Navin Verma, CPIM, CSCP, LSSBB

3 Designing the supply chain network

• The Student should be able to Create a Supply chain STRATEGY and DESIGN to support Business strategy (B5)

Learning objectives

4.1 Identify the Distribution Network Design

- Objectives,
- Factors and

- Cost and Response Optimization.

4.2 Distribution network options.

4.3 Omni-channel design to suit Product characteristics & customer needs.

4.4 Location decision for Single Factory & Locating a Single / Multiple
Warehouses based on Logistic costs.

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4.1 Identify the key factors to be considered when designing a distribution network
Navin Verma, CPIM, CSCP, LSSBB

4.1 Identify the key factors to be considered when designing a distribution network
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4.1 Identify the key factors to be considered when designing a distribution network
Navin Verma, CPIM, CSCP, LSSBB

4.1 Identify the key factors to be considered when designing a distribution network
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4.1 Identify the key factors to be considered when designing a distribution network
Navin Verma, CPIM, CSCP, LSSBB

4.1 Identify the key factors to be considered when designing a distribution network
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4.1 Identify the key factors to be considered when designing a distribution network
Navin Verma, CPIM, CSCP, LSSBB

Bath Tub curve

4.1 Identify the key factors to be considered when designing a distribution network
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4.1 Identify the key factors to be considered when designing a distribution network
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3 Designing the supply chain network

• The Student should be able to Create a Supply chain STRATEGY and DESIGN to support Business strategy (B5)

Learning objectives

4.1 Identify the Distribution Network Design

- Objectives,
- Factors and

- Cost and Response Optimization.

4.2 Distribution network options.

4.3 Omni-channel design to suit Product characteristics & customer needs.

4.4 Location decision for Single Factory, & Locating a Single / Multiple
Warehouses based on Logistic costs.

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 4.2 Discuss the strengths and weaknesses of various distribution options.
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4.2 Discuss the strengths and weaknesses of various distribution options.

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 4.2 Discuss the strengths and weaknesses of various distribution options.
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4.2 Discuss the strengths and weaknesses of various distribution options.

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 4.2 Discuss the strengths and weaknesses of various distribution options.
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4.2 Discuss the strengths and weaknesses of various distribution options.

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 4.2 Discuss the strengths and weaknesses of various distribution options.
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4.2 Discuss the strengths and weaknesses of various distribution options.

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 Blank Retail Manufacturer Manufacturer Distributor Distributor Manufacturer/
Storage with Storage Storage with Storage with Storage with Distributor
Customer with Direct In-Transit Package Last-Mile Storage with
Pickup Shipping Merge Carrier Delivery Customer
Delivery Pickup
Response 1 4 4 3 2 4
time
Product 4 1 1 2 3 1
variety
Product 4 1 1 2 3 1
availability

Blank Retail Manufacturer Manufacturer Distributor Distributor Manufacturer/

Storage with Storage Storage with Storage Storage Distributor
Customer with Direct In-Transit with with Storage with
Pickup Shipping Merge Package Last-Mile Customer
Carrier Delivery Pickup
Delivery
Customer Varies From 1 4 3 2 1 5
experience to 5
Time to market 4 1 1 2 3 1

Order visibility 1 5 4 3 2 6

Returnability 1 5 5 4 3 2

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Blank Retail Manufacturer Manufacturer Distributor Distributor Manufacturer/

Storage with Storage Storage with Storage with Storage Distributor
Customer with Direct In-Transit Package with Storage with
Pickup Shipping Merge Carrier Last-Mile Customer
Delivery Delivery Pickup
Inventory 4 1 1 2 3 1

Transportation 1 4 3 2 5 1

Facility and 6 1 2 3 4 5
handling
Information 1 4 4 3 2 5

4.2 Discuss the strengths and weaknesses of various distribution options.

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 3 Designing the supply chain network
• The Student should be able to Create a Supply chain STRATEGY and DESIGN to support Business strategy (B5)

Learning objectives

4.1 Identify the Distribution Network Design

- Objectives,
- Factors and
- Cost and Response Optimization.

4.2 Distribution network options.

4.3 Omni-channel design to suit Product characteristics & customer needs.

4.4 Location decision for Single Factory, & Locating a Single / Multiple
Warehouses based on Logistic costs.

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4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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 Silk sarees
Fruits, Vegees

Laptops, Car Pizza, burger

4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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 4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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Blank Predictable Demand Unpredictable Demand Product

Product
Traditional Retail Compete on price Compete on service for high
information complexity products
Showrooms Not suitable Compete on price and variety
for high information complexity
products
Online Information + Compete on service Compete on price and variety
Home Delivery
Online Information + Compete on ability to More competitive on price than
Pickup provide service at a lower home delivery option
price

4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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 Blank Low Value Product High Value Product

Traditional Retail Compete on price for Compete on service for products with
predictable demand uncertain demand and high
products information complexity
Showrooms Compete on high variety at Compete on price for
reasonable price for high customizable, high information
information complexity complexity products
Products
Online Information + Compete on service Compete on price and variety
Home Delivery
Online Information + Compete on ability to More competitive on price than
Pickup provide service at a home delivery option
lower price

4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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Blank Low Information Complexity High Information Complexity

Product Product
Traditional Compete on price for predictable Compete on service for uncertain
Retail demand products demand products
Showrooms Not suitable Compete on price for uncertain
demand products
Online Compete on price for uncertain Compete on service in terms
Information + demand products of variety and availability for
Home Delivery uncertain demand products
Online Compete on price for uncertain A slightly cheaper option to
Information + demand products compete on service in terms
Pickup of variety and availability for
uncertain demand products

4.3 Describe how Omni-channel retail may be structured to be both cost effective and
responsive to customer needs.
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 3 Designing the supply chain network
• The Student should be able to Create a Supply chain STRATEGY and DESIGN to support Business strategy (B5)

Learning objectives

4.1 Identify the Distribution Network Design

- Objectives,
- Factors and
- Cost and Response Optimization.

4.2 Distribution network options.

4.3 Omni-channel design to suit Product characteristics & customer needs.

4.4 Location decision for Single Factory, & Locating a Single / Multiple
Warehouses based on Logistic costs.

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 Navin Verma, CPIM, CSCP, LSSBB

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Factor Ratings Rating of each locations against the factors

Factors Rating
Availability of infrastructure 90 Factors Location 1 Location 2 Location 3 Location 4 Location 5
Size of the market 60 Availability of infrastructure 20 40 60 35 55
Size of the market 30 30 40 60 80
Industrial relations climate 50
Industrial relations climate 80 30 50 60 50
Tax benefits and concessions 30 Tax benefits and concessions 80 20 10 20 20
Availability of cheap labour 30 Availability of cheap labour 70 70 45 50 50
Nearness to port 65 Nearness to port 20 40 90 50 60

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 Relative
Factors Rating weights
Availability of infrastructure 90 0.28
Overall rating for location 3 = 60*0.28 +
Size of the market 60 0.18
Industrial relations climate 50 0.15
40*0.18 + 50*0.15 + 10*0.09 +
Tax benefits and concessions 30 0.09 45*0.09 + 90*0.20 = 54.77
Availability of cheap labour 30 0.09
Nearness to port 65 0.20

Sum of all factor ratings 325 1.00

Relative
Factors weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60

Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1

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n n

 ( x ) *W
i 1
i i  ( y ) *W
i 1
i i

XC  YC  n
n

W
i 1
i W
i 1
i

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 Navin Verma, CPIM, CSCP, LSSBB

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600
A (125,550), 200
Distance in Kilometres

500
B (350,400), 450
400

300
D (700,300), 150
200
C (450,125), 175
100

100 200 300 400 500 600 700

Distance in Kilometres

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 Optimize distribution for the set of Warehouses and Customers using Vogel's Approximation
method.
Find the Total optimum cost of distribution.

(The transportation rates are in Rs/Kg and Demand Supply figures are in Kg units)

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 3 Designing the supply chain network
• The Student should be able to Create a Supply chain STRATEGY and DESIGN to support Business strategy (B5)

Actions - post this session:

Review – Today’s notes and application to Capstone project

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