Distribution Strategies and Methods PDF

CHAPTER 4: DISTRIBUTION 1. Overview of Distribution Distribution encompasses all of the channels, processes, and functions, including warehousing and transportation, that a product passes through on its way to the final customer (end user). It is the actual movement of products and materials...

CHAPTER 4: DISTRIBUTION 1. Overview of Distribution Distribution encompasses all of the channels, processes, and functions, including warehousing and transportation, that a product passes through on its way to the final customer (end user). It is the actual movement of products and materials between locations. Distribution management involves managing the handling of materials and products at receiving docks, storing products and materials, packaging, and the shipment of orders. 1. Overview of Distribution The focus of distribution, what it accomplishes, is referred to as order fulfillment. It is the process of ensuring on-time delivery of the customer’s order. Distribution is not simply a matter of moving products from point A to point B. The driving force behind distribution and transportation in today’s highly competitive business environment is speed and quality. Customers’ requirements: real time information (inventory, carrier location, schedules, and capacity) 2. Distribution strategies Intensive Distribution: a company tries to sell its product from a small vendor to a big store. Virtually, a customer will be able to find the product everywhere he goes. 2. Distribution strategies Selective Distribution: This is a distribution approach where selective and few outlets are chosen through which the product is made available to the customers. Take an example of Smart watches like Samsung Gear 2 or Iwatch. All of these brands are present in the outlets which are owned and operated by the company. However, they are also available in other outlets which are famous for their turnover and the number of customers they serve. 2. Distribution strategies Exclusive Distribution: This is a type of distribution in which only one distributor is authorized to sell a specific product within a particular territory. 3. Distribution/ Shipping methods Direct shipping: goods are transported directly from supplier to retail stores. Routing of each shipment is simple: manager only needs to concern about the volume and mode of transportation without consideration about intermediate facilities such as warehouses or distribution centers What are strengths and weaknesses of Direct shipping?  3. Distribution/ Shipping methods Direct shipping: Strengths: - No intermediaries; Less damage; More accuracy in delivery Weaknesses - Increasing transportation cost; Complicated management: higher number of shipments, cargo handling, paperwork Performance Characteristics of Manufacturer Storage with Direct Shipping Network 3. Distribution/ Shipping methods Indirect shipping: Intermediate Inventory Points Distribution Strategy : using at least one intermediary/intermediate facilities to distribute goods to customers Intermediaries can be distributors, retailers, traditional warehouses, DCs … Options: 1. Manufacturer storage with direct shipping and in-transit merge 2. Distributor storage with carrier delivery 3. Distributor storage with last-mile delivery 4. Manufacturer/distributor storage with customer pickup 5. Retail storage with customer pickup  Traditional warehousing strategy Warehouses or Distribution centers- DCs will keep goods in stock to meet customer demand Fuctions: Break bulk: tách hàng, Repackaging: đóng hàng, Assembly - Lắp ráp, Quality Inspection - Kiểm soát chất lượng, Material Handling and Maintenance - Bảo trì, xếp dỡ, Storage - Lưu trữ  Traditional warehousing strategy Postponement: moving some last stages in production such as assembly or customization to DCs or warehouses. Traditional warehousing strategy  Traditional warehousing strategy Decentralized warehouses) & Centralized warehouses  Traditional warehousing strategy Decentralized warehouses) & Centralized warehouses) In-transit merge network In-transit merge has been used by Dell and can be used by companies implementing drop- shipping. When a customer ordered a PC from Dell along with a Sony monitor (during Dell’s direct selling period), the package carrier picked up the PC from the Dell factory and the monitor from the Sony factory; it then merged the two at a hub before making a single delivery to the customer. Performance Characteristics of In-transit Merge Distributor storage with carrier delivery Under this option, inventory is held not by manufacturers at the factories, but by distributors/ retailers in intermediate warehouses, and package carriers are used to transport products from the intermediate location to the final customer. Distributor storage with carrier delivery Distributor Storage with Last-Mile Delivery Last-mile delivery refers to the distributor/retailer delivering the product to the customer’s home instead of using a package carrier. Distributor Storage with Last-Mile Delivery Manufacturer or Distributor Storage with Customer Pickup In this approach, inventory is stored at the manufacturer or distributor warehouse, but customers place their orders online or on the phone and then travel to designated pickup points to collect their merchandise. Orders are shipped from the storage site to the pickup points as needed. Manufacturer or Distributor Storage with Customer Pickup Retail Storage with Customer Pickup Selecting distribution network Selecting distribution network 4. Transportation In a supply chain, transportation is the movement of a product from one location to another as it makes its way to the end-use customer. Although supply chain experts agree that transportation tends to fall through the supply chain management cracks, receiving less attention than it should, it can be a significant supply chain cost. For some manufacturing companies, transportation costs can be as much as 20% of total production costs and run as high as 6% of revenue. For some retail companies primarily involved in the distribution of goods, like L.L. Bean and Amazon.com, transportation is not only a major cost of doing business, it is also a major determinant of prompt delivery service. L.L. Bean ships almost 16 million packages in a year—over 230,000 on its busiest day—mostly by UPS. 4. Vận tải (Transportation) 5. Transportation model & Transshipment model a) Transportation model A transportation model is formulated for a class of problems with the following characteristics: (1) a product is transported from a number of sources to a number of destinations at the minimum possible cost (2) each source is able to supply a fixed number of units of the product (3) each destination has a fixed demand for the product. a. Transportation model A transportation problem Potatoes are grown and harvested on farms in the Midwest and then shipped to distribution centers in Kansas City, Omaha, and Des Moines where they are cleaned and sorted. These distribution centers supply three manufacturing plants operated by the Frodo-Lane Foods Company, located in Chicago, St. Louis, and Cincinnati, where they make potato chips. Potatoes are shipped to the manufacturing plants by railroad or truck. Each distribution center is able to supply the following tons of potatoes to the plants on a monthly basis: a. Transportation model A transportation problem Each plant demands the following tons of potatoes per month: The cost of transporting 1 ton of potatoes from each distribution center (source) to each plant (destination) differs according to the distance and method of transport. These costs are shown next. a. Transportation model A transportation problem Determine how many tons of potatoes to transport from each distribution center to each plant on a monthly basis to minimize the total cost of transportation a. Transportation model A transportation problem Determine how many tons of potatoes to transport from each distribution center to each plant on a monthly basis to minimize the total cost of transportation a. Transportation model A transportation problem Determine how many tons of potatoes to transport from each distribution center to each plant on a monthly basis to minimize the total cost of transportation a. Transportation model A transportation problem Unbalanced problem: Sources and destinations can be unequal, and total supply does not have to equal total demand Prohibited routes: If a route is prohibited, units cannot be transported from a particular source to a particular destination. Ex: supply at Des Moines has been increased to 375 tons and the shipping route from Kansas City to Chicago is prohibited because of a railway track being repaired. -> Determine how many tons of potatoes to transport from each distribution center to each plant on a monthly basis to minimize the total cost of transportation b. Transshipment model The transshipment model is an extension of the transportation model in which intermediate transshipment points are added between the sources and destinations. An example of a transshipment point is a distribution center or warehouse located between plants and stores. In a transshipment problem, items may be transported from sources through transshipment points on to destinations, from one source to another, from one transshipment point to another, from one destination to another, or directly from sources to destinations, or some combination of these alternatives. b. Transshipment model Potatoes are harvested at farms in Nebraska and Colorado before being shipped to the three distribution centers in Kansas City, Omaha, and Des Moines, which are now transshipment points. The amount of potatoes harvested at each farm is 300 tons. The potatoes are then shipped to the plants in Chicago, St. Louis, and Cincinnati. The shipping costs from the distributors to the plants remain the same, and the shipping costs from the farms to the distributors are as follows. b. Transshipment model The basic structure of this model is shown in the following graphical network. PROBLEM The John Adams Brewing Company has breweries in three cities; the breweries can supply the following numbers of barrels of draft beer to the company’s distributors each month: The distributors, spread throughout six states, have the following total monthly demand: PROBLEM The company must pay the following shipping costs per barrel: Determine the minimum cost shipping routes for the company. The Adams Brewing Company management has negotiated a new shipping contract with a trucking firm between its Tampa brewery and its distributor in Kentucky that reduces the shipping cost per barrel from $0.80 per barrel to $0.55 per barrel. How will this cost change affect the optimal solution?