Lecture 8: Designing the Supply Ω Lecture 8: Designing the Supply INSE 6300/4- -UU UU INSE 6300/4 Chain Network Chain Network Quality Assurance In Supply Chain Management Ω Performance, Supply Chain Quality Assurance � � Quality Attributes, Engineering System and Metrics Quality Assurance in Supply Chain Information E-technology Designing the Management (INSE 6300/4-UU) Supply Chain Inventory Managing Technology in (E-business, Supply Chain Coordination Management Uncertainty a Supply Chain …) Network Winter 2011 � � Ω Ω Key Quality Issues Overview Key Quality Issues Overview Network Inventory Distribution � Factors Influencing Distribution Network Planning Control Strategies Design Supply Chain Information Decision- Technology Quality Issues Support Sys � Design Options for a Distribution Network Integration Outsourcing Product & Partnering Strategies Design � � Printed with FinePrint - purchase at www.fineprint.com
The Supply Chain Network The Supply Chain Network The Role of Distribution The Role of Distribution Ω Ω in the Supply Chain 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 � Distribution directly affects cost and therefore drives profitability � Choice of distribution network can achieve supply chain objectives from low cost to high responsiveness � Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger � � Factors Influencing Factors Influencing Factors Influencing Factors Influencing Ω Ω Distribution Network Design Distribution Network Design Distribution Network Design Distribution Network Design � Elements of customer service influenced by network structure: � Distribution network performance evaluated � Response time along two dimensions at the highest level: � Product variety � Customer needs that are met � Product availability � Order visibility � Cost of meeting customer needs � Returnability � Distribution network design options must � Supply chain costs affected by network structure: therefore be compared according to their � Inventories � Transportation impact on customer service and the cost to � Facilities and handling provide this level of service � Information � � Printed with FinePrint - purchase at www.fineprint.com
Relationship between Number of Relationship between Number of Relationship between Inventory Costs Relationship between Inventory Costs ٠٠Facilities and Response Time and Number of Facilities Facilities and Response Time and Number of Facilities Number of Inventory Facilities Costs Response Time Number of Facilities � �� Facility Costs Relationship between Facility Costs Relationship between Transportation Relationship between Transportation Relationship between ٠٠Costs and Number of Facilities and Number of Facilities Costs and Number of Facilities and Number of Facilities Facility Transportation Costs Costs Number of Facilities Number of Facilities �� �� Printed with FinePrint - purchase at www.fineprint.com
Relationship between Total Logistics Relationship between Total Logistics Costs, Response Time and Number of Costs, Response Time and Number of ٠٠Overview Overview facilities facilities Response Time � � Factors Influencing Distribution Total Logistics Costs Network Design � Design Options for a Distribution Network Number of Facilities �� �� 1. Manufacturer Storage with 1. Manufacturer Storage with Classification of Distribution Classification of Distribution ٠٠Direct Shipping (drop- -shipping) shipping) Direct Shipping (drop Networks Networks 1. Manufacturer Storage with Direct Shipping Manufacturer 2. Manufacturer Storage with Direct Shipping and In-Transit Merge Retailer 3. Distributor Storage with Carrier Delivery 4. Distributor Storage with Last Mile Delivery Customers 5. Manufacturer or Distributor Storage with Consumer Pickup Product Flow 6. Retail Storage with Consumer Pickup Information Flow �� �� Printed with FinePrint - purchase at www.fineprint.com
1. Manufacturer Storage with 1. Manufacturer Storage with 1. Manufacturer Storage with 1. Manufacturer Storage with ٠٠Direct Shipping (drop- -shipping) shipping) Direct Shipping (drop- -shipping) shipping) Direct Shipping (drop Direct Shipping (drop � The manufacturer can allocate at least a � Product is shipped directly from the manufacturer to the end user portion of the available inventory across � The retailer takes the order and initiates the delivery retailers on an as-needed basis request (information flow) � Postponement-based drop-shipping allows � The retailer does not hold the inventory, which is the inventory to be low centralized at the manufacturer � Dell strategy: build-to-order � The supply chain can provide a high level of product � Used for high-value, low and unpredictable availability with lower levels of inventories demand items �� �� 1. Manufacturer Storage with Direct 1. Manufacturer Storage with Direct 1. Manufacturer Storage with 1. Manufacturer Storage with ٠٠Shipping (drop- -shipping) shipping) Shipping (drop Direct Shipping (drop- -shipping) shipping) Direct Shipping (drop � Inventory costs are low (thanks to aggregation) � Transportation costs are high: � The outbound distance to the customer is large � Package carriers have high shipping costs compared to truckloads � Lower facility costs thanks to aggregation � Response time is long: order transmission + shipping distances � The handling of returns is expensive: each order may involve shipment from different manufacturers � Significant investment in information infrastructure �� �� Printed with FinePrint - purchase at www.fineprint.com
2. In- -Transit Merge Network Transit Merge Network 2. In 2. In- 2. In -Transit Merge Network Transit Merge Network ٠٠Factories � Combining pieces of the order coming from different locations: � The customer gets a single delivery: Dell strategy In-Transit Merge by Retailer � Transportation costs are lower than with drop- Carrier shipping � A coordination between manufacturers is needed � Suitable for high value items with low to Customers medium demand � Can be used when the number of Product Flow manufacturers is limited Information Flow �� �� 3. Distributor Storage with Carrier 3. Distributor Storage with Carrier 2. In- 2. In -Transit Merge Network Transit Merge Network ٠٠Delivery Delivery Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow �� �� Printed with FinePrint - purchase at www.fineprint.com
3. Distributor Storage with Carrier 3. Distributor Storage with Carrier 3. Distributor Storage with Carrier 3. Distributor Storage with Carrier Ω Ω Delivery Delivery Delivery Delivery � Transportation costs are lower compared to � Inventory is not held by manufacturers but by manufacturer storage: distributors/retailers � Warehouses are closer to the customer � Package carriers are used to transport products from the and p ackage carriers are used distributor/retailer to the customer � Facility costs are higher � Can be combined with drop-shipping: Amazon strategy � Response time is better because warehouses � High level of inventory because of demand uncertainty are closer to customers � Suitable for medium to fast moving products with high demand � Returnability is easier �� �� 3. Distributor Storage with Carrier 4. Distributor Storage with Last 3. Distributor Storage with Carrier 4. Distributor Storage with Last Ω Ω Delivery Mile Delivery Delivery Mile Delivery Factories Distributor/Retailer Warehouse Customer’s home Product Flow Information Flow �� �� Printed with FinePrint - purchase at www.fineprint.com
4. Distributor Storage with Last 4. Distributor Storage with Last 4. Distributor Storage with Last 4. Distributor Storage with Last Ω Ω Mile Delivery Mile Delivery Mile Delivery Mile Delivery � Distributors/retailers deliver the product to the � Transportation costs are the highest customer’s home compared to the other options � The warehouse must be closer to the customer compared to the package carrier � Facility costs are very high delivery � Response time is very quick � More warehouses are required � Higher levels of inventories � Returnability is easier to implement � Suitable for fast moving items �� �� 5. Manufacturer or Distributor Storage 5. Manufacturer or Distributor Storage 4. Distributor Storage with Last 4. Distributor Storage with Last with Customer Pickup with Customer Pickup Ω Ω Mile Delivery Mile Delivery Factories Cross Dock DC Retailer Pickup Sites Customers Customer Flow Information Flow Product Flow �� �� Printed with FinePrint - purchase at www.fineprint.com
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