GEOP 4355 Distribution Networks Outline What is distribution? Why is distribution important? Distribution channels/networks Relationship between metrics Facilities, locations and response time Operational issues in distribution Sources/references used in the preparation of this presentation are listed in the Introduction presentation

What is distribution? Distribution: the process of moving a product from its a source to its customers. Sources include for example manufacturing plants and “central warehouses”. A distribution channel is the network of individuals and organizations involved in the process of moving a product or service from the producer to the end user. Element of the marketing mix, the four P’s of price,  product, promotion, and place

What is distribution? Includes these processes/decisions Channel selection (retail, wholesale, brick and mortar, e-retail) Order processing and filling Customer service Inventory locations and target levels Packaging Transportation Reverse logistic systems Its tightly linked with Demand Management/ Sales / Forecast

Why is distribution important? Distribution processes are in direct contact with the end customer Distribution is expensive as economies of scale are lost the closer we move to the customer Distribution directly affects cost and the customer experience and therefore drives profitability Choice of distribution network can achieve supply chain objectives (corporate strategy) from low cost to high responsiveness

Distribution channels/networks D. Channel: the system (network) that delivers finished product(s) to the customer (s). Components: IT, storage, transportation Specific to one product type or a customer type Factory to retail stores or Factory direct to customer are examples. D. Network: same concept as a distribution channel, but a network is the combination of many channels (a network of many networks)

Distribution channels/networks Some of the elements in distribution network (channels) Where is inventory (of FG) located? Where to locate issues include labor skills, availability and costs, tariffs and tax incentives, logistic infrastructure, connectivity to other players. Will there be DC’s or ship direct to customers? Consolidated shipping or individual shipping? Are there retail stores? Customer pickup?

Distribution channels/networks Cross-docking operations Materials received may be “broken” into smaller shipments and sent immediately to other points in the internal network (no storage at first entry point) Customers = (the firm’s other plants, warehouses)

Distribution channels/networks Trends in distribution networks Increase of web-based, direct to customer distribution Continued focus on exporting and international markets Multiple distribution networks to deal with the multiple regions of the world Outsourcing is common in many components of the distribution network Transportation Warehousing and order processing tasks

Distribution channels/networks Direct to Customers The organization ships to customers from their production facilities No intermediary storage/warehouse (factory could have inventory of FGs) Applies to Make to Order systems. Customers could be people, retail stores, the DCs of retail chains…

Distribution channels/networks Distribution Storage with Last Mile The organization ships to customers from their DCs Customers could be people, retail stores, the DCs of retail chains.

Distribution Storage with Retailers Distribution channels/networks Distribution Storage with Retailers The organization has its own retail shops Examples: Nike, Apple, Paint companies, Sony The Last Mile

Distribution channels/networks Their performance is evaluated along two dimensions: Customer service (speed of delivery, variety of products available) Cost (inventory, transportation, facilities) Distribution channel/network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service.

Relationships between metrics Response Time slow few Number of facilities

Relationships between metrics Inventory Costs low few Number of facilities

Relationships between metrics Lost economies of scale and lower utilizations Transportation Costs low few Number of facilities

Relationships between metrics lower utilizations Facility Costs low few Number of facilities

Relationships between metrics Total costs facilities Total Costs inventory transportation low few Number of facilities

Relationships between metrics Response time Total costs slow low few Number of facilities

Relationships between metrics Response time Total costs slow low few Number of facilities

Facilities, locations, response time 7 day response

Facilities, locations, response time 5 day response

Facilities, locations, response time 3 day response

Facilities, locations, response time next day response

Operational decisions in distribution Omni-channel logistic issues how/where to take orders: web, phone, store,… where to process each order: from which DC, or from which store. how to “deliver” the order to the customer: pick up at the store, delivery. how and where to take back returns: at the store, by mail. Complexity is in the mixing of channels…

Operational decisions in distribution Inventory levels (including SS) per SKU at each inventontory point (DC, retail store) Should each SKU be available at each DC or store? Tradeoff of inventory costs versus transportation costs: pooling effect Transportation modes/ quantities per flow.