1. Chapter 11 Distribution—Managing Fulfillment Operations
Learning Objectives
After reading this chapter, you should be able to do the following:
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.

2. Learning Objectives (cont.)
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.

3. The Role of Distribution in SCM:
1. Balancing supply and demand. Whether seasonal production must service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday wrapping paper), distribution facilities can stockpile inventory to buffer supply and demand.
2. Protecting against uncertainty. Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes.
3. Allowing quantity purchase discounts. Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can handle the quantities, reducing the purchase cost per unit.
4. Supporting production requirements. If a manufacturing operation can reduce costs via long production runs or if outputs need to age or ripen (e.g., wine, cheese, fruit), the output can be warehoused prior to distribution.
5. Promoting transportation economies. Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping “air” and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements.

4. Distribution Facility Functionality
Four primary functions are:
accumulation
sortation
allocation
assortment

5. 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

11. Capability Requirements
Product characteristics must drive the design of the distribution process such as product value, durability, temperature sensitivity, obsolescence, volume, and other factors
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
Advantages of each
Disadvantages of each

13. Network Design Issues
Inventory positioning focuses on the issue of where inventory is located within the supply chain
single location
Advantages
Disadvantages
hold product in multiple customer-facing positions
Second and third network design issues focus on the number and locations of distribution facilities within the supply chain.

14. 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

16. Facility ownership question
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
Choosing between private and 3PL distribution options requires significant planning and analysis

19. 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

21. Proper product slotting
improve labor productivity and generate other advantages including:
Reduce order-picking labor requirements by locating product in the optimal pick sequence
Reduce replenishment labor requirements by matching product unit loads with the appropriate size storage slot
Reduce response time and improve flow by balancing workload between operators
Increase picking accuracy by separating similar products to avoid proximity picking errors

22. Reduce product damage by organizing heavier product first in the pick path, ahead of crushable product
Increase palletizing productivity by arranging product by case height, allowing the building of tighter pallets for better trailer utilization
Defer capital expansion by maintaining the optimum warehouse layout and cube utilization, reducing the need for building expansion
Increase store-level productivity by organizing product in family groups eliminating or reducing sorting of product for restocking at the store level

24. Support Functions: Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology

26. Distribution Metrics
Distribution KPIs are objective measures of fulfillment performance that are critical to the success of the organization
Important issues:
cost efficiency
inventory accuracy
order fill rates
capacity utilization

27. 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

28. 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

29. 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

30. Distribution Technology
Warehouse Management Systems
Other value-added capabilities:
Labor management
Task interleaving
Systems integration
Activity-based costing/billing
Multifunction distribution

32. Automatic Identification Tools
WMS utilizes Auto-ID data capture technologies:
barcode scanners
mobile computers
wireless local area networks (LAN)
RFID

33. 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: accumulation, sortation, allocation, and 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.
Tradeoffs must be made between space, equipment, and people—the primary resources available to distribution managers.

34. Summary (cont.)
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.
Distribution execution involves five primary processes related to the handling and storage.

35. Summary (cont.)
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.
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.