chapter4 chopra

8/10/2019 Chapter4 CHopra

1/56


2/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra

Learning Objectives

Identify the key factors to be considered when designing adistribution network

Discuss the strengths and weaknesses of various distributionoptions

Understand how online sales have affected the design ofdistribution networks in different industries


3/56


4/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Factors InfluencingDistribution Network Design

Distribution network performance is evaluated along twodimensions

Customer needs that are metCost of meeting customer needs

Evaluate the impact on customer service and cost for differentdistribution network options

Profitability of the delivery network determined by revenue frommet customer needs and network costs


5/56


6/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Factors InfluencingDistribution Network Design

Supply chain costs affected by network structure:InventoriesTransportation

Facilities and handlingInformation


7/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Desired Response Time and Number ofFacilities

Figure 4-1


8/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Inventory Costs and Number of Facilities

Figure 4-2


9/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Transportation Costs andNumber of Facilities

Figure 4-3


10/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Facility Costs and Number of Facilities

Figure 4-4


11/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Logistics Cost, Response Time, andNumber of Facilities

Figure 4-5


12/56


13/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Design Options for aDistribution Network

One of six designs may be usedManufacturer storage with direct shippingManufacturer storage with direct shipping and in-transit merge

Distributor storage with carrier deliveryDistributor storage with last-mile deliveryManufacturer/distributor storage with customer pickupRetail storage with customer pickup


14/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Manufacturer Storage withDirect Shipping

Figure 4-6


15/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Manufacturer Storage with Direct ShippingNetwork

Cost Factor Performance

Inventory Lower costs because of aggregation. Benefits ofaggregation are highest for low-demand, high-value items. Benefits are large if productcustomization can be postponed at themanufacturer.

Transportation Higher transportation costs because of increaseddistance and disaggregate shipping.

Facilities andhandling

Lower facility costs because of aggregation.Some saving on handling costs if manufacturercan manage small shipments or ship fromproduction line.

Information Significant investment in informationinfrastructure to integrate manufacturer andretailer.

Table 4-1


16/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


Manufacturer Storage with Direct ShippingNetwork

Service Factor Performance

Response time Long response time of one to two weeks becauseof increased distance and two stages for orderprocessing. 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 manufacturer.

Customerexperience

Good in terms of home delivery but can suffer if orderfrom 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.

Returnability Expensive and difficult to implement. Table 4-1


17/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


In-Transit Merge Network

Figure 4-7


18/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s l e y

( I n

d i a ) P v t .

L t d

.


In-Transit Merge


Inventory Similar to drop-shipping.Transportation Somewhat lower transportation costs than

drop-shipping.Facilities andhandling

Handling costs higher than drop-shipping atcarrier; receiving costs lower at customer.

Information Investment is somewhat higher than fordrop-shipping.

Table 4-2


19/56


20/56

C o p y r

i g h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Distributor Storage withCarrier Delivery

Figure 4-8


21/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.




Inventory Higher than manufacturer storage. Differenceis not large for faster moving items but can belarge for very slow-moving items.

Transportation Lower than manufacturer storage. Reductionis highest for faster moving items.


Somewhat higher than manufacturer storage.The difference can be large for very slow-moving items.

Information Simpler infrastructure compared tomanufacturer storage.

Table 4-3


22/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.




Response time Faster than manufacturer storage.Product variety Lower than manufacturer storage.

Product availability Higher cost to provide the same level ofavailability as manufacturer storage.Customerexperience

Better than manufacturer storage with drop-shipping.

Time to market Higher than manufacturer storage.Order visibility Easier than manufacturer storage.Returnability Easier than manufacturer storage.

Table 4-3


23/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Distributor Storage withLast Mile Delivery

Figure 4-9


24/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.




Inventory Higher than distributor storage withpackage carrier delivery.

Transportation Very high cost given minimal scale

economies. Higher than any otherdistribution option.


Facility costs higher than manufacturerstorage or distributor storage with packagecarrier delivery, but lower than a chain ofretail stores.

Information Similar to distributor storage with packagecarrier delivery.

Table 4-4


25/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.




Response time Very quick. Same day to next-day delivery.

Product variety Somewhat less than distributor storage with packagecarrier delivery but larger than retail stores.

Product availability More expensive to provide availability than any otheroption except retail stores.

Customerexperience

Very good, particularly for bulky items. Slightly higherthan distributor storage with package carrier delivery.

Time to market Less of an issue and easier to implement thanmanufacturer 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.Table 4-4

M f Di ib S i h


26/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Manufacturer or Distributor Storage withCustomer Pickup

Figure 4-10


27/56

M f Di ib S i h


28/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Manufacturer or Distributor Storage withCustomer Pickup


Response time Similar to package carrier delivery with manufacturer ordistributor storage. Same-day delivery possible for items storedlocally at pickup site.

Product variety Similar to other manufacturer or distributor storage options.

Productavailability

Similar to other manufacturer or distributor storage options.

Customerexperience

Lower than other options because of the lack of home delivery.Experience is sensitive to capability of pickup location.

Time to market Similar to manufacturer storage options.

Order visibility Difficult but essential.Returnability Somewhat easier given that pickup location can handle returns.

Table 4-5

R t il St ith C t Pi k


29/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Retail Storage with Customer Pickup


Inventory Higher than all other options.Transportation Lower than all other options.


Higher than other options. The increase inhandling cost at the pickup site can besignificant for online and phone orders.

Information Some investment in infrastructure requiredfor online and phone orders.

Table 4-6


30/56


31/56

Delivery Networks for Different Product/


32/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Delivery Networks for Different Product/Customer Characteristics

Table 4-8

Impact of Online Sales on Customer


33/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Impact of Online Sales on CustomerService

Response time to customersPhysical products take longer to fulfill than retail storeNo delay for information goods

Product varietyEasier to offer larger selection

Product availabilityAggregating inventory and better information on customerpreferences improves product availability



34/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.



Customer experienceImproved access, customization, and convenience

Faster time to market

Order visibility

ReturnabilityHarder with online ordersProportion of returns likely to be much higher



35/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e

r s l e y

( I n

d i a ) P v t .

L t d

.



Direct sales to customersSocial networking channels allow firms to directly pitch productsand promotion

Flexible pricing, product portfolio, and promotionsManage revenues from product portfolio more effectively thantraditional channelsPromotion information can be conveyed to customers quickly

and inexpensively

Efficient funds transfer

Impact of Online Sales on Cost


36/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.



InventoryLower inventory levels if customers will waitPostpone variety until after the customer order is received

FacilitiesCosts related to the number and location of facilities in a networkCosts associated with the operations in these facilities



37/56

C o p y

r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.



TransportationLower cost of transporting information goods in digital formFor non digital, aggregating inventories increases outbound

transportation

InformationShare demand, planning, and forecasting information throughoutits supply chainAdditional costs to build and maintain the informationinfrastructure

Online Sales Scorecard


38/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Online Sales Scorecard

Area Impact

Response time

Product variety

Product availability

Customer experience

Time to market

Order visibility

Direct sales

Flexible pricing, portfolio, promotions

Efficient funds transfer

Inventory

Facilities

TransportationInformation

Key: +2 = very positive; +1 = positive; 0 = neutral; 1 = negative; 2 =very negative. Table 4-9

Using Online Sales to Sell Computer


39/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Using Online Sales to Sell ComputerHardware: Dell

Figure 4-11



40/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.



Impact of online sales on customer serviceDelay in fulfilling customer request

Impact of online sales on costReduced inventory costsLower facility costsHigher total transportation costsIncremental increase in information costs

Impact of Online Sales on Performance


41/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


pact o O e Sa es o e o a ce

Area

Impact forCustomizedHardware

Impact forStandard Low-Cost Hardware

Response time 1 2

Product variety +2 0

Product availability +1 +1

Customer experience +2 +1

Time to market +2 +1

Order visibility +1 0

Direct sales +2 +1

Flexible pricing, portfolio, promotions +2 +1

Efficient funds transfer +2 +2

Inventory +2 +1

Facilities +2 +1Transportation 1 2

Information 0 0

Table 4-10



42/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.



A tailored supply chain networkA hybrid model can be very effectiveMore significant as hardware becomes more of a commodityTake advantage of the strengths of both online sales andtraditional retail and distribution channels

Using Online Sales to Sell Books: Amazon


43/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


g

Impact of online sales on customer serviceInternet has not shortened supply chainsIncreased selection, convenience

Impact of online sales on costReduced inventory costsLower facility costsHigher total transportation costs

Increase in information costs



44/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


p

Area Physical Books E-books

Response time 1 +1

Product variety +2 +2



Time to market +1 +2

Order visibility 0 0Direct sales 0 +1


Efficient funds transfer 0 0

Inventory +1 +2

Facilities +1 +1

Transportation 2 +1

Information 1 1

Table 4-11

Using Online Sales to Sell Books: Amazon


45/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


g

A supply chain network for books

Traditional bookstores pressured from both ends

Amazon more efficient

Using the Internet to Sell Groceries:


46/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


gPeapod

Impact of online sales on customer service

Sell convenience and the time savings

Offers less variety

Creating a personalized shopping experience and customizedadvertising and promotions

Using the Internet to Sell Groceries:


47/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Peapod

Impact of online sales on cost

Reduced inventory costs

Higher facility costs due to picking operation

Significantly higher total transportation costsIncrease in information costs


48/56

Using Internet to Sell Groceries: Peapod


49/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Value of online sales to a traditional grocery chain

Complement the strengths of their existing network

Offer an entire array of services at differing prices based on the

amount of work the customer does

Using the Internet to Rent Movies: Netflix


50/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Impact of online sales on customer service

Staggering selection and an excellent recommendation engine

Video streaming through a variety of devices

Customers received their DVDs within 24 hours of being shipped

Using the Internet to Rent Movies: Netflix


51/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Impact of online sales on cost

Reduced inventory costs

Lower facility costs

Considerably higher total transportation costs, increasedstreaming will reduce transportation costs

Increase in information costs



52/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d

e r s

l e y

( I n

d i a ) P v t .

L t d

.


AreaImpact for

DVDsImpact for

Digital Content

Response time 1 +2Product variety +2 +2



Time to market 1 1

Order visibility 0 0

Direct sales 0 0


Efficient funds transfer 0 0

Inventory +2 +2

Facilities +1 +1

Transportation 2 0

Information 1 1 Table 4-12


53/56

Traditional Indian Distribution Channels


54/56

C o p

y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


What characteristics of the traditional Indian agricultural producedistribution channels militate against delivering simultaneousbenefits to the farmer and the consumer?

What supply chain best practices do you see as being relevant to

the Indian agricultural produce distribution system?

Organized retailing underway in India is likely to impact thetraditional distribution channels and transform the same radically.What major changes do you visualize taking place in theagricultural produce distribution system in India and how do yousee the existing channels responding to the same?

Distribution Networks in Practice


55/56

C o p

y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Consider whether an exclusive distribution strategy is

advantageous

Product, price, commoditization, and criticality have an impact onthe type of distribution system preferred by customers

Summary of Learning Objectives


56/56

C o p y r i g

h t

2

0 1 3 D o r l

i n g

K i n d e r s

l e y

( I n

d i a ) P v t .

L t d

.


Identify the key factors to be considered when designing a

distribution network

Discuss the strengths and weaknesses of various distributionoptions

Understand how online sales have affected the design of

distribution networks in different industries

chapter4 chopra

Documents