Managing Fulfillment Operations DISTRIBUTION: Managing Fulfillment Operations

Learning Objectives Discuss the strategic value-adding role distribution plays in the supply chain. Recognize the tradeoffs between distribution and other supply chain functions. Understand the analytical framework for distribution planning decisions. Evaluate fulfillment strategies and distribution methods.

Describe how information technology supports distribution operations. Learning Objectives, continued Describe the primary fulfillment processes and support functions in distribution center (DC) operations. Use productivity and quality metrics to analyze fulfillment performance. Describe how information technology supports distribution operations. Discuss materials-handling objectives, principles, and equipment uses.

The Role of Distribution Operations in SCM Balancing supply and demand. Protecting against uncertainty. Allowing quantity purchase discounts. Supporting production requirements. Promoting transportation economies.

Distribution Facility Functionality The Role of Distribution Operations in SCM, continued Distribution Facility Functionality Accumulation Sortation Allocation Assortment Distribution Tradeoffs Cost of distribution centers and inventory vs. cost of transportation Cost of additional facilities vs. level of customer service Space vs. equipment Equipment vs. people People vs. space

Figure 11.1 The DC’s Accumulation Role Source: Brian J. Gibson, Ph.D.

Figure 11.2 The DC’s Mixing Capability Source: Brian J. Gibson, Ph.D.

Table 11.1 Value Adding Role of Distribution Operations Source: Brian J. Gibson, Ph.D.

Figure 11.3 Functional Tradeoffs Source: Brian J. Gibson, Ph.D.

Figure 11.4 Strategic Distribution Decisions Source: Brian J. Gibson, Ph.D.

Distribution Challenges The Role of Distribution Operations in SCM, continued Distribution Challenges Labor availability Demand variation Increasing customer requirements

Distribution Planning and Strategy Capability requirements Product characteristics e.g., product value, durability, temperature sensitivity, obsolescence, and volume must drive the design of the distribution process. Two options for product flow: Direct shipment of goods from the manufacturer to retailer from the retailer to consumer Movement of goods through distribution facilities to customers Must analyze the inventory, transportation, and service trade offs before choosing between direct shipping and the use of distribution facilities.

Distribution Challenges Distribution Planning and Strategy, continued Distribution Challenges Labor availability Demand variation Increasing customer requirements Network Design Issues Inventory positioning focuses on the issue of where inventory is located within the supply chain Single location Multiple customer-facing positions Second and third network design issues focus on the number and locations of distribution facilities within the supply chain.

Network Design Issues, continued Distribution Planning and Strategy, continued Network Design Issues, continued Number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas: Transportation costs Cost of lost sales Warehousing costs Inventory costs Own or contract? Private DCs are internal facilities owned by the organization Public warehousing is the traditional external distribution option Contract warehousing is a customized version of public warehousing in which an external company provides a combination of distribution

Facility Considerations Distribution Planning and Strategy, continued Facility Considerations First facility consideration is to determine the size of each operation within the network. An area may be needed for processing rework and returns Office space is needed for administrative and clerical activities Space must be planned for miscellaneous requirements

Figure 11.6 Distribution Cost Tradeoffs Source: Edward J. Bardi, Ph.D.

Figure 11.7 Distribution Cost Comparison Source: Edward J. Bardi, Ph.D.

Table 11.2 Factors Affecting Distribution Facility Ownership Source: Brian J. Gibson, Ph.D.

Table 11.3 Facility Layout Principles Source: Brian J. Gibson, Ph.D.

Distribution Execution Product-Handling Functions Receiving – transferring goods into facility Put away – moving goods into storage locations Order picking – selecting goods for customers Replenishment – moving product from storage locations to picking slots Shipping – loading goods for delivery Support Functions Inventory control Safety, maintenance, and sanitation

Support Functions, continued Distribution Execution, continued Support Functions, continued Security Performance analysis Information technology

Figure 11.8 Primary Distribution Center Processes Source: Brian J. Gibson, Ph.D.

Table 11.4 Best Practices in Order Picking Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2

Distribution Metrics Customer Facing Measures Order accuracy and order completeness Customers want to receive the exact products and quantities that they ordered, not substitute items, incorrectly shipped items, or wrong quantities Timeliness is a critical component of customer service Perfect order index (POI) Delivered to the right place at the right time in defect-free condition with the correct documentation, pricing, and invoicing

Internal Measures Distribution cost efficiency Distribution Metrics, continued Internal Measures Distribution cost efficiency Aggregate cost efficiency Total distribution spending versus goal or budget Asset utilization Resource productivity Distribution costs averaging nearly 10 percent of a sales dollar Resource efficiency

Table 11.5 DC Metrics and Benchmarks Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44

Distribution Technology Warehouse Management Systems Software control system that improves product movement and storage operations Value-added capabilities Generate performance reports Support paperless processes Enable integration of materials handling equipment Picking systems Sorting systems Leverage wireless communication

Automatic Identification Tools Distribution Technology, continued Automatic Identification Tools Technologies helping machines identify objects. Barcode scanners Mobile computers Wireless local area networks (LAN) RFID

Summary Distribution operations perform inventory handling, storage, and processing activities to create time and place utility for the supply chain. A variety of supply chain challenges—balancing supply and demand, protecting against uncertainty, and promoting transportation economies, among others—can be addressed by distribution facilities. Four primary functions are carried out by traditional distribution facilities: (1) accumulation, (2) sortation, (3) allocation, and (4) assortment. Distribution operations are taking on value-adding roles—assembly, kitting, product postponement, sequencing, etc.—to complement their basic functionality and to support evolving supply chain needs.

Summary, continued Tradeoffs must be made between space, equipment, and people—the primary resources available to distribution managers. It is critical to match distribution processes to the items being handled to protect product integrity, promote customer service and satisfaction, and provide greater control of the inventory. Distribution network design issues involve centralization/decentralization of inventory, the number and location of facilities, and facility ownership. Effective facility planning—operational size, layout, and product placement—positively impacts labor productivity and response time.

Summary, continued Distribution execution involves five primary processes related to the handling and storage of product: (1) receiving, (2) put-away, (3) order picking, (4) replenishment, and (5) shipping. Fulfillment support functions provide coordination between key processes and across the supply chain, protect the organization’s inventory investment, and improve working conditions within the facility. Distribution KPIs address asset utilization, labor productivity, and cost efficiency of the operation, as well as customer service quality issues and the ultimate goal of perfect order fulfillment.

Summary, continued Warehouse management systems software solutions improve product movement and storage operations through efficient management of information and completion of distribution tasks. Barcodes and RFID are the automatic identification tools of choice in distribution to help track, locate, and move product quickly—with near-perfect accuracy rates to their consumers.