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
• Choice of distribution network can achieve
supply chain objectives from low cost to high
responsiveness

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 Factors Influencing
Distribution Network Design
• Elements of customer service influenced by
network structure:
– Response time: time customer receive an order
– Product variety: no of product that offered by
distribution network
– Product availability: having product in stock
– Customer experience: confidence, available..
– Time to market: time that take a new product to
the market
– Order visibility: customers can track their orders
to delivery
– Returnability
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 Transportation Costs and
Number of Facilities

FIGURE 4-3

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 Design Options for a
Distribution Network

• Distribution network choices from the

manufacturer to the end consumer
• Two key decisions must be taken by
managers:
1. Will product be delivered to the customer
location or picked up from a prearranged site?
2. Will product flow through an intermediary (or
intermediate location)?

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 Design Options for a
Distribution Network
• One of six designs may be used after answered
two previous questions
1. Manufacturer storage with direct shipping
2. Manufacturer storage with direct shipping and
Merge-in-transit
(MIT) is a distribution method in which several
shipments from suppliers originating at different
locations are consolidated into one final customer
delivery. This removes the need for distribution
warehouses in the supply chain, allowing customers to
receive complete deliveries for their orders.

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 Design Options for a
Distribution Network

3. Distributor storage with carrier delivery

Inventory is not held by the manufacturers, but is
held by distributor/retailer in intermediate
warehouses. Package carriers are used to transport
items from the retailer to the customer.
4. Distributor storage with last-mile delivery
5. Manufacturer/distributor storage with customer
pickup
6. Retail storage with customer pickup

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 Drop-shipping

Provide (goods) by direct delivery from the

manufacturer to the retailer or customer.

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 Cross-docking

• Shipping it out without the need to stock it at

the warehouse.

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 The Role of Network Design
• Facility role
– What role, what processes?
• Facility location
– Where should facilities be located?
• Capacity allocation
– How much capacity at each facility?
• Market and supply allocation
– What markets? Which supply sources?

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 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

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 Factors Influencing
Network Design Decisions

• Infrastructure factors
• Competitive factors
• Logistics and facility costs

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 Framework for Network Design
Decisions
• Phase I: Define a Supply Chain
Strategy/Design
– Clear definition of the firm’s competitive strategy
– Forecast the likely evolution of global competition
– Identify constraints on available capital
– Determine broad supply strategy

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 Framework for Network Design
Decisions
• Phase II: Define the Regional Facility
Configuration
– Forecast of the demand by country or region
– Economies of scale or scope
– Identify demand risk, exchange-rate risk, political
risk, tariffs, requirements for local production, tax
incentives, and export or import restrictions
– Identify competitors

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 Framework for Network Design
Decisions
• Phase III: Select a Set of Desirable Potential
Sites
– Hard infrastructure requirements
– Soft infrastructure requirements
• Phase IV: Location Choices

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