Distribution Network Design

Value of Distribution (Dtr) in SC

Dtr helps to make SC more efficient Reduction in costs in shape of;

Inbound & outbound tpt cost---b/c of TL shipments to & from Dtr Inventory costs b/c of aggregating safety inventory

More stable stream of orders generated from Dtr to Mfr Better RT provided due to close location to POS Dtr extend provision of one-stop shopping with products from several Mfrs

Factors influencing Distribution Network (DN) Design

Performance of DN evaluated in two dimensions

Customer needs that are met Cost of meeting customer needs Response Time : Product availability : Order visibility : Inventories Information : : Product Variety Customer experience Returnability Transportation Facilities & handling

Factors affecting DN design are;

Changing the DN design affects SC costs by;

Manufacturer Storage with Direct Shipping

Inventory Cost

Lower cost b/c of aggregation. Feasible for low demand, high-value items. Benefits are large if product customization can be postponed at Mfr

Tpt Cost

Higher tpt costs b/c of increased distance & disaggregate shipping Lower facility costs b/c of aggregation. Some saving on handling costs if Mfr can manage small shipments or ship from production line Significant investment in information infrastructure to integrate Mfr and retailer

Facilities Cost & Handling Cost

Information

Manufacturer Storage with Direct Shipping

Resp Time

RT is high b/c of increased distance & 2 stages of order processing. RT may vary by products, thus complicating receiving Easy to provide a very high level of variety

Prod Variety

Prod availability

Easy to provide a high level of product availability b/c of aggregation at Mfr

Better than drop-shipping because a single delivery has to be received Similar to drop-shipping Similar to drop-shipping

Customer experience Order visibility Returnability

Mfr Storage with DS & In-Transit Merge

Inventory Cost

Similar to drop-shipping

Tpt Cost

Somewhat lower tpt cost than dropshipping Handling costs higher than drop-shipping at carrier, receiving costs lower at customer

Facilities Cost & Handling Cost

Information

Investment is somewhat higher than for drop-shipping

Mfr Storage with DS & In-Transit Merge

Resp Time Prod Variety Prod availability Customer experience Order visibility Returnability

Similar to drop-shipping, may be somewhat higher Similar to drop-shipping Similar to drop-shipping Better than drop-shipping because a single delivery has to be received Similar to drop-shipping Similar to drop-shipping

Distributor Storage with Carrier Delivery

Inventory held by manufacturer at distributor/ retailer Benefits include following;

Relatively low tpt costs ; Response time is better Order visibility is better so is customer convenience Returnability issues are resolved IT coordination is relatively less complex b/c distributor serves as a buffer b/w customer & manufacturer Relatively high facility costs due to more facilities Require relatively higher level of inventory Feasible only for medium to fast moving items, less LT

Demerits include following;

Distributor Storage with Carrier Delivery

Inventory Cost

Higher than Mfr storage. Difference is not large for faster moving items. Lower than Mfr storage. Reduction is highest for faster moving items Somewhat higher than manufacturer storage. Difference can be large for slow-moving items

Tpt Cost

Facilities Cost & Handling Cost

Information

Simpler infrastructure as compared to Mfr storage

Distributor Storage with Carrier Delivery

Resp Time Prod Variety Prod availability Customer experience Order visibility

Faster than Mfr strage Lower than Mfr strage Higher cost to provide the same level of availability as compared to Mfr storage Better than Mfr storage with drop-shipping

Easier than Mfr storage

Returnability

Easier than Mfr storage

Distributor Storage with Last Mile Delivery

Distributor/retailer deliver directly to customers home instead of package carrier Merits include; (E.g. include groceries, fast food)

Low response time, good customer experience Easier to return product by customers Feasible for high demand and fast moving items

Demerits include following;

Large no. of facilities, high facility & processing costs High inventory but less product variety IT setup more complex & include scheduling as well High labor & tpt cost due to less aggregated demands

Distributor Storage with Last Mile Delivery

Inventory Cost

Higher than distributor storage with package carrier delivery Very high cost (more than any other option) due to less economies of scale. Higher than distributor or manufacturer storage with package carrier delivery, but lower than chain of retail stores

Tpt Cost

Facilities Cost & Handling Cost

Information

Similar to distributor storage with package carrier delivery

Distributor Storage with Last Mile Delivery

Resp Time Prod Variety Prod availability Customer experience Order visibility

Very Quick. Same day to next day delivery Less than distributor storage with package carrier delivery but larger than retail stores More expensive to provide than all other options except retail stores Very Good, particularly for bulky items Less of an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery Easier to implement than other options. More expensive than a retail network

Returnability

Mfr or Dtr Storage with Consumer Pickup

Inventory Cost Tpt Cost

Facilities Cost Handling Cost

Can match any other option depending on the location of inventory Lower than the use of package carriers, especially with an existing delivery network Very high, if new facilities are to be built
Costs can be significant at pickup sites Significant investment is required

Information

Mfr or Dtr Storage with Consumer Pickup

Resp Time Prod Variety Prod availability Customer experience Order visibility

Similar to package carrier delivery with Mfr or Dtr storage. Same day delivery also possible Similar to other manufacturer or distributor storage options More expensive to provide than all other options Mixed, relates to customers feeling for shopping Trivial for in-store orders. Essential for online and phone orders Easier than other options b/c pickup locations can handle returns

Returnability

Retail Storage with Consumer Pickup

Inventory Cost
Tpt Cost Facilities Cost

Higher than all other options

Lower than all other options Higher than all other options. Handling high at pickup sites

Information Relatively less investment required Cost

as compared to other options

Retail Storage with Consumer Pickup

Resp Time Prod Variety Prod availability Customer experience Order visibility Returnability

Imm pickup for items at pickup site Lower than all other options More expensive to provide than all other options Mixed, relates to customers feeling for shopping Trivial for in-store orders. Essential for online and phone orders Easier than other options b/c pickup locations can handle returns