2007 Pearson Education 4-1

Chapter 4
Designing the Distribution
Network in a Supply Chain
Supply Chain Management
(3rd Edition)

2007 Pearson Education 4-2
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
2007 Pearson Education 4-3
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
2007 Pearson Education 4-4
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

2007 Pearson Education 4-5
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

2007 Pearson Education 4-6
Service and Number of Facilities
(Fig. 4.1)
Number of
Facilities
Response Time
2007 Pearson Education 4-7
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
Hi Low
Low
Hi
2007 Pearson Education 4-8
Inventory Costs and Number
of Facilities (Fig. 4.2)
Inventory
Costs
Number of facilities
2007 Pearson Education 4-9
Transportation Costs and
Number of Facilities (Fig. 4.3)
Transportation
Costs
Number of facilities
2007 Pearson Education 4-10
Facility Costs and Number
of Facilities (Fig. 4.4)
Facility
Costs
Number of facilities
2007 Pearson Education 4-11
Transportation
Total Costs Related to
Number of Facilities

T
o
t
a
l

C
o
s
t
s

Number of Facilities
Inventory
Facilities
Total Costs
2007 Pearson Education 4-12
Response Time
Variation in Logistics Costs and Response
Time with Number of Facilities (Fig. 4.5)
Number of Facilities
Total Logistics Costs
2007 Pearson Education 4-13
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
2007 Pearson Education 4-14
Manufacturer Storage with
Direct Shipping (Fig. 4.6)
Manufacturer
Retailer
Customers
Product Flow
Information Flow
2007 Pearson Education 4-15
In-Transit Merge Network (Fig. 4.7)
Factories
Retailer
Product Flow
Information Flow
I n-Transit Merge by
Carrier
Customers
2007 Pearson Education 4-16
Distributor Storage with
Carrier Delivery (Fig. 4.8)
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
Distributor/Retailer
2007 Pearson Education 4-17
Distributor Storage with
Last Mile Delivery (Fig. 4.9)
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer
Warehouse
2007 Pearson Education 4-18
Manufacturer or Distributor Storage
with Customer Pickup (Fig. 4.10)
Factories
Retailer
Pickup Sites
Product Flow
Information Flow
Cross Dock DC
Customer Flow
Customers
2007 Pearson Education 4-19
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


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2007 Pearson Education 4-20
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
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2007 Pearson Education 4-21
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
2007 Pearson Education 4-22
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
2007 Pearson Education 4-23
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?