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This document discusses various distribution strategies including direct shipment, intermediate inventory storage, traditional warehousing, cross-docking, and centralized pooling. Direct shipment involves shipping directly from supplier to customer while avoiding warehouses. Intermediate storage uses warehouses and distribution centers to store inventory. Traditional warehousing holds stock inventory at warehouses to supply customers as needed. Cross-docking uses warehouses as transfer points with little inventory held. Centralized pooling stores inventory at centralized regional warehouses to improve customer service and sales. The optimal strategy depends on factors like demand, costs, and service level requirements.

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jessica0101
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105 views

ch07 Final New PDF

This document discusses various distribution strategies including direct shipment, intermediate inventory storage, traditional warehousing, cross-docking, and centralized pooling. Direct shipment involves shipping directly from supplier to customer while avoiding warehouses. Intermediate storage uses warehouses and distribution centers to store inventory. Traditional warehousing holds stock inventory at warehouses to supply customers as needed. Cross-docking uses warehouses as transfer points with little inventory held. Centralized pooling stores inventory at centralized regional warehouses to improve customer service and sales. The optimal strategy depends on factors like demand, costs, and service level requirements.

Uploaded by

jessica0101
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 7_new

Distribution Strategies

7.1 Introduction
Focus on the distribution function.
Various possible distribution strategies, and the
opportunities and challenges associated with these
strategies.
Two fundamental distribution strategies:
Items can be directly shipped from the supplier or
manufacturer to the retail stores or end customer
Use intermediate inventory storage points (typically
warehouses and/or distribution centers).

Issues with warehouses

Manufacturing strategy (make-to-stock vs. make-to-order)


Number of warehouses
Inventory policy
Inventory turn over ratio
Internal warehouses vs. outside distributor
Owned by a single firm or by a variety of firms

7.2 Direct Shipment Distribution


Strategies
Advantages:
The retailer avoids the expenses of operating a distribution
center
Lead times are reduced.

Disadvantages:
Risk-pooling effects are negated
Manufacturer and distributor transportation costs increase

Commonly used scenarios:

Retail store requires fully loaded trucks


Often mandated by powerful retailers
Lead time is critical.
Manufacturer may be reluctant but may have no choice
Prevalent in the grocery industry
lead times are critical because of perishable goods.

7.3. Intermediate Inventory Storage


Point Strategies
Variety of characteristics distinguish different
strategies.

Length of time inventory is stored at warehouses


and distribution centers.

Strategies:

Traditional warehousing strategy

distribution centers and warehouses hold stock inventory


provide their downstream customers with inventory as
needed.

Cross-docking strategy

warehouses and distribution centers serve as transfer


points for inventory
no inventory is held at these transfer points.

Centralized pooling and transshipment strategies


may be useful when there is a large variety of different
products

Traditional Warehousing
Inventory management and risk pooling
key factors
Other factors also play a significant role
Centralized vs Decentralized Management
Central vs Local Facilities

Centralized vs Decentralized
Management
Decentralized system

Each facility identifies its most effective strategy


without considering the impact on the other facilities
in the supply chain.
Leads to local optimization.

Centralized system

decisions are made at a central location for the entire


supply network.
Typical objective: minimize the total cost of the system
subject to satisfying some service-level requirements.
Centralized control leads to global optimization.
At least as effective as the decentralized system.
Allow use of coordinated strategies

If system cannot be centralized

often helpful to form partnerships to approach the


advantages of a centralized system.

Central vs. Local Facilities

Centralized facilities

Employ both fewer warehouses and distribution centers


Facilities are located further from customers.

Other factors:

Safety stock. Lower safety stock levels with centralized


facilities
Overhead. Lower total overhead cost with centralized
facilities
Economies of scale. Greater economies of scale with
centralized facilities
Lead time. Lead time to market reduced with local facilities
Service.
Utilization of risk pooling better with centralized
Shipping times better with local

Transportation costs.

Costs between production facilities and warehouses higher


with local
Costs from warehouses to retailers lesser with local

A Hybrid Decision
Some products use centralized strategy
while others use local strategy
Not an either or decision
Varying degrees of centralization and
localization due to the varying levels of
advantages and disadvantages

Cross-Docking
Popularized by Wal-Mart
Warehouses function as inventory coordination
points rather than as inventory storage points.
Goods arriving at warehouses from the
manufacturer:
are transferred to vehicles serving the retailers
are delivered to the retailers as rapidly as possible.

Goods spend very little time in storage at the


warehouse
Often less than 12 hours
Limits inventory costs and decreases lead times

Issues with Cross-Docking


Require a significant start-up investment and
are very difficult to manage
Supply chain partners must be linked with
advanced information systems for coordination
A fast and responsive transportation system is
necessary
Forecasts are critical, necessitating the sharing
of information.
Effective only for large distribution systems
Sufficient volume every day to allow shipments of
fully loaded trucks from the suppliers to the
warehouses.
Sufficient demand at retail outlets to receive full
truckload quantities

Inventory Pooling GM Example


1,500 Cadillacs parked at a regional
distribution center in Orlando
Await delivery to dealers statewide within 24
hours
10% to 11% sales loss because a car is not
available
Test program expected to:
improve customer service
boost sales of Cadillacs by 10%

Centralized Pooled Systems Perform


Better
For the same inventory level, a centralized system
provides:
higher service level
higher sales

Push-pull supply chain


Moving from a push supply chain
Dealers have to order before demand is realized

To a push-pull supply chain


Dealers pull from regional distribution centers.

Implications:
End consumers will see better customer service
More cars are available to them.

Other Factors
Will GM sell more cars to GM dealers?
Total number of cars ordered by dealers will not
necessarily increase, even as customer service
increases.

What about the dealers?


Dealers have access to more inventory
Potentially can sell more.

Levels out the playing field between dealers.


Small dealers would favor such a system Competitive
advantage of large dealers wiped out

Which Strategy to Adopt?


Different approaches for different
products
Factors:
Customer demand and location
Service level
Costs => transportation & inventory costs
Demand Variability

Summary of the Distribution


Strategies
Strategy
Attribute

Direct
shipment

Cross-docking

Risk pooling

Take advantage

Transportation
costs
Holding costs
Allocation

Inventory at
warehouses

Reduced inbound
costs
No warehouse
cost

Reduced inbound
costs

No holding costs
Delayed

Delayed

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