distribution networks design

Presented by: Shaghayegh Parhizi Zeinab Bagherpour

Distribution (5)
Distribution definition : Distribution means , making product available in the markets. In the other words , distribution means to reach the appropriate product to the appropriate place , in the appropriate time. The two general aspects of product availability : Preparing product for sailing to the end customer Making product available via taking possession of it by the end customer

Distribution (5)
Distribution channel definition : It is a way that product and its ownership rights flow through it. Distribution channels are mostly chains of different organizations that except the main distributor and the end customer are nominated “wholesalers”. Activities in a distribution channel : Activities are related to changing ownership Activities are related to physical supply of product Lateral activities

1. 2. 3.

Distribution (5)
physical distribution : formal management of physical distribution is analyzing , programming and controlling a level of product availability that is proportional with demands of the market area and resources of the firm. The important points in distribution decisions : 1.Product inventory 2. Facilities 3. Relationships 4. Transportation 5. The size of unit load

Distribution (5)
The difference between physical distribution & transportation

Factors influencing distribution network design (3)
Response time Product variety Product availability Customer experience Order visibility Return ability

Literature review

(4)

Literature review

(4)

Tow key dicisions
Will product be delivered to the customer location or picked up from a preordained site ? Will product flow through an intermediary?

Design options for a distribution network (3)
Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge Distributor storage with package carrier delivery Distributor storage with last mile delivery Manufacturer/ Distributor storage with customer pick up Retail storage with customer pick up

Manufacturer storage with direct shipping (3)
manufacturer

retailer

customers

Product flow Information flow

Performance characteristics of Manufacturer storage with direct shipping (3) Cost factor
Inventory

Performance
Lower cost because of aggregation . Benefits of aggregation are highest for low-demand , high value items. Benefits are very large if product customization can be postpone at the manufacturer higher transportation cost because of increased distance and disaggregate shipping

Transportation

Performance characteristics of Manufacturer storage with direct shipping (3) Cost factor Performance
Facilities & handling Lower facility cost because of aggregation . Some saving on handling costs if manufacturer can manage small shipments or ship from production line

Information

Significant investment in information infrastructure to integrate manufacturer & retailer

Performance characteristics of Manufacturer storage with direct shipping (3) Service factor Performance
Response time High response time of between 1 to 2 weeks because of increased distance and two stages for order processing. Response time may vary by product , thus complicating receiving . Easy to provide a very high level of variety

Product variety

Performance characteristics of Manufacturer storage with direct shipping (3)
Service factor Product availability Performance Easy to provide a high level of Product availability because of aggregation at manufacturer . Good in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments

Customer experience

Performance characteristics of Manufacturer storage with direct shipping (3)
Service factor Order visibility Performance More difficult but also more important from a customer service perspective Expensive & difficult to implement

Returnability

Manufacturer storage with direct shipping and in-transit merge (3)

Factories

Retailer

In – Transit merge by carrier

Customer

Product flow Information flow

Performance characteristics of in-transit merge (3)
Cost factor Inventory Transportation Facilities & handling Information Performance Similar to drop-shipping Somewhat lower transportation cost than drop-shipping Handling cost higher than dropshipping at carrier Receiving cost lower at customer Investment is somewhat higher than for drop-shipping

Performance characteristics of in-transit merge (3)
Service factor Response time Product variety Product availability Performance Similar to drop-shipping may be marginally higher Similar to drop-shipping Similar to drop-shipping

Performance characteristics of in-transit merge (3)
Service factor Customer experience Order visibility Performance Better than drop-shipping because a single delivery has to be received. Similar to drop-shipping

Returnability

Similar to drop-shipping

Distributor storage with package carrier delivery (3)
Factories

Warehouse storage by distribution / retailer

Customer

Product flow Information flow

Performance characteristics of Distributor storage with package carrier delivery (3)
Cost factor
Inventory

Performance
Higher than manufacturer storage . Difference is not large for faster moving items Lower than manufacturer storage . Reduction is higher for faster moving Somewhat higher than manufacturer storage . The difference can be large for slow- moving items . Simpler infrastructure compare to manufacturer storage .

Transportation Facilities & handling Information

Performance characteristics of Distributor storage with package carrier delivery (3)
Service factor Response time Product variety Product availability Performance Faster than manufacturer storage Lower than manufacturer storage Higher cost to provide the seem level of availability as manufacturer storage

Performance characteristics of Distributor storage with package carrier delivery (3)
Service factor Customer experience Performance Better than manufacturer storage with drop-shipping.

Order visibility Returnability

Easier than manufacturer storage . Easier than manufacturer storage .

Distributor storage with last mile delivery (3)
Factories

distribution / retailer warehouse

Product flow Information flow

Customer

Distributor storage with last mile delivery (3)
Cost factor
Inventory Transportation

Performance
Higher than distributor with package carrier delivery. Very high cost given minimal scale economies . Higher than any other distribution option . Facility costs higher than manufacturer storage or distribution storage with package carrier delivery , but lower than a chain of retail stores . Similar to distributor with package carrier delivery

Facilities & handling

Information

Distributor storage with last mile delivery (3)
Service factor Response time Product variety Performance Very quick. Same day to next day delivery Somewhat less than distributor storage with package carrier delivery but larger than retail stores More expensive to provide availability than any other option except retail stores

Product availability

Distributor storage with last mile delivery (3)
Service factor Customer experience Order traceability Performance Very good particularly for bulky items Less of and issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery Easier to implement than other options. Harder and more expensive than a retail network

Returnability

Manufacturer/ Distributor storage with customer pick up (3)

Factories Cross Dock DC

Retailer

Pick up site

Customer

Customer flow

Product flow

Information flow

Manufacturer/ Distributor storage with customer pick up (3)
Cost factor Inventory Transportation Facilities & handling Performance Can match any other option depending on the location of inventory Lower than the use of package carrier , specially if using delivery network Facility costs can be very high if a new facilities have to built Costs are lower if existing facilities are used The increase in handling cost at the pick up site can be significant significant investment infrastructure required

Information

Manufacturer/ Distributor storage with customer pick up (3)
Service factor Response time Performance

Similar to package carrier delivery with manufacturer or distributor storage. Same day delivery possible for items stored locally at pick up site Product variety Similar to other manufacturer or distributor storage options Product availability Similar to other manufacturer or distributor storage options

Manufacturer/ Distributor storage with customer pick up (3)
Service factor Customer experience Performance Lower than other options because of the lack of home delivery In areas with high density of population loss of convenience may be small Order visibility Difficult but essential Returnability Somewhat easier given that pick up location can handle returns .

Retail storage with customer pick up (3)
Cost factor Inventory Transportation Facilities & handling Performance Higher than all other options Lower than all other options Higher than all other options The increase in handling cost at the pick up site can be significant for online and phone orders some investment in infrastructure required for online and phone orders

Information

Retail storage with customer pick up (3)
Service factor Performance Response time Very quick. Same day pick up possible for items stored locally at pick up site Product variety Lower than all other options Product availability More expensive to provide than all other options

Retail storage with customer pick up (3)
Service factor Customer experience Order traceability Returnability Performance Related to whether shopping is viewed positive or negative experience by Customer Trivial for in-store orders difficult , but essential , for online and phone orders Easier than other options given that pick up location can handle returns

Selecting a distribution network design (3)
Retailer storage (customer pick up) Man.. Storage (direct shipping) Man Storage ( in – transit merge ) 4 1 1 3 4 5 1 3 2 4 Dis.. Storage (package carrier Delivery) 3 2 2 2 3 4 2 2 3 3 Dis.. Storage (last mile delivery) Man.. Storage (pick up)

Res Time Pro var Pro avail Cust exp Ord visi Return Invent Transpo Faci&ha info

1 4 4 5 1 1 4 1 6 1

4 1 1 4 5 5 1 4 1 4

2 3 3 1 2 3 3 5 4 2

4 1 1 5 6 2 1 1 5 5

CASE 1: A dynamic distribution model for combat logistics (2)

Traditional combat service support.

CASE 1: A dynamic distribution model for combat logistics (2)

Combat service support for OMFTS.

Problem definition (2)
Indices & Sets :
i; j : nodes or locations (i = 0 is the sea base)

k : commodities t : time periods I : set of all nodes Is : set of supply nodes Ic : set of combat nodes Isl : set of land-based supply nodes Icl :set of land-based combat nodes Il : set of land-based nodes Ib : set of beach nodes accessible by watercraft Ii : set of inland (not beach) nodes K : set of commodities T : set of time periods

Problem definition (2)
Data ws : weight of a support unit wc : weight of a combat unit sij : distance from node i to node j bit maximum total inventory that can be held at node i in period t Djkt : demand for commodity k at node j in period t N : maximum number of support units La : available air lift in a period (in lb mile) Ls : available ship-shore lift in a period (in lb mile) Tijt : indicates movement of a combat unit from i to j in period t M : a large number

Problem definition (2)
Decision variables : Xijt : equals 1 if a unit moves from node i to node j in period t, and 0 otherwise Iikt : inventory of commodity k held at node i in period t Yijkt : quantity of commodity k shipped from node i to j in period t

Problem formulation (2)
Min
i∈ I 1 k ∈ K t ∈ T

∑∑∑

I ikt + w s

i ∈ IS 1 j ∈ I s 1 t ∈ T

∑ ∑ ∑

X

ijt

Iijk + ∑YJIKT − ∑Yijkt − Dikt = Iik,t +1
j∈I j∈I

∀i ∈Ic1, k,t

Iijk + ∑YJIKT − ∑Yijkt = Iik,t +1
j∈Is j∈I

∀i ∈ Is1, k,t

Problem formulation (2)

∑X −∑X
j∈ s I jit j∈ s I
k∈K

ij,t+1

=0

∀ ∈Is1,t, i
∀ ∈Is, j ∈Is,t, i

∑Y

ijkt

−M (Xiit + Xijt) ≤ 0

∑∑Y
j∈Ic k∈K

ijkt

− MX ≤ 0 iit

∀i ∈Is1,t,

Problem formulation (2)
k∈K

∑I
j∈ I 1

ikt

−M

j∈ I s 1

∑X

ijt

≤0

∀ i ∈ I s1 , t ,

∑Y

ijk , t + 1

− I ikt ≤ 0

∀ i ∈ I s 1, k , t ∀t ,

∑ ∑Y
j∈ I i k ∈ K

ojkt

S o j + Wc ∑ ∑ Tijt S ij ≤ La
j ∈ I 1 i∈ I 1

Problem formulation (2)

∑ ∑Y
j ∈I b k ∈K

ojk 1 oj

S + WCToj1Soj + ∑ ∑ Yojk1Soj + Wc ∑ Ti j1So j ≤ LA + Ls
j ∈I 1 k ∈K i∈ I 1

k∈K

I ikt − b it ≤ 0

∀ i ∈ I c1 ,

Y i jkt , I ikt ≥ 0

∀ i, j, k , t

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)

The proposed approach involves five steps:
1. The definition of the product-markets, sourcing context and planning horizon. 2. The definition of product families and the elaboration of the manufacturing-storage activities process graph. 3. The definition of potential network resources (facilities location, layouts, technologies and capacity options) and of technology dependent recipes for production activities. 4. The definition of the revenues and costs associated to the network design and activity decisions. 5. The optimal mapping of the process graph onto the potential network resources.

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)

markets : the spot market large retailers industrial customers Source: Producers have little control over their supply of raw material.

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)

Model
Modeling the supply market Modeling production-distribution facility layouts and capacity options Modeling flows and inventories Objective function

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)
MAXIMIZATION

subject to Supply market constraints (1). Facility layout, space and exclusive options constraints (5), (6) and (7). Seasonal capacity option usage constraints (8). Production activities flow equilibrium constraints (9) and (10). Storage activities inventory accounting constraints (11) and (12). Production and storage capacity constraints (14), (15) and (16). Sales market constraints (17) and (18). Facilities total cost and revenue definitions (19),(20) and (21).

o∈O

∑e

Oo

[(1 − Zo ) M

+ o

−M ]

− o

CASE 2:Designing logistics networks in divergent process industries:
methodology and its application to the lumber industry (1)

References
1.Designing logistics networks in divergent process industries:A methodology and its application to the lumber industry; Didier Vila, Alain Martel, Robert Beauregarda;(Int. J. Production Economics 102 (2006) 358–378) 2.A dynamic distribution model for combat logistics,Kevin R. Gue,Computers & Operations Research 30 (2003) 367–381

3.Supply chain management,Stratrgy, Planning,Operation;SUNIL CHOPRA, PETER MEINDL

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