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DESIGNING DISTRIBUTION NETWORK

By-Prof.P.K.Shah

Chapter-4

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

By-Prof.P.K.Shah

THE ROLE OF DISTRIBUTION IN THE


SUPPLY CHAIN
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

By-Prof.P.K.Shah

FACTORS INFLUENCING DISTRIBUTION


NETWORK DESIGN

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

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-By-Prof.P.K.Shah


Increase in inventory cost

RELATIONSHIP BETWEEN NUMBER OF


FACILITIES AND TRANSPORTATION COSTS

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

RELATIONSHIP BETWEEN NUMBER OF


FACILITIES AND FACILIT Y 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 NET WORK


1. MANUFACTURER STORAGE WITH DIRECT SHIPPING

Online business: E-bag, Nordstrom


for slow moving items
By-Prof.P.K.Shah

DROP SHIPPING- PROS & CONS


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


By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NET WORK


2. MANUFACTURER STORAGE WITH DIRECT SHIPPING
AND IN-TRANSIT MERGE

By-Prof.P.K.Shah

MANUFACTURER STORAGE WITH DIRECT


SHIPPING AND IN-TRANSIT MERGE
PROS & CONS
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
By-Prof.P.K.Shah

DESIGN OPTIONS FOR A DISTRIBUTION NET WORK


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 NET WORK


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 NET WORK


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

ONLINE SALES AND THE DISTRIBUTION NET WORK


IMPACT OF ONLINE SALES ON CUSTOMER SERVICE
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

By-Prof.P.K.Shah

ONLINE SALES AND THE DISTRIBUTION NET WORK


IMPACT OF ONLINE SALES ON COST

Inventor y
Facilities
Transportation
Information

By-Prof.P.K.Shah

IMPACT OF ONLINE SALES ON OTHER


INDUSTRIES
Impact of online sales on performance of Dell & PC industry Cost
Impact of online sales on book industry -customer service

By-Prof.P.K.Shah

DELLS ONLINE V/S RETAIL NETWORK

By-Prof.P.K.Shah

DISTRIBUTION NETWORK IN PRACTICE


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

By-Prof.P.K.Shah

DISTRIBUTION NETWORK DESIGN


FMCG SECTOR & EXAMPLE-HUL
1

Manufacturer

C&F agent or warehouses

Distributors

Wholesalers or Stockist

Retailers

Consumers
By-Prof.P.K.Shah

DISTRIBUTION DESIGN INDIAN AGRICULTURE

By-Prof.P.K.Shah

OVERALL NETWORK DESIGN


FAST FOOD INDUSTRY
Mc Donald's
Dominos

By-Prof.P.K.Shah

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