Supply Chain Operation

DELIVER

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Distribution Strategies
Exclusive Distribution
Limiting the distribution to only one
intermediary in the territory

Intensive distribution
Distribute from as many outlets as
possible to provide location convenience

Selective distribution
Appoint several but not all retailers
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Example of Exclusive Distribution

Products such as specially automobiles, some
major appliances, certain brands of furniture eg
IKEA,

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Exclusive Distribution:
Advantages
Maximize control over service level/output
Enhance products image & allow higher
markups
Promotes dealers loyalty, better forecasting,
better inventory and merchandising control
Restricts resellers from carrying competing
brands

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Exclusive Distribution:
Disadvantages
Betting on one dealer in each market
Only suitable for high price, high margin, and
low volume products

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Example of Intensive Distribution

Intensive distribution is appropriate for products
such as chewing gum, candy bars, soft drinks,
bread, film, and cigarettes where the primary
factor influencing the purchase decision is
convenience

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Intensive Distribution
Advantages:
Increased sales, wider customer recognition, and
impulse buying

Disadvantages:
Characteristically low price and low-margin products
that require a fast turnover
Difficult to control large number of retailers

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Example of Selective Distribution

Selective distribution may be used for product
categories such as clothing, appliances,
televisions, stereo equipment, home furnishings,
and sports equipment.

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Selective Distribution
Advantages:

Better market coverage than exclusive distribution

More control and less cost than intensive distribution
Concentrate effort on few productive outlets
Selected firms capable of carrying full product line and
provide the required service

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Selective Distribution
(contd)
Disadvantages:
May not cover the market adequately
Difficult to select dealers (retailers) that can match your
requirement and goals

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Factors Affecting Transportation

Decisions
Carrier
(party that performs the move)
investment decisions
operating policies
Costs considerations:
Vehicle-related: Type? Number?
Fixed operating: e.g. Terminal
facilities
Trip-related: labour and fuel
Quantity-related:
loading/unloading
Overhead: planning/scheduling,
information technologies
Capacity utilisation
Responsiveness/Service level offered

Shipper
(party requiring movement of goods)
supply chain design
transportation mode choice
assignment of shipment to
transportation mode
Cost considerations:
Transportation: paid to carriers
Inventory: at intermediate
warehouses, retailers, etc.
Facility: e.g. warehouse operating
costs
Processing: loading/unloading,
invoicing, etc.
Service level: expediting, safety
stock, etc.

Responsiveness; Delivery guarantees

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Transportation Modes
Trucks
TL
LTL

Rail
Air
Package Carriers
Water
Pipeline

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Transportation Network Design

Direct Shipment Network
Delivery direct from a supplier to a retailer

Direct Shipment with Milk Runs

Delivery from single supplier to several retailers

Central Distribution Centre (DC)

Suppliers ship only to DC
DC ship direct to retailers

Central Distribution Centre with Milk Runs

Tradeoffs? Number and location of DCs?
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Transportation Network Designs

Suppliers

Retailer Stores

Direct Supplier Network

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Suppliers

Retailer Stores

Direct Shipping with Milk Runs

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Transportation Network Designs

Suppliers

Retailer Stores

DC

All Shipment via DC

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Suppliers

Retailer Stores

DC

Milk Runs From DC

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Trade-offs in Transportation Design

Transportation and inventory cost trade-off
Choice of transportation mode
Inventory aggregation

Transportation cost and responsiveness trade-off

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Choice of Transportation Mode

A manager must account for inventory costs when
selecting a mode of transportation
A mode with higher transportation costs can be
justified if it results in significantly lower inventories

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Tailored Transportation
The use of different transportation networks and modes
based on customer and product characteristics
Factors affecting tailoring:
Customer distance and density
Customer size
Product demand and value

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Role of IT in Transportation
The complexity of transportation decisions demands to
use of IT systems
IT software can assist in:
Identification of optimal routes by minimizing costs subject
to delivery constraints
Optimal fleet utilization
GPS applications

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Risk Management in Transportation

Three main risks to be considered in transportation are:
Risk that the shipment is delayed
Risk of disruptions
Risk of hazardous material

Risk mitigation strategies:

Decrease the probability of disruptions
Alternative routings
In case of hazardous materials the use of modified
containers, low-risk transportation models, modification of
physical and chemical properties can prove to be effective

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Making Transportation
Decisions in Practice
Align transportation strategy with competitive
strategy
Consider both in-house and outsourced transportation
Design a transportation network that can handle
e-commerce
Use technology to improve transportation
performance
Design flexibility into the transportation network

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