238 8 Distribution and Transportation Network Design
Fig. 8.33 Types of hub-and-spoke networks
security issues become crucial. Examples of successful cross-docking realization can
be found in many retailing companies, e.g., Walmart, E. LeClerc, etc.
Hub-and-spoke network also implements the idea of consolidation (Fig. 8.33).
A hub represents the consolidation element in the distribution network. Spokes
are the regional warehouses and customers. This concept is used for shipment
consolidation with similar advantages and disadvantages as cross-docking. For
example, the airport Leipzig-Halle is DHL’s largest hub in Germany. In further
course of the chapter, you will find case studies on different distribution networks.
8.6.3 Case Study: Seven-Eleven Japan
The Seven-Eleven Japan Co. Ltd was founded in 1974 and grew to be one of the
largest retail networks, with more than 50,000 stores worldwide with an average area
of 100–150 m2 per store. At first, the company’s SC was straightforward, oriented
from producers to the stores (Fig. 8.34).
This type of structure resulted in significant shortcomings. Due to the high
number of facilities, high total facility/handling, inventory, and logistics costs
(more than 70 deliveries a day to the stores) were encountered. The information
line was too long which negatively impacted the service level because of low
response times and inventory turnover (about 25 turns a year in 1970s).
In redesigning the distribution network, Seven-Eleven Japan (SEJ) undertook
some crucial changes. The key objectives of the redesign were to further enhance
customer satisfaction and profitability. The objectives were reducing costs,
preventing stock-outs, and ensuring high quality products. The company launched
several actions, such as high investment in information and communication systems,
identification of an adequate partner for each region, and assurance of long-term
8.6 Distribution Network Design 239
Producer First Wholesaler Second Wholesaler 7-Eleven Store
Fig. 8.34 Straightforward oriented supply chain
Producers / Wholesalers (Suppliers) Combined distribuon centers 7 – Eleven stores Final customer
"JOINT – DELIVERY PROGRAM"
Fig. 8.35 Redesigned supply chain
relationships. In addition, a combined delivery system (CDS) was developed which
was based on the absence of direct store delivery (Fig. 8.35).
Different manufacturers and distributors from the same geographical regions
consolidate their shipments to minimize the number of trucks going to the combined
distribution centers (CDC). The five CDCs (i.e., frozen products, chilled products,
fresh foods, drinks and noodles, and magazines) are sorted by product category and
required storage temperature. From here, different suppliers’ products are delivered
to the shops. For some products (e.g., fresh boxed products), deliveries happen
several times a day. For frozen products, three deliveries a week are enough. Each
truck’s tour covers more than one store, preferably during off-peak hours. By
240 8 Distribution and Transportation Network Design
omitting the need for the inspection of incoming goods, the costs of the whole SC
operations can be further decreased.
A changed distribution network design affects all stages in the SC and the SC
costs (inventory, transportation, facilities, and information). Stores have to reconfig-
ure store shelves at least three times daily and storefronts cater to different consumer
segments and demands at different times. SEJ headquarters should design and
manage location, transportation, inventory, and information systems to support
their objectives. They are also responsible for planning new stores locations to
ensure a strong presence. On-time delivery is now the supplier’s responsibility. In
the event of non-compliance with agreed delivery dates, the supplier has to pay a
penalty equivalent to the gross margin of the product being delivered. In return for
this, suppliers are rewarded with long-term business relationships and adoption in
new projects, such as the e-commerce project “7dream.com”. In conclusion, aware-
ness of customer needs and the management’s ability to react and respond to market
preferences by simultaneously considering costs, ensure the long-term economic
success of SEJ.
Redesigning SEJ achieved improvements in many areas, e.g. growth in sales
(+11.29%), store numbers (+5.84%), and profit margins (+30%); higher sales per
square meter; higher average per store day sale (66,900 yen/51,500 yen), daily
number of customers (1059 in SEJ/industry average 880), remarkably low stock-
out rate, an increase in SC efficiency, a decreasing inventory relative to sales, a
reduction in the number of stock keeping units (SKUs) to 2500, a decrease in
inventory turnover (45 turns instead of 14 in 1974), and a decrease in the average
number of deliveries to each store.
Discussion
• Identify impacts on different actors in the SC after a redesign of the distribution
system.
• Why has Seven-Eleven chosen off-site preparation of fresh foods and subsequent
delivery to stores?
• How did the following SC costs change: inventories/transportation/facilities and
handling/information?
• What is the name of the transportation strategy when the tour of each truck starts
from a distribution center and covers more than one store?
• Which transportation network design is used in the SEJ case? What are the
advantages and limitations of this network type?
8.6.4 Transportation Modes
Case Study: Transportation of Shoes from China to Austria via Hamburg
Diary of a container full of shoes from the company Deichmann (see Fig. 8.36).
In the following, the journey of a container from Wenzhou to Vienna is described,
based on the article “Schuhe unterwegs” in HHLA-Messe-Magazine, 2011.
