Supply Chain Distribution Mechanics

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Questions and Answers

What are the key stages in the distribution process within a supply chain?

The key stages are suppliers, manufacturers, distributors, retailers, and customers.

How does distribution directly affect profitability in a supply chain?

Distribution impacts profitability by influencing supply chain costs and enhancing customer value.

Identify two functions of distribution networks.

Distribution networks reduce order processing costs and enhance customer service.

What advantage does adding a distributor provide in terms of transaction contacts?

Adding a distributor can reduce transaction contacts from 9 to 6. Signup and view all the answers

What strategies can be employed in designing distribution networks?

Strategies include focusing on cost reduction and increasing responsiveness to market demands. Signup and view all the answers

Explain the role of specialists in distribution networks.

Distributors provide expertise and specialization, facilitating efficient inventory and cost management. Signup and view all the answers

What does good distribution design aim to achieve within the supply chain?

Good distribution design aims to meet objectives ranging from low operational costs to high service responsiveness. Signup and view all the answers

How can distribution networks impact customer focus?

Distribution networks allow companies to concentrate on key customers by minimizing unnecessary contacts. Signup and view all the answers

What are two elements of customer service influenced by network structure?

Response time and product availability. Signup and view all the answers

Identify two supply chain costs affected by the distribution network design.

Transportation and inventories. Signup and view all the answers

What relationship is indicated between response time and the number of facilities?

A greater number of facilities typically leads to shorter response times. Signup and view all the answers

How does the number of facilities affect inventory costs?

Increasing the number of facilities usually results in higher inventory costs. Signup and view all the answers

What is one factor that influences logistics costs in relation to response time?

The number of facilities. Signup and view all the answers

Name one aspect of customer experience that can be impacted by distribution network structure.

Order visibility. Signup and view all the answers

What does the logistics cost involve when considering the response time?

Transportation, handling, and facility costs. Signup and view all the answers

List one key decision involved in designing a distribution network.

Choosing the appropriate number of facilities. Signup and view all the answers

What is one advantage of distributor storage with last mile delivery compared to manufacturer storage?

It is easier than manufacturer storage. Signup and view all the answers

How does the cost of facilities and handling in distributor storage with last mile delivery compare to traditional retail stores?

It is lower than a chain of retail stores. Signup and view all the answers

Describe the response time of distributor storage with last mile delivery.

The response time is very quick, typically same day to next-day delivery. Signup and view all the answers

What is a disadvantage regarding product variety in distributor storage with last mile delivery?

It offers somewhat less product variety compared to distributor storage with package carrier delivery. Signup and view all the answers

In terms of transportation costs, how does distributor storage with last mile delivery rank compared to other options?

It has a very high cost due to minimal scale economies. Signup and view all the answers

What customer experience aspect is highlighted for distributor storage with last mile delivery?

Customer experience is very good, especially for bulky items. Signup and view all the answers

What costly factor is associated with providing product availability in distributor storage with last mile delivery?

It is more expensive to provide availability than any other option except retail stores. Signup and view all the answers

How does the order visibility in distributor storage with last mile delivery compare to manufacturer storage?

Order visibility is less of an issue and easier to implement. Signup and view all the answers

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

DRP establishes a time-phased plan for distributing products from plants and warehouses based on customer demand. Signup and view all the answers

List two key requirements for effective Distribution Resource Planning.

A forecast of demand for each SKU and current inventory levels for each SKU. Signup and view all the answers

How does the number of Distribution Centres (DCs) influence inventory management?

The number of DCs can complicate inventory management by increasing the need to balance stock across multiple locations. Signup and view all the answers

What role does safety stock play in DRP?

Safety stock serves as a buffer to protect against variability in demand and supply lead times. Signup and view all the answers

Explain the concept of Just-in-Time (JIT) in distribution management.

JIT aims to reduce inventory carrying costs by receiving goods only as they are needed for production or sales. Signup and view all the answers

What does planning tools like MRP and MRPII help achieve in logistics management?

MRP and MRPII assist in scheduling production and managing inventory levels to meet customer demand effectively. Signup and view all the answers

How do collaborative strategies such as CPFR enhance distribution performance?

CPFR improves distribution performance by fostering collaboration between suppliers and retailers to align forecasts and replenish inventory more efficiently. Signup and view all the answers

What is the importance of understanding logistics trade-offs in network design?

Understanding logistics trade-offs is crucial for balancing costs, service levels, and operational efficiency when designing distribution networks. Signup and view all the answers

Based on the distribution plan, which warehouse supplies customers A, B, and C, and why?

Warehouse W2 supplies customers A, B, and C because it has the lowest distribution costs for each customer zone. Signup and view all the answers

How many units are allocated from plant P2 based on the capacity constraints?

60,000 units are allocated from plant P2 due to its maximum annual capacity. Signup and view all the answers

What is the total calculated cost of the distribution plan?

$1,120,000 is the total calculated cost of the distribution plan. Signup and view all the answers

Explain the significance of the heuristic solution in this distribution scenario.

The heuristic solution helps identify cost-effective routes and allocations under the given constraints. Signup and view all the answers

What are the customer demand requirements for zones A, B, and C?

The customer demand requirements are 50,000 units for A, 100,000 units for B, and 50,000 units for C. Signup and view all the answers

Why is it necessary to consider both inbound and outbound costs in a distribution plan?

Considering both costs ensures a comprehensive view of total logistics expenses, supporting better decision-making. Signup and view all the answers

From which warehouse and plant does customer zone B receive its units?

Customer zone B receives 100,000 units from warehouse W2 and plant P1. Signup and view all the answers

What is the maximum annual capacity limit imposed on plant P2?

The maximum annual capacity limit imposed on plant P2 is 60,000 units. Signup and view all the answers

What are the constraints highlighted in the Linear Programming model for the distribution network?

The constraints include production limits and flow conservation equations like x(P2,W1) + x(P2,W2) < 60,000 and balancing supply and demand at the warehouses. Signup and view all the answers

How does the ownership structure influence distribution networks?

The ownership structure can significantly affect the efficiency, control, and adaptability of the distribution network. Signup and view all the answers

Discuss the impact of product characteristics on the preferred type of distribution system.

Product price, commoditization, and criticality affect customer preferences for distribution systems, influencing factors like delivery time and service level. Signup and view all the answers

What does the optimal distribution solution reveal about warehouse utilization?

The optimal solution indicates how supplies are allocated efficiently between warehouses W1 and W2 to meet demand while minimizing costs. Signup and view all the answers

Why is adaptability crucial in distribution networks?

Adaptability allows distribution networks to respond swiftly to market changes and customer demands, ensuring ongoing effectiveness. Signup and view all the answers

What strategies could be employed for exclusive distribution?

Strategies for exclusive distribution could include establishing strong partnerships, selective screening of distributors, and tailored marketing efforts. Signup and view all the answers

Identify one potential benefit of integrating the Internet with the physical distribution network.

Integrating the Internet can enhance real-time tracking and visibility of shipments, improving customer service. Signup and view all the answers

What is the total expected value of the optimal strategy in the Linear Programming model?

The total expected value of the optimal strategy is $740,000. Signup and view all the answers

Study Notes

Distribution Networks

Designing distribution networks involves understanding the relationships between suppliers, manufacturers, distributors, retailers, and customers.
The diagram shows a complex network linking these elements.
The diagram suggests multiple paths for product flow.

Learning Objectives

Describe functions and types of distribution networks.
Explain contributing factors, strategies, and tools in designing distribution networks.
Apply distribution network planning and configuration models to solve problems.

Role of Distribution in Supply Chain

Distribution encompasses the steps needed to move and store products from suppliers to customers within a supply chain.
Distribution activities impact profitability through costs and customer value.
Distribution networks can optimize supply chain objectives, ranging from low cost to high responsiveness.

Reasons for Distribution Networks

Distributors offer expertise, specialization, and reduce costs associated with inventory, order processing, transportation, and customer service.
Reduced transaction costs by having a single distributor.
Companies can focus on key customers rather than many.

Types of Distribution Networks

Two fundamental types, industrial and consumer, exist, alongside variations.
Industrial networks involve manufacturers and industrial customers connected through intermediaries like distributors and representatives.
Consumer networks link manufacturers through wholesalers, retailers, and sometimes jobbers to consumers.

Typical Food Distribution Network

Presents a network example for food products in the manufacturing industry.
Illustrates multiple distribution channels.
Shows intermediaries such as food service distributors, grocery wholesalers, and food brokers, linking manufacturers to various market segments (restaurants, retailers, etc.).

Factors Influencing Distribution Network Design

Distribution network performance is evaluated along two main dimensions:
1. Value provided to the customer.
2. Cost of meeting customer needs.
The impact customer service and costs have on different distribution options are analyzed.
The profitability of delivery networks is driven by revenue meeting customer needs and network costs.

Elements of Customer Service

Network structure influences customer service:
Response time
Product variety
Product availability
Customer experience
Time to market
Order visibility
Returnability

Supply Chain Costs

Network structure affects costs associated with supply chains:
Inventories
Transportation
Facilities and handling
Information

Desired Response Time and Number of Facilities

Graph illustrating the inverse relationship between the required number of facilities and desired response time.
Fast response time requires increased facilities, leading to rise in cost.

Inventory Costs and Number of Facilities

Graph illustrating a positive relationship between inventory costs and the number of facilities.
Increased facilities generally increase storage and holding costs (inventory).

Transportation Costs and Number of Facilities

Chart showcasing the relationship between transportation costs and the number of facilities. Shows optimum point for lowest transportation costs.

Facility Costs and Number of Facilities

Graph showing increasing facility costs associated with a rising number of facilities.
Adding facilities increases overall fixed costs.

Logistics Cost, Response Time, and Number of Facilities

Illustrates the relationships between these three factors. There is a balance, with high facilities implying short response times, but increasing total costs.

Distribution Network Design Options

Decisions focus on whether a product is delivered or picked up and whether an intermediary handles it.
Options include direct shipping, in-transit merge, distributor storage, last-mile delivery, and retail storage with customer pickup.

Network Design Options - Manufacturer Storage with Direct Shipping

Cost Factors: Inventory is lower due to aggregation; transportation is higher; facilities are lower; and information investment is high.
Performance: Response time is long, product variety is high, product availability is high, customer experience is good, time to market is fast, order visibility is difficult, and returnability is expensive and difficult to implement.

Network Design Options - In-Transit Merge

Cost Factors: Inventory is similar to drop shipping; transportation is lower; facilities and handling are high; and information investment is somewhat higher.
Performance: Response time is similar to drop shipping, variety is similar, availability is similar, customer experience is better, time to market is similar, order visibility is similar, and returnability is similar.

Network Design Options - Distributor Storage with Carrier Delivery

Cost Factors: Inventory is higher; transportation is lower; facility handling is somewhat higher; and information systems are simpler.
Performance: Response is faster, lower variety, higher availability, better customer experience, higher time to market, easier order visibility, and easier returnability compared to manufacturer storage.

Network Design Options - Distributor Storage with Last-Mile Delivery

Cost Factors: Inventory is higher; transportation is very high; facilities and handling are somewhat higher; and information is similar to distributor storage.
Performance: Response time is very quick; variety is somewhat less than distributor storage with package carrier; product availability is expensive; customer experience is very good; time to market is slightly higher; order visibility is less of an issue; and returnability is easier.

Network Design Options - Manufacturer/Distributor Storage with Customer Pickup

Cost Factors: Inventory can match other options; transportation is lower than using package carriers; facilities handling costs can be high depending on facilities choice, and information investment is significant.
Performance: Response time is similar to package carrier delivery; product variety is similar; availability is similar; customer experience has lower home delivery; time market is similar; order visibility is difficult, but essential in the current model; returnability is somewhat easier.

Network Design Options - Retail Storage with Customer Pickup

Cost Factors: Inventory is higher; transportation is lower; facility handling is higher impacting online cost, and information systems investment is required for online/phone orders.
Performance: Response time is same day; variety is lower, availability is more expensive, customer experience is related to a positive customer perspective; time to market is high; order visibility is trivial for in-store; and returnability is easier.

Comparative Performance of Delivery Network Designs

Table contrasting various delivery options based on response time, product variety, availability, customer experience, time to market, order visibility, returnability, inventory, transportation, facility handling, and information.

Delivery Networks for Different Product/Customer Characteristics

Table illustrating how different distribution network options perform best for different product types and customer characteristics, such as high-demand, low-demand, product variety, or product value.

Issues, Strategies, and Tools

Distribution management strategies (e.g. JIT, CPFR) utilizing planning tools (e.g. MRP, DRP) are crucial.
Location, number of distribution centers (DCs), Stock Keeping Units (SKUs) are key strategic aspects.

What is DRP?

DRP (Distribution Resource Planning) builds on MRP, creating a time-phased plan to distribute products from manufacturing locations to customers.
DRP begins with customer demand and works backward.

DRP Requirements

Forecast demand for each SKU
Current inventory levels for each SKU
Target safety stock
Recommended replenishment quantity
Replenishment lead times

Customer Order Promising (ATP/CTP/PTP)

These promise-based systems involve product availability and delivery dates, prioritizing the most profitable options.

Inventory at Multiple Locations and Consolidation

Inventory consolidation for multiple locations aims to reduce total inventory while maintaining customer service levels, as dictated by the "square root law".

The Square Root Law

Calculates the total inventory needed in future facilities by factoring in existing facility inventory and numbers of facilities.
Formula: X₂ = (X₁) * √(n₂/n₁) where n₁ = existing facilities and n₂ = future facilities.

Centralized vs. Decentralized Warehouses/DCs

Centralized warehouses focus on risk pooling and lower overhead, but pose longer delivery times.
Decentralized warehouses ensure quicker delivery but incur higher inventory costs.

Distribution Network Planning

Involves data collection, modeling, and finding an optimal solution that minimizes distribution costs while adhering to service levels.

Data Collection

Key data for distribution network planning (e.g., customer locations, warehouse data).

Data Aggregation

Data aggregation (clustering/grouping similar data) can simplify complex data sets.

Model and Data Validation

Validate models by comparing their forecasts to existing data, and through what-if scenarios (e.g., testing the impact of closing a warehouse).

Solution Techniques (to optimize networks)

Mathematical optimization techniques include exact algorithms (linear programming for guaranteed optimal solutions).
Heuristics find good, but not necessarily optimal, solutions (e.g., grid technique).
Simulation provides a way to evaluate different network configurations.

Distribution Example

A case study showcasing a distribution planning problem.
Example: how several plants, warehouses, and customer demand regions can be optimized.

Heuristic Solutions

Illustrates various approaches (e.g., selecting the cheapest warehouse to meet customer demand), to solve the distribution problem.

Linear Programming (LP) Model

Introduces a mathematical approach to find an optimal distribution plan.

Distribution Networks in Practice

Practical implications and factors impacting distribution network design in real-world scenarios (e.g., ownership, adaptability, pricing considerations, and the role of the Internet).

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Description

Explore the crucial stages and strategies involved in the distribution process within supply chains. This quiz covers the relationship between distribution methods, profitability, customer service, and logistics costs. Understand the key functions of distribution networks and their impact on overall supply chain efficiency.