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Designing the Distribution
Network in a Supply Chain
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Factors Influencing
Distribution Network Design
Elements of customer service influenced by network structure:
% &esponse time
% "roduct variety
% "roduct availability
% Customer experience
% 'rder visibility
% &eturnability
(upply chain costs affected by network structure:
% )nventories
% *ransportation
% +acilities and handling
%)nformation
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Service and Number of Facilities
,umber of
+acilities
&esponse *ime
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The CostResponse Time Frontier
ocal +$
ix
&egional +$
ocal W)"
Central +$
Central W)"
Central &aw aterial and Custom production
Custom production with raw material at suppliers
Cost
&esponse *ime HiLow
Low
Hi
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Inventory Costs and Number
of Facilities
)nventory
Costs
,umber of facilities
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Transportation Costs and
Number of Facilities
*ransportation
Costs
,umber of facilities
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TransportationTransportation
Total Costs Related to
Number of Facilities
TotalC
osts
TotalC
osts
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
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$anufacturer Storage with
Direct Shipping
Manufacturer
Retailer
Customers
Product Flow
Information Flow
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InTransit $erge Network
Factories
Retailer
Product Flow
Information Flow
In-Transit Merge byCarrier
Customers
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Distributor Storage with
Carrier Delivery
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
DistributorRetailer
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Distributor Storage with
"ast $ile Delivery
Factories
Customers
Product Flow
Information Flow
DistributorRetailer
Warehouse
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$anufacturer or Distributor Storage
with Customer %ickup
Factories
Retailer
!ic"u# Sites
Product FlowInformation Flow
Cross Doc" DC
Customer Flow
Customers
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Comparative %erformance of Delivery
Network Designs
)nformation
+acility # .andling
*ransportation
)nventory
&eturnability
'rder /isibility
Customer Experience
"roduct 0vailability
"roduct /ariety
&esponse *ime
Manufacturer
storage with picup
!istributor
storage with last
mile delivery
!istributor "torage
with Pacage
Carrier !elivery
Manufacturer
"torage with In#
Transit Merge
Manufacturer
"torage with !irect
"hipping
Retail "torage
with Customer
Picup
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4
4
4
5
5
5
5
55
5
6
6
5
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"inking %roduct Characteristics and
Customer %references to Network Design
ow customer effort
.igh product variety
7uick desired response
.igh product value
any product sources
/ery low demand product
ow demand product
edium demand product
.igh demand product
Manufacturer
storage with
picup
!istributor storage
with last mile delivery
!istributor "torage
with Pacage Carrier
!elivery
Manufacturer
"torage with In#
Transit Merge
Manufacturer
"torage with
!irect "hipping
Retail "torage
with Customer
Picup
82
82
82
82
82
82
82 82 82
82
81
81
81
81
81
81
81
81
81
81
81
81
81
81
81
9
9
9
9
9
9
9
9 9
9
-1
-1
-1
-1
-1 -1
-1
-1
-1
-1
-1
-2 -2
-2
-2
-2
-2 -2
-2
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Distribution Networks in %ractice
*he ownership structure of the distribution networkcan have as big as an impact as the type of distribution
network
*he choice of a distribution network has very long-term conseuences
Consider whether an exclusive distribution strategy isadvantageous
"roduct! price! commoditi;ation! and criticality havean impact on the type of distribution system preferred
by customers
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Network Design Decisions
+acility role
+acility location
Capacity allocationarket and supply allocation
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Factors Influencing
Network Design Decisions
(trategic
*echnological
acroeconomic"olitical
)nfrastructure
Competitive
ogistics and facility costs
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Customer
!C
$here inventory needs to be for a one wee order$here inventory needs to be for a one wee order
response time # typical results ##% & !Cresponse time # typical results ##% & !C
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$h i d b f ) d d
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Customer
!C
$here inventory needs to be for a ) day order$here inventory needs to be for a ) day order
response time # typical results ##% ' !Csresponse time # typical results ##% ' !Cs
i f$h i t d t b f t d d
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Customer
!C
$here inventory needs to be for a ne*t day order$here inventory needs to be for a ne*t day order
response time # typical results ##% &) !Csresponse time # typical results ##% &) !Cs
$h i d b f d +$h i t d t b f d + t
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Customer
!C
$here inventory needs to be for a same day + ne*t$here inventory needs to be for a same day + ne*t
day order response time # typical results ##% (, !Csday order response time # typical results ##% (, !Cs
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' Framework for
(lobal Site "ocation
".0(E )
(upply Chain
(trategy
".0(E ))&egional +acility
Configuration
".0(E )))
Desirable (ites
".0(E )/
ocation Choices
Competitive (*&0*E$