Distribution Management

Rohit Kapoor
 From the Last Session …
• Inventory Management at Multi-Stage Supply
Chain
– EOQ with Uncertain Demand µd = 24 units;µLT = 1.0 week
– Using Fill Rate σd = 4 units; σLT = 0.3

– Case Context? Show Room 1

• Steel Frame Furniture

Show Room 2

Plant
Show Room 20
 Steel Frame Furniture Exercise
• Part A?
– Use of EOQ
– Costing (Cost of Ordering + Cost of Holding)
 Further Extension
• Including Cost of Backorder
– Trade-off between holding and backorder costs
• Operationalizing?
– Suppose Ms. Bhargava is unclear about the cost of
shortage at the Show Room, she is fairly sure that
considering the lost profit contribution and the long term
costs due to loss of goodwill, the cost of shortage is
between Rs. 2000 and Rs. 5000 per unit. Based on this
additional information would you suggest any policy
changes? Why or why not?
 How?
• Increasing small amount of inventory
– Say Δ
– Impact?
• Increase in annual holding cost
(h * Δ)
• Decrease in annual backorder cost
CB * Δ * (E[D]/Q) * P(X ≥ rop)
• Trade-off
P(X ≥ rop) = h*Q/(E[D] * CB)
 Periodic Review
T
IP IP IP
Order Order Order
received received received
Q3
On-hand inventory

Q1
OH Q2 OH
IP1

IP3
Order Order
placed placed
IP2

L L L Time
P P
Protection interval
A Tale of Two Electronic
Component Distributors
Rohit Kapoor
 Case Background
• Two Electronic Distributors
– AESCO & ESCI
• Apprehension
– Regarding future prospects
» Growth of 20% in the past (1993-95)
» Future prediction … low (11%)
• Worry
– Growth of internet
– Globalization of markets and manufacturing
– Increasing pressure of value-added services
– Consolidation
» Combining of separate distributors
» Target areas
» Product lines in to a single one
 Component Manufacturers &
OEMs
• Not interested in reaching out directly
– Focus towards their core competencies
• OEMs also not interested
– Distributors can provide wide variety & value-
added services
 Distributors
• Differentiation
– number and variety of products
• Success factors
– network of suppliers
 Value-Added Services by
AESCO & ESIC
• Breaking Bulk and Mixing

Manufacturer A
A
Customer X
A|B|C

B Distributo
Manufacturer B
r A|B|C
C
Customer Y
Manufacturer C

• Numerical Illustration?
 Impact of Consolidation and
Information Technology
• ?