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supplier to each buyer location.
This policy is justified if demand at buyer locations is large enough that optimal replenishment lot sizes are close to a TL (big shipments) from each supplier to each location. Direct shipping with milk runs In this case, a supplier delivers directly to multiple buyer locations on a truck or a truck picks up deliveries destined for the same buyer location from many suppliers. This allows reduction in cost by eliminating the need for direct small shipments using LTL shipments. When deciding this option, a supply chain manager has to decide on the routing of each milk run.
All shipments via central DC Under this option, suppliers do not send shipments directly to buyer locations. The buyer divides locations by geographic region and a DC is
built for each region. Suppliers send their shipments to the DC and the DC then forwards appropiate shipments to each buyer location. A cross dock is a transhipment facility at which trucks arrive with goods that must be sorted, consolidated with other products, and loaded onto outbound trucks bound for a retailer.
Cross-docking is appropiate for products with large, predictable demands and requires that DCs be set up such that economies of scale in transportation are achieved on both the inbound and outbound sides. Shipping via DC using milk runs Milk runs can be used from a DC if lot sizes to be delivered to each buyer location are small. Milk runs reduce outbound transportation costs by consolidating small shipments. The use of cross-docking with milk runs requires a significant degree of coordination and suitable routing and scheduling of milk runs.
Tailored network This option is a suitable combination of the previous options that reduces the cost and improves responsiveness of the value chain. Here transportation uses a combination of cross-docking, milk runs, and TL and LTL carriers, along with package carriers in some cases. The goal is o use the appropiate option in each situation. High demand carriers products to high-demand retail outlets may be shipped directly, whereas low-demand products or shipments to low-demand retail outlets are consolidated to and from the DC. Operating a tailored network requires significant investment in information infrastructure to facilitate coordination. Pros and cons of different transportation networks
Network Structure Pros - No intermediate warehouse. Direct Shipping Cons - High inventories (due to large lot size).
- Simple to coordinate.
Direct shipping with milk runs
- Lower transportation costs for small lots. Increased complexity.
- Lower inventories.
All shipments via central DC - Lower inbound transportation with inventory storage cost through consolidation. Very low requirements. All shipments via central DC with cross-dock inventory Increased complexity. coordination - Increased inventory cost.
- Increased handling at DC.
- Lower transportation cost
Lower outbound Shipping via DC using milk Further increase transportation cost for small runs coordination complexity. lots. Tailored network - Transportation choice best Highest matches needs of individual complexity. product and store. in
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