Shipping Models

Direct Shipping Direct shipping with Milk-run Shipping Via centralized DC Shipping Via DC using Milk-run
Trade off between transportation and cost Inventory Aggregation Temporal Aggregation

Direct Shipping Network

Direct shipment This allows a firm to ship directly to customers rather than through retailers. This approach eliminates steps in the supply chain and reduces lead time. Reducing one or more steps in the supply chain is known as disintermediation Example: Bonobos, ACME winery, Telta Electrc motors

Direct Shipping with Milk run

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.

Example : Toyota Plant in US

Shipping Via DC
Suppliers to Distribution center and Distribution center to retailers

Supply chain costs reduction when distances are large. DC stores inventory and acts like a transfer point. Economies of scale in inbound transportation to DC. Outbound transportation cost is low as retailers are close to DC

Shipping Via DC using Milk-runs

This Transportation network design is the extension of direct shipping with milk runs, where there is inclusion of distribution centre in between supplier and customer. This design ensures lower plant to warehouse to customer transportation costs for small lots serving small customers, whereas there is a increase in inventory and warehousing costs along with complexity of co ordination with the supplier.

Example: Coke and Pepsi

Trade off between transportation and cost

Transpo

Temporal Aggregation

Temporal aggregation is the process of combining orders across time. Temporal aggregation reduces transportation cost because it results in larger shipments and reduces variation in shipment sizes. e.g.GE Power, GE Aviation. However, temporal aggregation reduces customer responsiveness due to shipping delays

Inventory Aggregation

Inventory aggregation, also called Risk Pooling, is one of the most efficient ways to reduce the level of safety stocks thereby reducing inventory across the supply chain.
Inventory aggregation means combining inventories in fewer locations (warehouses). e.g. Amazon.com, Flipkart.com, Ebay.com

As a result of inventory aggregation: Inventory costs decrease Inbound transportation cost decreases Outbound transportation cost increases therefore number of locations, quantity and distance to customer is critical