
4. Assortment
• Value-Adding Roles
− Examples: Assembly, kitting, product postponement, sequencing

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Primary Functions: Accumulation
The DC serves as a collection point for product coming from multiple origins and provides required
transfer, storage, or processing services, allowing firms to consolidate orders and shipments for
production and fulfillment processes.
Source
Figure
10.1:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

7
Primary Functions: Sortation and Allocation
Sortation
• Sortation focuses on assembling like products together for storage in the
distribution facility, processing or transfer to customers.
• Proper sortation is essential for effective inventory & order fulfillment.
Allocation
• Allocation focuses on matching available inventory to customer orders for an
SKU.
• This break-bulk capacity promotes product availability for multiple customers
and in desired quantities.

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Primary Functions: Assortment
Assortment involves the assembly of customer orders for multiple SKUs held in the distribution facility. This
mixing capability avoids the expenses related to placing numerous orders and having them shipped from a
variety of locations.
Source
Figure
10.2:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

9
Value-Adding Roles
• Light assembly services
• Inventory management and visibility
• Product kitting, bundling, and unbundling
• Product postponement
• Production sequencing
• Quality control
• Recycling, repair, and returns management

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Trade-offs and Challenges

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Key Distribution Tradeoffs
Functional Tradeoffs
How to best balance customer service
and costs.
• Warehouse
• Transportation
• Inventory
• Customer service
Facility-Level Tradeoffs
How to best balance financial and
performance.
• Space
• Equipment
• People

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Functional Tradeoffs
Source
Figure
10.3:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

13
Facility-Level Tradeoffs
• Space vs. Equipment. The larger the facility and the more space used for
distribution operations; the more equipment will be needed in the facility.
• Equipment vs. People. The greater the use of equipment to automate
materials handling and distribution activity, the lower the labor requirements of
a facility.
• People vs. Space. The larger the facility workforce, the larger the facility size
and throughput possible.

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Key Distribution Challenges
Labor Availability
Issues
• Historically low U.S.
unemployment rates
• Nature of DC operations
work creates ongoing
turnover challenge
• Smaller labor pool due to
aging workforce
• Solution: DC automation
and assistive technology
Demand Variation
• Seasonal demand creates
space and equipment
utilization challenges, as
well as labor retention
problem.
• Solution: Third party
logistics facility use during
peak season, shared
capacity with seasonal
products that have
alternate primary selling
seasons
Increasing Customer
Requirements
• Strong desire for value-
added capabilities and
services.
• Growing expectations for
faster, smaller, and more
frequent order fulfillment.
• Solution: Flexible
fulfillment processes

15
Planning and Strategy

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Distribution Planning and Strategy
Distribution strategies should tailor to products being handled, customer requirements, and available internal
expertise and resources. A series of interrelated planning decisions must be made to ensure that the
strategy can be executed at a reasonable cost while supporting supply chain demands.
Source
Figure
10.4:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

17
Cross-Docking: Low-Tech Option
Source
Figure
10.5:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

18
Cross-Docking: High-Tech Options
Source
Figure
10.5:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

19
Network Design Issues: Number & Location
Source
Figure
10.6:
Edward
J.
Bardi,
Ph.D.
Used
with
permission.
• Determining the number of
facilities needed for a supply
chain involves the evaluation
of cost tradeoffs with other
functional areas.
• Effective location selection
requires analysis of the DC’s
intended function, sources
and volume of supply,
customer locations and
demand patterns, and related
fulfillment costs.

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Distribution Planning and Strategy (1 of 2)
Network Design Issues: Ownerships
Decisions on facility ownerships – private facilities, public facilities, or contract facilities – should
be made based on the organization’s expertise vs. scope of tasks required & financial resources
relative to the number and size of facilities needed.
Source
Figure
10.7:
Edward
J.
Bardi,
Ph.D.
Used
with
permission.

21
Distribution Planning and Strategy (2 of 2)
Network Design Issues: Ownerships
Factors Affecting Distribution Facility Ownership
Firm Characteristics
Favors Private
Distribution
Favors 3PL
Distribution
Throughput volume Higher Lower
Demand variability Stable Fluctuating
Market density Higher Lower
Special physical control needs Yes No
Security requirements Higher Lower
Customer service requirements Higher Lower
Multiple use needs Yes No
Source
Table
10.2:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

22
Facility Considerations: Size
• Typically, the more facilities in the distribution network, the smaller they need
to be.
• Demand forecasts for the facility can be used to create a rough estimate of
space requirements.
• Given forecasted demand, each facility must be large enough to:
− Accommodate the distribution activities that will be performed within the
four walls.
− Interface with the transportation network.

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Facility Considerations: Layout
The company must make decisions regarding aisle space, shelving,
materials-handling equipment, and interior dimensions of the facility.
Facility Layout Principle Benefit
Use a one-story facility  Provides more usable space per investment dollar
 Results in lower construction costs
Use vertical capacity  Reduces building footprint and land requirements
Minimize aisle space  Provides more storage and processing capacity
Use direct product flows  Avoids backtracking and costly travel time
Deploy warehouse automation solutions  Improves facility productivity and safety
 Reduces travel time
 Reduces labor needs
Use an appropriate product storage plan  Maximizes space utilization and product protection
Source
Table
10.3:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

24
Facility Considerations: Product Location (Slotting)
Slotting is defined as the placement of product in a facility for the purpose of
optimizing materials-handling and space efficiency.
Commonly Used Criteria
1. Popularity. Locate high volume (popular) items near the shipping area and
the low volume (unpopular) items away from the shipping area.
2. Unit size. Locate small-size items (cubic dimensions) near the shipping
area and larger-size items farther away from the shipping area.
3. Cube. Locate the items with smaller total cubic space requirements (item
cube multiplied by the number of items held) near the shipping area and
those with larger space requirements farther away from the shipping area.

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Facility Considerations: Slotting
Proper product slotting can improve fulfillment performance and generate other
advantages for the organization & its customers.
• Picking productivity
• Efficient replenishment
• Work balancing
• Load building
• Picking accuracy
• Ergonomics
• Pre-consolidation

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Execution

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Distribution Execution
Product-Handling Functions
Source
Figure
10.8:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

28
Order Picking Best Practices
For many organizations, order picking is the most labor-intensive and expensive
distribution activity, often accounting for more than half of DC operating costs.
Principle Best Practices
Minimize travel time  Sequence pick patterns for single trip
 Use batch picking or zone picking
Maximize time spent picking product  Eliminate paperwork
 Store like items near each other
Facilitate accurate order picking  Provide clean, well-lit work areas
 Identify all pick locations clearly
 Require location validation during picking
Leverage materials-handling equipment  Use carousels and AS/RS systems
 Deploy conveyors and shuttle systems
Minimize idle time  Slot fast-moving inventory for easy access
 Use time standards for picking operations
 Maintain inventory in pick slots
Source
Table
10.4:
Adapted
from
Gwynne
Richards,
Warehouse
Management:
A
Complete
Guide
to
Improving
Efficiency
and
Minimizing
Cost
in
the
Modern
Warehouse
,
3
rd
Edition,
(London
England:
Kogan
Page,
2018),
Chapter
5;
WIQ
Editor,
“Order
Picking
Strategies
for
a
Warehouse,”
Warehouse
IQ
(April
20,
2017).
Retrieved
June
24,
2019
from
https://www.warehouseiq.com/order-picking-strategies-warehouse/;
and,
“Tips
for
Improving
Warehouse
Efficiency,”
Cherry’s
Industrial
Equipment
(August
27,
2018).
Retrieved
June
24,
2019
from
https://www.material-handling.com/blogs/improve-picking-efficiency/.

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Support Functions
Support functions provide coordination between key processes and across the supply chain,
protect the organization’s inventory investment, and improve working conditions within the facility.
Key support functions
• Inventory control
• Safety, maintenance, and sanitation
• Security
• Performance analysis
• Information technology

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Metrics

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Distribution Metrics
Customer service aspects of distribution performance should target order accuracy,
completeness, and timeliness.
Customer-Facing Metrics Calculation
Unit Fill Rate Total units shipped / Total units ordered
Case Fill Rate Total cases shipped / Total cases ordered
Order Value Fill Rate Total value shipped / Total value ordered
Order Accuracy Total correct units shipped / Total units shipped
Document Accuracy
Total correct customer invoices / Total customer
invoices
On Time Dispatch
Total orders ready by deadline / Total orders
dispatched
Perfect Order Index
Complete Order % x Damage-Free % x Billing
Accuracy % x On-Time Dispatch %
Source
Table
10.5:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

32
Distribution Metrics
Key elements of distribution performance address the efficiency, utilization, and
productivity of operations
Distribution Operation Metrics Calculation
Distribution cost per unit Total distribution cost/Total number of units processed
Distribution cost ratio Total distribution cost/Total cost of goods sold
Capacity utilization Total storage slots used/Total storage slots available
Equipment utilization Total operational time/Total time available
Labor productivity Total number of cases processed/Total hours paid
Distribution efficiency Task completion time/Standard time allowed
Source
Table
10.6:
Brian
J.
Gibson,
Ph.D.
Used
with
permission.

33
Technology

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Distribution Technology
Warehouse Management Systems (WMS)
• Core software used to manage fulfillment processes, with value-added capabilities, including
labor management, automated data collection, task interleaving, fulfillment flexibility, and
systems convergence.
Automatic Identification (Auto-ID) Tools
• Auto-ID technologies help machines identify objects. Examples: Bar codes, smart cards, voice
recognition, biometric technologies, radio-frequency identification (RFID).
Source Figure 10.9: Courtesy of GS1 https://www.gs1.org/standards/barcodes/databar. Used with permission.

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Distribution Technology
The increasing use of technology and automation in distribution operations requires a new breed of
warehouse control systems (WCS) and warehouse execution systems (WES) to supplement traditional WMS.

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Summary
• Four primary functions of distribution facilities are: Accumulation, Sortation,
Allocation, and Assortment.
• Value-adding roles of distribution facilities complement the primary functions and
support evolving supply chain needs.
• Distribution strategy and planning involves decisions regarding capability
requirements, network design issues, and facility considerations.
• Distribution execution involves five primary processes related to the handling and
storage of product: (1) receiving, (2) put-away, (3) order picking, (4)
replenishment, and (5) shipping.
• Distribution KPIs address asset utilization, labor productivity,
cost efficiency of the operation, and customer service quality.

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