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3

Design Options for a Distribution NetworkDesign Options for a Distribution Network

1. Manufacturer Storage with Direct Shipping

2. Manufacturer Storage with Direct Shipping and In-TransitMerge

3. Distributor Storage with Carrier Delivery

4. Distributor Storage with Last Mile Delivery

5. Manufacturer or Distributor Storage with Consumer Pickup

6. Retail Storage with Consumer Pickup

Design Factor

Storage Location & Customer Pickup or not

4

Manufacturer Storage withDirect Shipping (Fig. 4.6) p.97

STOCK Manufacturer

Retailer

Customers

Product Flow

Information Flow

Also called Drop Shipping


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5

Manufacturer Storage withDirect ShippingDrop Shipping

Examples: Dell, eBags, Nordstorm, etc.

Advantages: Centralized inventory at manufacturers

High level of product availability

Disadvantages:

High (Less-than-Truck, LTL) transportation costs

Long shipping time

Good for products of:High variationHigh value

Slow moving

6

In-Transit Merge Network (Fig. 4.7)

Factories

Retailer

Product Flow

Information Flow

In-Transit Merge by

Carrier

Customers

p.100

Stock


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7

In-Transit Merge Network

Examples: Dell, Gateway, Sony etc.

Similar to drop-shipping:

High level of product availability

Transportation costs are lower

Facility/Processing costs are higher

Better customization opportunities

Good for:

Medium demand

High value items

Medium-demand products

8

Distributor Storage withCarrier Delivery (Fig. 4.8) p.102

Factories

Customers

Product Flow

Information Flow

Warehouse Storage by

Distributor/RetailerFG Stock


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9

Distributor Storage withCarrier Delivery

Examples: W.W. Gringer, McMaster Carr, etc.

Two levels inventory:

Distributors carry inventory at warehouses or DCs

Retailers carry inventory at retail stores

Performance characteristics see Table 4.3 (p.103)

Observations:

Slow moving items => Inventory storage upstream

More faster moving => Storage moves more downstream

10

Distributor Storage withLast Mile Delivery (Home Delivery)

Factories

Customers

Product Flow

Information Flow

Distributor/Retailer

Warehouse

(Fig. 4.9), p.104

FG Stock


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13

Factors InfluencingFactors Influencing

Distribution Network DesignDistribution Network Design

Elements of customer service influenced bynetwork structure:

Response time

Product variety

Product availability

Customer experience Order visibility

Returnability

14

Facility DecisionsFacility Decisions (Ch 5)(Ch 5)

Distribution Network Facility Decisions

Type (Warehouse, DC, Factory, X-Dock)

Number, Location, Capacity Allocation

Trade-offs

The more DCs

Higher facility/equipment costs

Higher personnel costs

Lower transportation costs

higher safety inventory costsBetter customer service


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Costs and Number of FacilitiesCosts and Number of Facilities

Costs

Number of facilities

Inventory

Transportation

Facility costs

5-15

Percent Service

Level WithinPromised Time

TransportationTransportation

Cost Build-up as a function of facilities

CostofOperations

CostofOperations

Number of FacilitiesNumber of Facilities

InventoryInventory

FacilitiesFacilities

Total CostsTotal Costs

LaborLabor

5-16


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2004 Prentice-Hall, Inc. 1-17

Customer

DC

Where inventory needs to be for a one week orderWhere inventory needs to be for a one week order

response timeresponse time -- typical resultstypical results ----> 1 DC> 1 DC

5-17


Customer

DC

Where inventory needs to be for a 5 day orderWhere inventory needs to be for a 5 day order

response timeresponse time -- typical resultstypical results ----> 2> 2 DCsDCs

5-18


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Customer

DC

Where inventory needs to be for a 3 day orderWhere inventory needs to be for a 3 day order


5-19


Customer

DC

Where inventory needs to be for a next day orderWhere inventory needs to be for a next day order


5-20


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21

Facility DecisionsFacility Decisions in Practice (I)in Practice (I)

Life Span of Different Facilities

Production Plants last for decades; Warehouses andOffices may change in a year

(An insurance company moved to reduce costs but then found hardto sell the facility in suburban area)

Cultural Implications

Ford Lincoln Mark VIII though shared platform with

Mercury Cougar still locate in Wixom plant with otherluxury cars to show consistent quality

22

Facility DecisionsFacility Decisions in Practice (II)in Practice (II)

Dont Ignore Quality of Life Issues

QOL has great impact on performance of workforce;

Cost-saving is not all

Tax/Tariff Incentives

Has Big Influence in Global Setting

Ireland attracted hi-tech firms to build European facilitiesthere

Local governments good offer made Toyota, BMW,Mercedes locate plants in some states of USA


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A Framework for Global Site Location

PHASE I

Supply Chain

Strategy

PHASE II

Regional Facility

Configuration

PHASE III

Desirable Sites

PHASE IV

Location Choices

Competitive STRATEGY

INTERNAL CONSTRAINTSCapital, growth strategy,

existing network

PRODUCTION TECHNOLOGIES

Cost, Scale/Scope impact, support

required, flexibility

COMPETITIVE

ENVIRONMENT

PRODUCTION METHODS

Skill needs, response time

FACTOR COSTS

Labor, materials, site specific

GLOBAL COMPETITION

TARIFFS AND TAX

INCENTIVES

REGIONAL DEMAND

Size, growth, homogeneity,

local specifications

POLITICAL, EXCHANGE

RATE AND DEMAND RISK

AVAILABLE

INFRASTRUCTURE

LOGISTICS COSTS

Transport, inventory, coordination

[Chopra & Meindl, 2007] CH 5.2, p.138 5-23

24

Location/Allocation ModelLocation/Allocation Model

yi = 1 if plant is located at site i,0 otherwise

xij = Quantity shipped fromplant site i to customer j

fi: Fixed cost of facility i

cij: Per unit transportation costfrom i to j

Ki: Capacity of facility i

Mixed Integer Programing Model (MIP)

[Chopra & Meidl, 2007]

CH 5.4, pp.141-145

Excel Example

}1,0{

..

1

1

1 11

=

+

=

=

= ==

y

yKx

Dx

xcyf

i

ii

n

jij

j

n

iij

n

i

m

j

ijiji

n

i

i

ts

Min

, for every i

, for every j


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25

Distribution Operations DecisionsDistribution Operations Decisions

Fleet Planning/Management

Fleet Size and Fleet Mix Own Fleet or Outsourcing

Vehicle Routing/Scheduling TSP, VRP, VRPTW, PVRP, .

Crew Scheduling / Dispatching

Hard problems need Decision Support reduce cost and improve service reliability(See a DSS prototype system developed in 1995 )

Make-or-Buy: You dont have to do it all by yourself!

See research results ofour Network ResearchLab on my website

26

Network Design under UncertaintyNetwork Design under Uncertainty

(CH 6)

Use Decision Tree Analysis Techniques usually taught in OR Courses

In practice:

Keep alert of change of business/economic environment

Build up good customer relationship

Build strategic alliances with LSP partners

2010_E4.5 Facility Decisions and Distribution Network CH4_6

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