Professional Documents
Culture Documents
Network Design
Objective
Number of
Facilities
Response
Time
Where inventory needs to be for a one week
order response time - typical results --> 1 DC
Customer
DC
3 day order response time - typical results --
> 5 DCs
Customer
DC
Same day / next day order response time -
typical results --> 26 DCs
Customer
DC
Inventory Costs and Number of Facilities
Inventory
Costs
Number of facilities
Inbound and outbound shipping with more facilities
Transportation
Costs
Transportation
Number of facilities
Less outbound shipping with more facilities.
Less shipping costs with more facilities, if economies of scale in
transportation.
Facility Costs and Number of Facilities
Facility
Costs
Number of facilities
Variation in Logistics Costs and Response Time
with Number of Facilities
Response Time
Number of Facilities
Factors influencing Distribution Network Design
Inventory
Transportation
Facility & handling
Information
Factors Influencing Distribution Network Design
Response time
Product variety
Product availability
Customer experience
Order visibility
Returnability
Cross-Docking
1. Manufacturer Storage with Direct Shipping
Manufacturer
Retailer
Customers
Product Flow
Information
Flow
2. In-Transit Merge Network
Factories
Customers
Product Flow
Information
Flow
How to reduce shipment costs for moderate
demand?: In-Transit Merge
No economies of scale in transportation costs can be achieved
with direct shipping.
Consider merging shipments at Mergers. Shipments to Mergers
are larger so economies of scale is achieved.
Mergers increase facility costs.
Mergers can be done within trucks: Cross-docking becomes
useful.
Response time may go up.
More coordination required
Low to medium demand
Example:
Dell merges a Dell PC with a Sony flat screen
3. Distributor Storage with Carrier Delivery
Factories
Warehouse Storage by
Distributor/Retailer
Customers
Product Flow
Information Flow
How to reduce transportation costs/response times?:
Distributor Storage with Carrier Delivery
Keep finished goods inventory at a warehouse which ships to
consumers using carriers.
Amazon vs. D&R
Factories
Distributor/Retailer
Warehouse
Customers
Product Flow
Information Flow
How to provide more delivery service?:
Distributor Storage with Last Mile Delivery
Similar to Distributor Storage with Carrier Delivery except that the
warehouse delivers to the consumers using Milk Runs.
Transportation costs go up because warehouses are not as effective as
package carriers
Warehouse may need to own a trucking fleet
Response times are shorter
Warehouses are located closer to consumers
A private fleet can deliver faster
Less aggregation, higher inv cost
Home delivery is high customer service; appreciated by the customers for
bulky products, e.g. a washer
Consumer must pay for delivery costs.
Grocery delivery, milk delivery, auto spare parts
5. Manufacturer or Distributor Storage with
Customer Pickup
Factories
Pickup
Sites
Customers
Customer Flow
Product Flow
Information Flow
How to reduce/eliminate consumer’s delivery cost?:
Manufacturer or Distributor Storage with Consumer Pickup
If consumers are willing to pick up the products easily, let them do so.
Otherwise, they would be charged for the delivery costs.
Similar to Last Mile Delivery except that the consumers come to pick
up
Order tracking is crucial. Consumers must be alerted when their order
is ready for pick up.
Significant information infrastructure is required.
Low inventory costs
High facility costs
Order visibility required
How to push products closer to consumers?: Retail
Storage with Consumer Pickup
Manufacturers
Consumers
How to push products closer to consumers?: Retail
Storage with Consumer Pickup
1 = strongest performance
6 = weakest performance
Comparing Distribution Networks
Inventory
Facilities
Transportation
Information
Discussion Questions