This document discusses factors that influence distribution network design, including customer needs, costs, and various design options. Distribution directly impacts costs and customer experience. The number of facilities in a network affects response time, inventory levels, transportation and facility costs. Design options include direct shipping from manufacturers, distributor warehouses, retail stores, and mixed approaches. E-business is changing distribution's impact on customer service and costs. The type of network chosen has long-term consequences for the supply chain.

1. 4-1© 2007 Pearson Education
Chapter 4
Designing the Distribution
Network in a Supply Chain
Supply Chain Management
(3rd Edition)

2. © 2007 Pearson Education
Outline
The Role of Distribution in the Supply Chain
Factors Influencing Distribution Network Design
Design Options for a Distribution Network
E-Business and the Distribution Network
Distribution Networks in Practice
Summary of Learning Objectives

3. © 2007 Pearson Education
The Role of Distribution
in the Supply Chain
Distribution: the steps taken to move and store a
product from the supplier stage to the customer stage
in a supply chain
Distribution directly affects cost and the customer
experience and therefore drives profitability
Choice of distribution network can achieve supply
chain objectives from low cost to high responsiveness
Examples: Wal-Mart, Dell, Proctor & Gamble,
Grainger

4. © 2007 Pearson Education
Factors Influencing
Distribution Network Design
Distribution network performance evaluated along
two dimensions at the highest level:
– Customer needs that are met
– Cost of meeting customer needs
Distribution network design options must therefore be
compared according to their impact on customer
service and the cost to provide this level of service

5. © 2007 Pearson Education
Factors Influencing
Distribution Network Design
Elements of customer service influenced by network structure:
– Response time
– Product variety
– Product availability
– Customer experience
– Order visibility
– Returnability
Supply chain costs affected by network structure:
– Inventories
– Transportation
– Facilities and handling
– Information

6. © 2007 Pearson Education
Service and Number of Facilities
(Fig. 4.1)
Number of
Facilities
Response Time

7. © 2007 Pearson Education
The Cost-Response Time Frontier
Local FG
Mix
Regional FG
Local WIP
Central FG
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
Cost
Response Time HiLow
Low
Hi

8. © 2007 Pearson Education
Inventory Costs and Number
of Facilities (Fig. 4.2)
Inventory
Costs
Number of facilities

9. © 2007 Pearson Education
Transportation Costs and
Number of Facilities (Fig. 4.3)
Transportation
Costs
Number of facilities

10. © 2007 Pearson Education
Facility Costs and Number
of Facilities (Fig. 4.4)
Facility
Costs
Number of facilities

11. © 2007 Pearson Education
TransportationTransportation
Total Costs Related to
Number of Facilities
TotalCostsTotalCosts
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs

12. © 2007 Pearson Education
Response TimeResponse Time
Variation in Logistics Costs and Response
Time with Number of Facilities (Fig. 4.5)
Number of FacilitiesNumber of Facilities
Total Logistics CostsTotal Logistics Costs

13. © 2007 Pearson Education
Design Options for a
Distribution Network
Manufacturer Storage with Direct Shipping
Manufacturer Storage with Direct Shipping and In-
Transit Merge
Distributor Storage with Carrier Delivery
Distributor Storage with Last Mile Delivery
Manufacturer or Distributor Storage with Consumer
Pickup
Retail Storage with Consumer Pickup
Selecting a Distribution Network Design

14. © 2007 Pearson Education
Manufacturer Storage with
Direct Shipping (Fig. 4.6)
Manufacturer
Retailer
Customers
Product Flow
Information Flow

15. © 2007 Pearson Education
In-Transit Merge Network (Fig. 4.7)
Factories
Retailer
Product Flow
Information Flow
In-Transit Merge by
Carrier
Customers

16. © 2007 Pearson Education
Distributor Storage with
Carrier Delivery (Fig. 4.8)
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
Distributor/Retailer

17. © 2007 Pearson Education
Distributor Storage with
Last Mile Delivery (Fig. 4.9)
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer
Warehouse

18. © 2007 Pearson Education
Manufacturer or Distributor Storage
with Customer Pickup (Fig. 4.10)
Factories
Retailer
Pickup Sites
Product Flow
Information Flow
Cross Dock DC
Customer Flow
Customers

19. © 2007 Pearson Education
Comparative Performance of Delivery
Network Designs (Table 4.7)
Information
Facility & Handling
Transportation
Inventory
Returnability
Order Visibility
Customer Experience
Product Availability
Product Variety
Response Time
Manufacturer
storage with pickup
Distributor
storage with last
mile delivery
Distributor Storage
with Package
Carrier Delivery
Manufacturer
Storage with In-
Transit Merge
Manufacturer
Storage with Direct
Shipping
Retail Storage
with Customer
Pickup
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4
4
4
5
5
5
5
55
5
6
6
5

20. © 2007 Pearson Education
Linking Product Characteristics and
Customer Preferences to Network Design
Low customer effort
High product variety
Quick desired response
High product value
Many product sources
Very low demand product
Low demand product
Medium demand product
High demand product
Manufacturer
storage with
pickup
Distributor storage
with last mile delivery
Distributor Storage
with Package Carrier
Delivery
Manufacturer
Storage with In-
Transit Merge
Manufacturer
Storage with
Direct Shipping
Retail Storage
with Customer
Pickup
+2
+2
+2
+2
+2
+2
+2 +2 +2
+2
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
+1
0
0
0
0
0
0
0
0 0
0
-1
-1
-1
-1
-1 -1
-1
-1
-1
-1
-1
-2 -2
-2
-2
-2
-2 -2
-2

21. © 2007 Pearson Education
E-Business and the Distribution
Network
Impact of E-Business on Customer Service
Impact of E-Business on Cost
Using E-Business: Dell, Amazon, Peapod, Grainger

22. © 2007 Pearson Education
Distribution Networks in Practice
The ownership structure of the distribution network
can have as big as an impact as the type of distribution
network
The choice of a distribution network has very long-
term consequences
Consider whether an exclusive distribution strategy is
advantageous
Product, price, commoditization, and criticality have
an impact on the type of distribution system preferred
by customers

23. © 2007 Pearson Education
Summary of Learning Objectives
What are the key factors to be considered when
designing the distribution network?
What are the strengths and weaknesses of various
distribution options?
What roles do distributors play in the supply chain?