Supply Chain Management Introduction Module 1
- 1. Module 2
- 2. The Role of Distribution in the Supply Chain • Distribution: The steps taken to move and store a product from the supplier stage to the customer stage in a supply chain • Drives profitability by directly affecting supply chain cost and the customer experience • Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness
- 3. Factors Influencing Distribution Network Design • Distribution network performance is evaluated along two dimensions: • Customer needs that are met • Cost of meeting customer needs • Evaluate the impact on customer service and cost for different distribution network options • Profitability of the delivery network is determined by revenue from met customer needs and network costs
- 4. Factors Influencing Distribution Network Design • Elements of customer service influenced by network structure: • Response time • Product variety • Product availability • Customer experience • Order visibility • Returnability
- 5. Factors Influencing Distribution Network Design • Supply chain costs affected by network structure: • Inventories • Transportation • Facilities and handling • Information
- 6. Desired Response Time and Number of Facilities
- 7. Inventory Costs and Number of Facilities Inventory Cost Inbound Transportation Cost Outbound Transportation Cost Material Handling Cost
- 8. Transportation Costs and Number of Facilities Optimum Number of Facilities
- 9. Facility Costs and Number of Facilities
- 10. Logistics Cost, Response Time, & Number of Facilities
- 11. Design Options for a Distribution Network • Distribution network choices from the manufacturer to the end consumer depends on two key decisions: • Will the product be delivered to the customer location or picked up from a prearranged site? • Will the product flow through an intermediary (or intermediate location)?
- 12. • One of six designs may be used: • Manufacturer storage with direct shipping • Manufacturer storage with direct shipping and in- transit merge • Distributor storage with carrier delivery • Distributor storage with last-mile delivery • Manufacturer/distributor storage with customer pickup • Retail storage with customer pickup Design Options for a Distribution Network
- 13. Manufacturer Storage with Direct Shipping M M M M M C C C C C R Manufacturers Retailer Customers
- 14. Manufacturer Storage with Direct Shipping Network Cost Factor Performance Inventory Lower costs because of aggregation. The benefits of aggregation are highest for low-demand, high-value items. Benefits are large if product customization can be postponed at the manufacturer. Transportation Higher transportation costs because of increased distance and disaggregate shipping. Facilities and handling Lower facility costs because of aggregation. Some savings on handling costs if the manufacturer can manage small shipments or ship from production line.
- 15. Manufacturer Storage with Direct Shipping Network Cost Factor Performance Response time Long response time of one to two weeks because of increased distance and two stages for order processing. Response time may vary by product, thus complicating receiving. Product variety Easy to provide a high level of variety. Product availability Easy to provide a high level of product availability because of aggregation at the manufacturer. Customer experience Good in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments. Time to market Fast, with the product available as soon as the first unit is produced. Order visibility More difficult but also more important from a customer service perspective.
- 16. In-Transit Merge Network M M M M M C C C C C R Manufacturers Retailer Customers I-T Car . In-Transit Merge by Carrier
- 17. In-Transit Merge Cost Factor Performance Inventory Similar to drop-shipping (means no stocking up) Transportation Somewhat lower transportation costs than drop- shipping. Facilities and handling Handling costs are higher than drop-shipping at the carrier; receiving costs are lower for the customer. Information Investment is somewhat higher than for drop-
- 18. In-Transit Merge Cost Factor Performance Response time Similar to drop-shipping; may be marginally higher. Product variety Similar to drop-shipping. Product availability Similar to drop-shipping. Customer experience Better than drop-shipping because only a single delivery has to be received. Time to market Similar to drop-shipping. Order visibility Similar to drop-shipping. Returnability Similar to drop-shipping..
- 19. Distributor Storage with Carrier Delivery M M M M M C C C C C R Manufacturers Retailer Customers
- 20. Distributor Storage with Carrier Delivery Cost Factor Performance Inventory Higher than manufacturer storage. The difference is not large for faster-moving items but can be large for very slow-moving items. Transportatio n Lower than manufacturer storage. Reduction is highest for faster-moving items. Facilities and handling Somewhat higher than manufacturer storage. The difference can be large for very slow-moving items. Information Simpler infrastructure compared to manufacturer
- 21. Distributor Storage with Carrier Delivery Cost Factor Performance Response time Faster than manufacturer storage. Product variety Lower than manufacturer storage. Product availability Higher cost to provide the same level of availability as manufacturer storage. Customer experience Better than drop-shipping because only a single delivery has to be received. Time to market Higher than manufacturer storage. Order visibility Easier than manufacturer storage.
- 22. Distributor Storage with Last-Mile Delivery M M M M M C C C C C R Factories Distributor/Retailer Warehouse Customers R
- 23. Distributor Storage with Last-Mile Delivery Cost Factor Performance Inventory Higher than distributor storage with package carrier delivery. Transportatio n Very high cost given minimal scale economies. Higher than any other distribution option. Facilities and handling Facility costs are higher than manufacturer storage or distributor storage with package carrier delivery, but lower than a chain of retail stores. Information Similar to distributor storage with package carrier
- 24. Cost Factor Performance Response time Very quick. Same day to next-day delivery. Product variety Somewhat less than distributor storage with package carrier delivery but larger than retail stores. Product availability More expensive to provide availability than any other option except retail stores. Customer experience Very good, particularly for bulky items. Slightly higher than distributor storage with package carrier delivery. Time to market Less of an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery. Order visibility Easier to implement than other previous options. Returnability Harder and more expensive than a retail network.
- 25. What is Cross Docking? LTL: Less than truckload FTL: Full truckload
- 26. Manufacturer or Distributor Storage with Customer Pickup F F F F F C C C C F C C C C C C C C Cross-Dock DC Retailer Factories Pickup Sites Customers
- 27. Manufacturer or Distributor Storage with Customer Pickup Cost Factor Performance Inventory Can match any other option, depending on the location of inventory. Transportatio n Lower than the use of package carriers, especially if using an existing delivery network. Facilities and handling Facility costs can be high if new facilities have to be built. Costs are lower if existing facilities are used. The increase in handling cost at the pickup site can be significant.
- 28. Cost Factor Performance Response time Similar to package carrier delivery with manufacturer or distributor storage. Same-day delivery is possible for items stored locally at the pickup site. Product variety Similar to other manufacturer or distributor storage options. Product availability Similar to other manufacturer or distributor storage options. Customer experience Lower than other options because of the lack of home delivery. Experience is sensitive to the capability of the pickup location. Time to market Similar to manufacturer storage options. Order visibility Difficult but essential. Manufacturer or Distributor Storage with Customer Pickup
- 29. Retail Storage at Consumer Pickup Sites Cost Factor Performance Inventory Higher than all other options. Transportatio n Lower than all other options. Facilities and handling Higher than other options. The increase in handling cost at the pickup site can be significant for online and phone orders. Information Some investment in infrastructure required for online
- 30. Retail Storage at Consumer Pickup Sites Cost Factor Performance Response time Same-day (immediate) pickup possible for items stored locally at pickup site. Product variety Lower than all other options. Product availability More expensive to provide than all other options. Customer experience Related to whether shopping is viewed as a positive or negative experience by customers. Time to market Highest among distribution options. Order visibility Trivial for in-store orders. Difficult, but essential, for online and phone orders. Returnability Easier than other options because the retail store can
- 31. Network Design in the Supply Chain
- 32. Network Design Decisions • Facility role • What role, what processes? • Facility location • Where should facilities be located? • Capacity allocation • How much capacity is at each facility? • Market and supply allocation • What markets? Which supply sources?
- 33. Factors Influencing Network Design Decisions • Strategic factors • Technological factors • Macroeconomic factors • Tariffs and tax incentives • Exchange-rate and demand risk • Freight and fuel costs • Political
- 34. Factors Influencing Network Design Decisions • Infrastructure factors • Competitive factors • Customer response time and local presence • Logistics and facility costs
- 35. Online Sales And The Distribution Network
- 36. Impact of Online Sales on Customer Service • Response time to customers • Physical products take longer to fulfill than a retail store • No delay for information goods • Product Variety • Easier to offer a larger selection • Product availability • Aggregating inventory and better information on customer preferences improves product availability
- 37. Impact of Online Sales on Customer Service • Customer experience • Improved access, customization, and convenience • Faster time to market • Order visibility • Returnability • Harder with online orders • Proportion of returns likely to be much higher
- 38. Impact of Online Sales on Customer Service • Direct sales to customers • Social networking channels allow firms to directly pitch products and promotion • Flexible pricing, product portfolio, and promotions • Manage revenues from product portfolio more effectively than traditional channels • Promotion information can be conveyed to customers quickly and inexpensively • Efficient funds transfer
- 39. Impact of Online Sales on Customer Service • Inventory • Lower inventory levels if customers will wait • Postpone variety until after the customer order is received • Facilities • Costs related to the number and location of facilities in a network • Costs associated with the operations in these facilities • Transportation • Lower cost of “transporting” information goods in digital form • For non-digital, aggregating inventories increase outbound
- 40. Impact of Online Sales on Customer Service • Information • Share demand, planning, and forecasting information throughout its supply chain • Additional costs to build and maintain the information infrastructure
- 41. DISTRIBUTION NETWORKS IN PRACTICE • The ownership structure of the distribution network can have as big an impact as the type of distribution network. • It is important to have adaptable distribution networks. • Product price, commoditization, and criticality affect the type of distribution system preferred by customers. • Integrate the Internet with the existing physical network
- 42. Designing global supply chain networks • Market Expansion: Globalization has allowed businesses to access a larger customer base and tap into new markets worldwide. • Cost Efficiency: Global supply chains enable companies to source materials and components from different countries, taking advantage of cost efficiencies and specialized expertise. • Increased Competition: Globalization has intensified competition among businesses, requiring them to offer better products, faster delivery, and competitive prices on a global scale.
- 43. Designing global supply chain networks • Complex Supply Chains: Globalization has led to the development of complex supply chain networks involving multiple suppliers, manufacturers, distributors, and retailers across borders. • Technological Integration: Advances in technology and communication have facilitated real-time collaboration, improved visibility, and enhanced decision-making in global supply chains. • Risk Management: Longer supply chains and global operations have made supply chains more susceptible to disruptions, necessitating proactive risk management and contingency planning.
- 44. Designing global supply chain networks • Ethical and Social Responsibility: Globalization has raised expectations for responsible practices in supply chains, including fair labor, environmental sustainability, and responsible sourcing. • Agility and Adaptability: Successful supply chain management in a globalized world requires agility to respond quickly to market changes and adapt to evolving customer preferences. • Outsourcing and Offshoring: Globalization has led to the outsourcing and offshoring of various stages of production, allowing companies to benefit from lower labor and operational costs in different countries.
- 45. Designing global supply chain networks • Increased Interconnectedness: Supply chain networks have become more interconnected globally, with a greater reliance on cross-border transportation, logistics, and trade agreements. • Supply Chain Resilience: Globalization has highlighted the importance of building resilient supply chains that can withstand disruptions by diversifying sourcing locations, implementing redundancy measures, and improving supply chain visibility. • Cultural and Language Considerations: Global supply chains require businesses to navigate cultural differences and language barriers when collaborating with international partners, necessitating effective communication and cross-cultural understanding.
- 46. Designing global supply chain networks • Regulatory Compliance: Globalization has resulted in a complex regulatory landscape, requiring companies to comply with different laws, trade agreements, customs procedures, and quality standards across multiple jurisdictions. • Innovation and Collaboration: Globalization has spurred innovation and collaboration in supply chains, as companies seek to leverage global expertise, technology, and research and development capabilities to stay competitive. • Sustainability and Environmental Impact: Globalization has prompted increased focus on sustainable practices and reducing the environmental footprint of supply chains, including minimizing carbon
- 47. Designing global supply chain networks • Supply Chain Visibility and Traceability: Globalization has necessitated improved visibility and traceability throughout the supply chain to ensure transparency, compliance, and ethical sourcing practices. • Impact on Local Economies: While globalization brings opportunities, it can also impact local economies as industries and jobs shift to countries with lower costs, leading to socioeconomic changes and the need for economic adaptation and retraining.
- 48. Minimizing the impact of Supply chains on nature • Sustainable Sourcing • Energy Efficiency • Waste Reduction and Recycling • Reverse Logistics • Transportation Optimization • Collaboration and Transparency • Environmental Standards and Certifications • Lifecycle Assessment • Stakeholder Engagement • Continuous Improvement