Distribution Network Design and Customer Experience

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Questions and Answers

What is one element of customer service that is influenced by network structure?

Response time.

How does network structure impact supply chain costs?

It affects inventories, transportation, facilities and handling, and information.

What are the two key decisions in designing a distribution network?

The choices from the manufacturer to the end consumer.

In terms of distribution network design, what impact does the number of facilities have on transportation costs?

Increasing the number of facilities generally increases transportation costs. Signup and view all the answers

How is customer experience linked to the structure of the distribution network?

It is influenced by factors like order visibility and returnability. Signup and view all the answers

What relationship exists between inventory costs and the number of facilities in a distribution network?

Typically, more facilities lead to higher inventory costs. Signup and view all the answers

What role does 'time to market' play in distribution network design?

It affects how quickly products can be delivered to customers. Signup and view all the answers

Name one factor that influences product availability in a distribution network.

Inventory levels. Signup and view all the answers

How does the customer experience with distributor storage and carrier delivery compare to drop-shipping?

The customer experience is better than drop-shipping because only a single delivery is received. Signup and view all the answers

What is one advantage of transportation in distributor storage compared to manufacturer storage?

Transportation costs are lower than manufacturer storage, especially for faster moving items. Signup and view all the answers

In terms of inventory performance, how does distributor storage compare to manufacturer storage?

Inventory costs are higher than manufacturer storage, particularly for slow-moving items. Signup and view all the answers

What factor affects the response time of distributor storage compared to manufacturer storage?

The response time is faster than manufacturer storage. Signup and view all the answers

How does the product variety in distributor storage compare to manufacturer storage?

Product variety is lower than manufacturer storage. Signup and view all the answers

What is one disadvantage of distributor storage regarding product availability?

It has a higher cost to provide the same level of availability as manufacturer storage. Signup and view all the answers

How does order visibility in distributor storage compare to manufacturer storage?

Order visibility is easier than in manufacturer storage. Signup and view all the answers

What is the impact on time to market when using distributor storage compared to manufacturer storage?

Time to market is higher than manufacturer storage. Signup and view all the answers

What could be a significant drawback of the service factor related to response time with the Manufacturer Storage system?

The significant drawback is the long response time of one to two weeks due to increased distance and multi-stage order processing. Signup and view all the answers

What are the cost factors associated with retail storage that are higher than all other options?

Inventory and facilities and handling costs are higher than all other options. Signup and view all the answers

How does product variety and availability differ in the Manufacturer Storage system compared to the In-Transit Merge Network?

The Manufacturer Storage system can easily provide a high level of product variety and availability, while the In-Transit Merge Network has similar inventory levels to drop-shipping but with higher handling costs. Signup and view all the answers

In what ways can customer experience be compromised with the Manufacturer Storage system?

Customer experience can suffer if orders from multiple manufacturers are sent as partial shipments, leading to delays in receiving all items. Signup and view all the answers

How does transportation cost compare to other options in retail storage with customer pickup?

Transportation cost is lower than all other options. Signup and view all the answers

What is the service performance regarding response time in retail storage with customer pickup?

Same-day or immediate pickup is possible for items stored locally at the pickup site. Signup and view all the answers

Why is order visibility particularly important in supply chain management, especially with the Manufacturer Storage system?

Order visibility is crucial for customer service as it helps in tracking the status of orders and managing customer expectations. Signup and view all the answers

Identify the service factor that is more expensive to provide in retail storage with customer pickup.

Product availability is more expensive to provide than all other options. Signup and view all the answers

What are the main cost benefits of the In-Transit Merge Network compared to drop-shipping?

The In-Transit Merge Network has somewhat lower transportation costs compared to drop-shipping. Signup and view all the answers

Discuss the handling and receiving costs associated with the In-Transit Merge Network.

Handling costs are higher at the carrier level, while receiving costs are lower at the customer end compared to drop-shipping. Signup and view all the answers

What is a challenge noted for order visibility in retail storage with customer pickup?

Order visibility is trivial for in-store orders but difficult for online and phone orders. Signup and view all the answers

What aspect of customer experience is related to retail storage with customer pickup?

Customer experience is related to whether shopping is viewed as a positive or negative experience. Signup and view all the answers

What challenge does the returnability factor present in the Manufacturer Storage system?

Returnability is expensive and difficult to implement, making returns a significant challenge. Signup and view all the answers

How does the response time of the In-Transit Merge Network compare to that of drop-shipping?

The response time of the In-Transit Merge Network is similar to drop-shipping and may be marginally higher. Signup and view all the answers

Why is returnability considered easier in retail storage with customer pickup?

Returnability is easier because the retail store can provide a substitute directly. Signup and view all the answers

Which service factor has the highest time to market among distribution options?

Time to market is highest among distribution options for retail storage with customer pickup. Signup and view all the answers

What is the total cost calculated for the distribution network mentioned?

$920,000 Signup and view all the answers

Which warehouse supplies customer A according to the given data?

W1 Signup and view all the answers

What is the limitation placed on the supply to customer B?

Capped to 60,000 units Signup and view all the answers

Identify the mathematical expression to minimize costs in the linear programming model.

Minimize (0x(P1,W1) + 5x(P1,W2) + 4x(P2,W1) + 2x(P2,W2) + 3x(W1,A) + 4x(W1,B) + 5x(W1,C) + 2x(W2,A) + x(W2,B) + 2x(W2,C)) Signup and view all the answers

What are the flows defined for plants to warehouses in the LP model?

x(P1,W1), x(P1,W2), x(P2,W1), x(P2,W2) Signup and view all the answers

What is the primary focus of Distribution Resource Planning (DRP)?

DRP primarily focuses on starting with customer demand and establishing a system-wide plan for ordering necessary finished products. Signup and view all the answers

How does MRP differ from DRP in its planning approach?

MRP sets a master production schedule and works forward, while DRP works backward from customer demand to establish a distribution plan. Signup and view all the answers

What are the key requirements for effective DRP implementation?

The key requirements include a forecast of demand for each SKU, current inventory levels, target safety stock, recommended replenishment quantity, and lead time for replenishment. Signup and view all the answers

Why is the positioning of Distribution Centres (DCs) significant in a distribution network?

The positioning of DCs affects inventory levels, delivery times, and overall efficiency in meeting customer demand. Signup and view all the answers

What strategies are mentioned that take into account logistics trade-offs?

Strategies such as Just-in-Time (JIT), Collaborative Planning, Forecasting & Replenishment (CPFR), and planning tools like MRP and DRP are mentioned. Signup and view all the answers

Discuss the importance of safety stock in DRP.

Safety stock acts as a buffer against uncertainties in demand and supply, ensuring that there is enough inventory to meet unexpected spikes in customer demand. Signup and view all the answers

Define Stock Keeping Units (SKUs) and their relevance to distribution management.

SKUs are distinct products or items in inventory that are tracked separately for stock control; their management is essential for efficient distribution. Signup and view all the answers

What role does forecasting play in DRP?

Forecasting helps predict demand for each SKU, which is crucial for planning inventory levels and replenishment schedules. Signup and view all the answers

Study Notes

Distribution Networks

Distribution networks connect suppliers, manufacturers, distributors, retailers, and customers.
The diagram illustrates the interconnectedness of these entities.

Learning Objectives

Understanding the function and types of distribution is crucial.
Key factors, strategies, and design tools for distribution are vital.
Applying planning and configuration models to address distribution challenges is important.

Role of Distribution in Supply Chain

Distribution involves the movement and storage of products from suppliers to customers.
It directly affects supply chain cost and customer value.
Distribution network selection can achieve low-cost or high-responsiveness supply chain objectives.

Reasons for Distribution Networks

Distributors handle contacts, expertise, and specialization.
Reducing inventory, order processing, and customer service costs is a major function of distributors.
Transaction contacts are reduced by distributors from 9 to 6 contacts.
Companies focus more on key customers with distributors.

Types of Distribution Networks

Industrial distribution networks involve manufacturers, industrial customers, distributors, and possibly a manufacturer representative.
Consumer distribution networks include manufacturers, wholesalers, retailers, and possibly a jobber.

Typical Food Distribution Network

Foods often have multiple interconnected channels in their distribution network.
This example diagram shows a network involving food manufacturers, food service distributors, grocery wholesalers, food brokers, internet (direct), restaurants, specialty retailers (airlines etc), retailer and institutional buyers, retail chains, and internet retailers.

Factors Influencing Distribution Network Design

Distribution network performance assessed based on customer value and cost of meeting customer needs.
Customer service factors affected by network design include response time, product variety, product availability, customer experience, time to market, order visibility, and returnability.
Supply chain costs affected by network design include inventories, transportation costs, facility and handling costs, and information costs.

Graphs

Graphs show inverse relationships between required number of facilities and desired response time and between inventory costs and number of facilities.
Graphs show inverse relationships between transportation costs and number of facilities, between facility costs and number of facilities.

Design Options for a Distribution Network

Decisions need to be made about product delivery (to customer location or pickup point) and intermediary use.
Six potential designs include direct shipping, in-transit merge, carrier delivery, last-mile delivery, customer pickup at manufacturer/distributor, and customer pickup at a retail storage facility.

Manufacturer Storage Options with Direct Shipping

This option has lower costs due to aggregation.
It has higher transportation costs.
Facility costs are lower.
Investment in information infrastructure is needed.

In-Transit Merge Network

Similar to drop shipping, with lower transportation costs.
Handling costs are higher than drop shipping.
Information investment is somewhat higher.

Distributor Storage with Carrier Delivery

Higher inventory cost compared to manufacturer storage; less for faster-moving items.
Lower transportation cost than manufacturer storage.
Moderate facility costs; higher for slow-moving items.
Simpler infrastructure than manufacturer storage.

Distributor Storage with Last Mile Delivery

Higher inventory cost than distributor storage with package carrier delivery.
Very high transportation cost.
Higher facility costs than other options.
Information needs are similar to distributor storage with package carrier delivery.

Manufacturer or Distributor Storage with Customer Pickup

Inventory fits other options; depends on location.
Using an existing delivery network is cheaper.
Facility costs can be higher if new facilities required.
Information infrastructure investment is significant.

Retail Storage with Customer Pickup

Inventory costs are higher.
Transportation and facility costs lower, but significant handling costs at the pickup location.
Information infrastructure investment needed.

Comparative Performance of Delivery Network Designs

A table provides a comparative performance analysis of different delivery network designs based on factors like response time, order visibility, etc.

Delivery Networks for Different Product/Customer Characteristics

A table categorizes factors influencing delivery network decisions based on product and customer characteristics.

Issues, Strategies, and Tools in Distribution Management

Strategies like Just-in-time (JIT), Collaborative Planning, Forecasting & Replenishment (CPFR) use tools like MRP, MRPII, and DRP.
The number of distribution centers, stock keeping units (SKUs), and strategic positioning affect inventory.

What is DRP?

Material Requirements Planning (MRP) determines total production requirements.
Distribution Resource Planning (DRP) uses customer demand to work backwards.
DRP creates a phased plan to deliver from plants and warehouses.

DRP Requirements

Forecasting of product demand.
Current product inventory levels.
Target safety stock levels.
Replenishment quantity recommendations.
Lead times for replenishment.

DRP Table for Food Products

DRP example uses a table to project demand, inventory, replenishment needs, and costs for a food product across different months.

Combining DRP Tables for all DCs

DRP tables help gather and analyze data for different distribution centers.
Information concerning demands from each center is aggregated to the plant or a centralized control station for forecasting needs for each center.

Customer Order Promising

Available-to-promise (ATP):
Capable-to-promise (CTP):
Profitable-to-promise (PTP).

Inventory at Multiple Locations and Consolidation

Reducing inventory across multiple locations.
Inventory increase with locations.
Square root law estimates total inventory.

Square Root Law

Formula for estimating total inventory.
This has a fixed ratio compared to facilities.

Square Root Law Example

Example uses a formula to determine the inventory needed when the facility count is reduced by a certain factor.

Square Root Assumptions

Assumption of constant transfer rates
Assumptions of invariant lead times and consistent customer demand.

Centralized Versus Decentralized Warehouses/DCs

Centralized warehouses have lower safety stock and overhead.
Decentralized warehouses have higher safety stock and provide shorter lead times.

Distribution Network Planning

Data gathering, modelling of distribution problems, and solution implementation for minimum cost while maintaining customer expectations.

Data Collection

Data needed for planning include customer locations, retailer locations, existing facilities, volumes, product types, transport needs, annual demand for each product at each location and cost of delivery and operational requirements, service expectations.

Data Aggregation

Aggregating or grouping data to reduce complexity and increase efficiency when numerous points of distribution need to be considered.
Gathering data for products delivered to specific zones.

Model and Data Validation

Validating and making the data useful and in accordance with the companies specific processes
Model and data validation is done by reconstructing the existing configuration and comparing with the models data.
What-if scenarios are developed to test changes and their impact.

Solution Techniques

Mathematical optimization techniques: Exact algorithms (guaranteed optimal solutions) like linear or integer programming, or heuristic algorithms (approximations) like Grid technique.
Simulation models: Provide mechanisms to evaluate alternative designs.

Distribution Example

Example shows how to select a distribution plan based on costs.

Heuristic Solution #1

Finding the cheapest warehouse to supply customers and the cheapest plant for each warehouse.

Heuristic Solution #2

Choosing the cheapest warehouse to supply customers considering both inbound and outbound costs.

Linear Programming (LP) Model

Using an LP model.
Variables and constraints for finding the optimal solution.

Summary of Key Learning Points

Identifying key factors in distributing products
Understanding different distribution options and their attributes
Effectively using distribution planning and configuration models.
How online sales affect the design of distribution networks.

Distribution Networks in Practice

Consideration of factors like ownership structure, flexibility, product characteristics (price, commoditization), and customer preferences.
Integrating internet capabilities with in-person services or direct retail distribution.

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Description

This quiz explores key concepts of distribution network design and its influence on customer service, supply chain costs, and inventory management. Test your knowledge on how different elements like facility numbers and transportation methods impact the overall efficiency and customer experience in distribution networks.