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DISTRIBUTION:

Managing Fulfillment
Operations

Learning Objectives
Discuss the strategic value-adding role

distribution plays in the supply chain.


Recognize the tradeoffs between distribution
and other supply chain functions.
Understand the analytical framework for
distribution planning decisions.
Evaluate fulfillment strategies and distribution
methods.

Learning Objectives, continued

Describe the primary fulfillment processes

and support functions in distribution center


(DC) operations.
Use productivity and quality metrics to
analyze fulfillment performance.
Describe how information technology
supports distribution operations.
Discuss materials-handling objectives,
principles, and equipment uses.

The Role of Distribution Operations in


SCM
Balancing supply and demand.
Protecting against uncertainty.
Allowing quantity purchase discounts.
Supporting production requirements.
Promoting transportation economies.

The Role of Distribution Operations in SCM, continued

Distribution Facility Functionality


Accumulation
Sortation
Allocation
Assortment
Distribution Tradeoffs
Cost of distribution centers and inventory vs.
cost of transportation
Cost of additional facilities vs. level of customer
service
Space vs. equipment
Equipment vs. people

Figure 11.1

The DCs Accumulation Role

Source: Brian J. Gibson, Ph.D.

Figure 11.2

The DCs Mixing Capability

Source: Brian J. Gibson, Ph.D.

Table 11.1

Value Adding Role of Distribution Operations

Source: Brian J. Gibson, Ph.D.

Figure 11.3

Functional Tradeoffs

Source: Brian J. Gibson, Ph.D.

Figure 11.4

Strategic Distribution Decisions

Source: Brian J. Gibson, Ph.D.

The Role of Distribution Operations in SCM, continued

Distribution Challenges
Labor availability
Demand variation
Increasing customer requirements

Distribution Planning and Strategy


Capability requirements
Product characteristics e.g., product value, durability,
temperature sensitivity, obsolescence, and volume
must drive the design of the distribution process.
Two options for product flow:

Direct shipment of goods


from the manufacturer to retailer
from the retailer to consumer

Movement of goods through distribution facilities to customers

Must analyze the inventory, transportation, and

service trade offs before choosing between direct


shipping and the use of distribution facilities .

Distribution Planning and Strategy, continued

Distribution Challenges
Labor availability
Demand variation
Increasing customer requirements
Network Design Issues
Inventory positioning focuses on the issue of
where inventory is located within the supply
chain
Single location
Multiple customer-facing positions

Second and third network design issues focus

on the number and locations of distribution


facilities within the supply chain.

Distribution Planning and Strategy, continued

Network Design Issues, continued


Number of facilities needed for a supply chain
involves the evaluation of cost tradeoffs with
other functional areas:
Transportation costs
Cost of lost sales
Warehousing costs
Inventory costs

Own or contract?
Private DCs are internal facilities owned by the
organization
Public warehousing is the traditional external
distribution option
Contract warehousing is a customized version of public
warehousing in which an external company provides a

Distribution Planning and Strategy, continued

Facility Considerations
First facility consideration is to determine the
size of each operation within the network.
An area may be needed for processing rework and
returns
Office space is needed for administrative and clerical
activities
Space must be planned for miscellaneous requirements

Figure 11.6

Distribution Cost Tradeoffs

Source: Edward J. Bardi, Ph.D.

Figure 11.7

Distribution Cost Comparison

Source: Edward J. Bardi, Ph.D.

Table 11.2

Factors Affecting Distribution Facility Ownership

Source: Brian J. Gibson, Ph.D.

Table 11.3

Facility Layout Principles

Source: Brian J. Gibson, Ph.D.

Distribution Execution
Product-Handling Functions
Receiving transferring goods into facility
Put away moving goods into storage locations
Order picking selecting goods for customers
Replenishment moving product from storage
locations to picking slots
Shipping loading goods for delivery
Support Functions
Inventory control
Safety, maintenance, and sanitation

Distribution Execution, continued

Support Functions, continued


Security
Performance analysis
Information technology

Figure 11.8

Primary Distribution Center Processes

Source: Brian J. Gibson, Ph.D.

Table 11.4

Best Practices in Order Picking

Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates)

Distribution Metrics
Customer Facing Measures
Order accuracy and order completeness
Customers want to receive the exact products and
quantities that they ordered, not substitute items,
incorrectly shipped items, or wrong quantities
Timeliness is a critical component of customer
service
Perfect order index (POI)

Perfect order index (POI)


Delivered to the right place
at the right time
in defect-free condition
with the correct documentation, pricing, and
invoicing

Distribution Metrics, continued

Internal Measures
Distribution cost efficiency
Aggregate cost efficiency

Total distribution spending versus goal or budget

Asset utilization
Resource productivity
Distribution costs averaging nearly 10 percent of a
sales dollar
Resource efficiency

Table 11.5

DC Metrics and Benchmarks

Source: Manrodt, Tillman, and Vitasek, A Bright Side to Dark Times, DC Velocity (April
2010) 42-44

Distribution Technology
Warehouse Management Systems
Software control system that improves
product movement and storage operations
Value-added capabilities
Generate performance reports
Support paperless processes
Enable integration of materials handling equipment
Picking systems
Sorting systems
Leverage wireless communication

Distribution Technology, continued

Automatic Identification Tools


Technologies helping machines identify objects.
Barcode scanners
Mobile computers
Wireless local area networks (LAN)
RFID

Summary

Distribution operations perform inventory


handling, storage, and processing activities to
create time and place utility for the supply chain.
A variety of supply chain challengesbalancing
supply and demand, protecting against
uncertainty, and promoting transportation
economies, among otherscan be addressed by
distribution facilities.
Four primary functions are carried out by
traditional distribution facilities: (1) accumulation,
(2) sortation, (3) allocation, and (4) assortment.
Distribution operations are taking on value-adding
rolesassembly, kitting, product postponement,
sequencing, etc.to complement their basic

Summary, continued

Tradeoffs must be made between space,

equipment, and peoplethe primary resources


available to distribution managers.
It is critical to match distribution processes to the
items being handled to protect product integrity,
promote customer service and satisfaction, and
provide greater control of the inventory.
Distribution network design issues involve
centralization/decentralization of inventory, the
number and location of facilities, and facility
ownership.
Effective facility planningoperational size,
layout, and product placementpositively
impacts labor productivity and response time.

Summary, continued

Distribution execution involves five primary

processes related to the handling and storage of


product: (1) receiving, (2) put-away, (3) order
picking, (4) replenishment, and (5) shipping.
Fulfillment support functions provide coordination
between key processes and across the supply
chain, protect the organizations inventory
investment, and improve working conditions
within the facility.
Distribution KPIs address asset utilization, labor
productivity, and cost efficiency of the operation,
as well as customer service quality issues and the
ultimate goal of perfect order fulfillment.

Summary, continued

Warehouse management systems software

solutions improve product movement and storage


operations through efficient management of
information and completion of distribution tasks.
Barcodes and RFID are the automatic
identification tools of choice in distribution to help
track, locate, and move product quicklywith
near-perfect accuracy rates to their consumers.

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