UNIT 2

DESIGN OF SUPPLY
CHAIN NETWORKS
Role of Distribution in Supply
Chain
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 is a key driver of the
overall profitability of a firm because it affects both the supply
chain cost and the customer experience directly.
The appropriate distribution network can be used to
achieve a variety of supply chain objectives ranging from low
cost to high responsiveness. As a result, companies in the
same industry often select very different distribution networks.
Steps to design a supply chain
network
Clearly define your Objectives

Gathering supporting data

Model your supply chain network

Analyze your supply chain network

Implement and Refine

 Factors to be Influencing to design
a supply chain
The 2 Dimensions

Customer needs
are met

Cost of meeting
customer
needs
7 Solid Factors in designing a Supply chain
Network
❑ Location & Distance ❑ Warehousing Costs
❑ Current and Future Demand ❑ Trucking Cost
❑ Service Requirements ❑ Mode of Transportation
❑ Size and frequency of
Customer Service Components
❑ Response Time ❑ Time To Market
❑ Product Variety ❑ Order Visibility
❑ Product Availability ❑ Return ability
❑ Customer Experience
Designing Options

Manufacturer
storage with
direct
shipping
In Detail
Manufacturer Storage with
Manufacturer storage with
direct shipping & In transit
direct shipping Merge

Eg: Ebags, Nordstrom Eg: Dell Door Drop

 Manufacturer storage with direct shipping
product is shipped directly from the manufacturer to the end
customer, bypassing the retailer (who takes the order and initiates
the delivery request). This option is also referred to as drop shipping.
All inventories are stored at the manufacturer.
Manufacturer Storage with direct shipping & In transit Merge

Unlike pure drop shipping where each product in the order is sent
directly from each manufacturer to the end customer, in-transit
merge combines pieces of the order coming from different locations so
that the customer gets a single delivery.
 Performance Characteristics of
Manufacturer Storage with Direct Shipping
Network
Service Performance
Cost Factor Performance Factor
Response Long response time of one to two
Inventory Lower costs because of aggregation. Time weeks because of increased distance
Benefits of aggregation are highest for
low demand, high value items. and two stages for order processing.
Benefits are very large if product Response time may vary by product,
customization can be postponed ate thus complicating receiving.
manufacturer. Product Easy to provide a very high level of
Variety variety.
Transportati Higher transportation costs because
on of increased distance and Product Easy to provide a high level of product
Availability availability because of aggregation at
disaggregate shipping.
manufacturer.
Facilities Lower facility costs because of Customer Good in terms of home delivery but can
and handling aggregation. Some saving on handling Experience suffer if order from several
costs if manufacturer can manage manufacturers is sent as partial
small shipments or ship from shipments.
production line.
Time to Fast, with the product available as soon
market as the first unit is produced.
Information Significant investment in information Order visibility More difficult but also more important
infrastructure to integrate
from a customer service perspective.
manufacturer and retailer.
Return ability Expensive and difficult to implement.
 Performance Characteristics of
In-Transit Merge Lala Rukh
2021-06-07 13:49:25
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Dropshipping is a retail fulfillment method where a
store doesn’t keep the products it sells in stock.
Instead, when a store sells a product using the
Service dropshipping model, it purchases the item from a
Cost Factor Performance Factor third partyPerformance
and has it shipped directly to the
customer. As a result, the seller doesn’t have to
handle the product directly.
Response Similar to drop-shipping; may be
Inventory Similar to drop shipping.
Time marginally higher.

Product Similar to drop shipping.

Transportation Somewhat lower transportation variety
costs than drop shipping.
Product Similar to drop-shipping.
Availability

Facilities and Handling costs higher than drop

Customer Better than drop-shipping becausea
handling shipping at carrier; receiving
experience single order has to be received.
costs lower at customer.
Time to Similar to drop-shipping.
market
Information Investment is somewhat higher
than for drop shipping. Order Similar to drop-shipping.
visibility

Return ability Similar to drop-shipping.

continued
Distributor storage with Distributor storage with last
package carrier delivery mile delivery

Eg: Amazon Eg: BigBasket

 Distributor storage with package carrier delivery
inventory is not held by manufacturers at the factories but is held
by distributors/retailers in intermediate warehouses and package
carriers are used to trans- port products from the intermediate location
to the final customer.
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 pack- age carrier.
Webvan, Peapod, and Alberston's have used last mile delivery in the
grocery industry.
 Performance Characteristics of
Distributor storage with Carrier
Delivery
Service
Performance
Cost Factor Performance Factor
Response Faster than manufacturer storage.
Inventory Higher than manufacturer Time
storage. Difference is not large for
faster-moving items. Product Lower than manufacturer storage.
variety

Transportati Lower than manufacturer storage. Product Higher cost to provide the same level of
on Reduction is highest for faster- availability availability as manufacturer storage.
moving items.
Customer Better than manufacturer storage with
Facilities Somewhat higher than experience drop-shipping.
and handling manufacturer storage. The
difference can be large for very
Time to Higher than manufacturer storage.
slow-moving items.
market

Order Easier than manufacturer storage.

visibility
Information Simpler infrastructure compared
to manufacturer storage. Return ability Easier than manufacturer storage
 Performance Characteristics of
Distributor Storage with Last-Mile
Delivery
Service factor Performance
Cost Factor Performance

Inventory Higher than distributor Response time Very quick. Same day to next-day
storage with package carrier delivery.
delivery.
Product variety Somewhat less than distributor
storage with package carrier
Transportation Very high cost given minimal delivery but larger than retail stores.
scale economies. Higher
than any other distribution Product availability More expensive to provide
option. availability than any other option
except retail stores.
Facilities and Facility costs higher than Customer Very good, particularly for bulky
handling manufacturer storage or experience items.
distributor storage with
package carrier delivery, but Time to market Slightly higher than distributor
lower than a chain of retail storage with package carrier
stores. delivery.
Order traceability Less of an issue and easier to
Information Similar to distributor storage implement than manufacturer
with package carrier delivery. storage or distributor storage with
package carrier delivery.
Return ability Easier to implement than other
Continued
Manufacturer/distributor Retail storage with customer
storage with customer pick-up pick-up

Eg:7Dream.com Eg: Super Markets

Manufacturer/distributor storage with customer pick-up

In this approach, inventory is stored at the manufacturer or

distributor warehouse but customers place their orders online or on the phone
and then come to designate pickup points to collect their orders.

Retail storage with customer pick-up

inventory is stored locally at retail stores. Customers either walk into
the retail store or place an order online or on the phone, and pick it up at
the retail store. Examples of companies that offer multiple options of order
placement include Albertsons.com.
 Performance Characteristics of
Network with Consumer Pickup
sites Service Factor Performance
Cost Factor Performance
Response time Similar to package carrier delivery
Inventory Can match any other option, with manufacturer or distributor
depending on the location of storage. Same day delivery possible
inventory. for items stored locally at pick-up
sites.
Transportation Lower than the use of package Product variety Similar to other manufacturer or
carriers, especially if using an distributor storage options.
existing delivery network.
Product Similar to other manufacturer or
availability distributor storage options.
Facilities and Facility costs can be very high
handling if new facilities have to be built. Customer Lower than other options because of
Costs are lower if existing experience the lack of home delivery. In areas
facilities are used. The with high density of population, loss
increase in handling cost at the of convenience may be small.
pickup site can be significant. Time to market Similar to manufacturer storage
options.
Information Significant investment in Order visibility Difficult but essential.
infrastructure required.
Return ability Somewhat easier given that pickup
location can handle returns.
 Performance Characteristics of
Local storage at Consumer Pickup
sites
Service
Cost Factor Performance Performance
Factor

Response Same-day pickup possible for items stored

Inventory Higher than all other options. time locally at pickup site.

Product Lower than all other options.

Transportati Lower than all other options. variety
on
Product More expensive to provide than all other
availability options.

Facilities Higher than other options. The Customer Related to whether shopping is viewed as
and handling increase in handling cost at experience a positive or negative experience by
pickup site can be significant for customer.
online and phone orders.
Time to Highest among distribution options.
market

Information Some investment in Order Trivial for in-store orders. Difficult, but
infrastructure required for online visibility essential, for online & phone orders.
and phone orders.
Return Easier than other options given that pickup
ability location can handle returns.