Chapter-4 DESIGNING DISTRIBUTION NETWORK

By-Prof.P.K.Shah

Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain

DISTRIBUTION

By-Prof.P.K.Shah

Distribution occurs at every pair of stages in the supply chain

Raw materials- Suppliers to manufacturers Finished products- Manufacturer to the end users Designing network has two phases Decision – sale directly or through intermediary Decision – converts first phase into multiple locations and their capacity

THE ROLE OF DISTRIBUTION IN THE SUPPLY CHAIN

By-Prof.P.K.Shah

Response time Product variety & availability Time to market Order visibility Returnability

FACTORS INFLUENCING DISTRIBUTION NETWORK DESIGN

By-Prof.P.K.Shah

RELATIONSHIP BETWEEN NUMBER OF FACILITIES AND DESIRED RESPONSE RATE

Decrease in the response time –increase in the number of facilities By-Prof.P.K.Shah

CHANGE IN THE DISTRIBUTION NETWORK AND IMPACT ON COSTS

By-Prof.P.K.Shah

RELATIONSHIP BETWEEN NUMBER OF FACILITIES AND INVENTORY COSTS

Increase in the number of facilities- Increase in inventory cost By-Prof.P.K.Shah

RELATIONSHIP BETWEEN NUMBER OF FACILITIES AND TRANSPORTATION COSTS

Increase in the number of facilities- Decrease in transportation cost but in small lot sizes of inbound transportation after some point cost increases By-Prof.P.K.Shah

RELATIONSHIP BETWEEN NUMBER OF FACILITIES AND FACILITY COSTS

Decrease in the facility cost with the decrease in the number of facilities By-Prof.P.K.Shah

VARIATION IN LOGISTICS COST AND RESPONSE TIME WITH NUMBER OF FACILITIES

By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NETWORK 1. MANUFACTURER STORAGE WITH DIRECT SHIPPING

Online business: E-bag, Nordstrom for slow moving items By-Prof.P.K.Shah

Cost factor Performance

Inventory Lower cost because of aggregation

Transportation Higher increase distance and disaggregated shipping

Facilities Lower –centralized storage area

Information Significant investment

Service factor Performance

Response time Long

Product variety availability

More

Returnability Expensive

Time to market Fast-unit produced and marketed

DROP SHIPPING- PROS & CONS

By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NETWORK 2. MANUFACTURER STORAGE WITH DIRECT SHIPPING

AND IN-TRANSIT MERGE

By-Prof.P.K.Shah

Cost factor Performance

Inventory Lower cost because of aggregation

Transportation Somewhat lower than drop-shipping

Facilities Higher

Information Significantly higher investment

Service factor Performance

Response time Long

Product variety availability

Same as drop-shipping

Returnability Same as drop-shipping

Time to market Same as drop-shipping

MANUFACTURER STORAGE WITH DIRECT SHIPPING AND IN-TRANSIT MERGE

PROS & CONS

By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NETWORK 3. DISTRIBUTOR STORAGE WITH CARRIER DELIVERY

By-Prof.P.K.Shah

DISTRIBUTOR STORAGE WITH CARRIER DELIVERY PROS & CONS

Cost factor Performance

Inventory Higher than manufacturing storage

Transportation Somewhat lower than from manufacturer

Facilities Higher

Information Lower

Service factor Performance

Response time Faster

Product variety availability

Higher

Returnability Easier

Time to market Higher

By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NETWORK 4. DISTRIBUTOR STORAGE WITH LAST MILE DELIVERY

By-Prof.P.K.Shah

DISTRIBUTOR STORAGE WITH LAST MILE DELIVERY PROS & CONS

Cost factor Performance

Inventory Higher than manufacturing storage

Transportation Very high

Facilities Higher

Information Lower

Service factor Performance

Response time Very quick

Product variety availability

Lesser

Returnability Higher

Time to market Higher

By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NETWORK 5. MANUFACTURER OR DISTRIBUTOR STORAGE WITH

CUSTOMER PICK-UP

By-Prof.P.K.Shah

MANUFACTURER OR DISTRIBUTOR STORAGE WITH CUSTOMER PICK-UP PROS & CONS

Cost factor Performance

Inventory Higher than manufacturing storage

Transportation lower than from manufacturer

Facilities Higher

Information Somewhat Higher

Service factor Performance

Response time Immediate

Product variety availability

Lower

Returnability Easier

Time to market Highest

By-Prof.P.K.Shah

Response time to customer Product variety Product availability Customer experience Faster time to market Order visibility returnability Direct sales to customer Flexible pricing , product portfolio and promotions Efficient fund transfer

ONLINE SALES AND THE DISTRIBUTION NETWORK IMPACT OF ONLINE SALES ON CUSTOMER SERVICE

By-Prof.P.K.Shah

Inventory Facilities Transportation Information

ONLINE SALES AND THE DISTRIBUTION NETWORK IMPACT OF ONLINE SALES ON COST

By-Prof.P.K.Shah

Impact of online sales on performance of Dell & PC industry -Cost

Impact of online sales on book industry -customer service

IMPACT OF ONLINE SALES ON OTHER INDUSTRIES

By-Prof.P.K.Shah

DELL’S ONLINE V/S RETAIL NETWORK

By-Prof.P.K.Shah

Ownership structure of distribution network Adaptable distribution network Internet with the physical network

DISTRIBUTION NETWORK IN PRACTICE

By-Prof.P.K.Shah

1 •Manufacturer

2 •C&F agent or warehouses

3 •Distributors

4 •Wholesalers or Stockist

5 •Retailers

6 •Consumers

DISTRIBUTION NETWORK DESIGN FMCG SECTOR & EXAMPLE-HUL

By-Prof.P.K.Shah

DISTRIBUTION DESIGN –INDIAN AGRICULTURE

By-Prof.P.K.Shah

Mc Donald's Dominos

OVERALL NETWORK DESIGN FAST FOOD INDUSTRY

By-Prof.P.K.Shah