Focus on the distribution function. Various possible distribution strategies, and the opportunities and challenges associated with these strategies.Two fundamental distribution strategies:Items can be directly shipped from the supplier or manufacturer to the retail stores or end customerUse intermediate inventory storage points (typically warehouses and/or distribution centers). Issues with warehouses Manufacturing strategy (make-to-stock vs. make-to-order)Number of warehousesInventory policyInventory turn over ratioInternal warehouses vs. outside distributorOwned by a single firm or by a variety of firms
Strategies d*antages"
he retailer a*oids the e/penses of operating a distribution
center
0ead ti!es are reduced.
Disad*antages" is)-pooling effects are negated (anufacturer and
distributor transportation costs increase
Co!!onl% used scenarios" etail store reuires full% loaded truc)s
ften !andated b% powerful retailers 0ead ti!e is critical.
(anufacturer !a% be reluctant but !a% ha*e no choice 3re*alent in
the grocer% industr%
lead ti!es are critical because of perishable goods.
3oint Strategies Variet% of characteristics distinguish
different
strategies. 0ength of ti!e in*entor% is stored at warehouses
and
distribution centers. Strategies" raditional warehousing
strateg%
distribution centers and warehouses hold stoc) in*entor% pro*ide
their downstrea! custo!ers with in*entor% as
needed.
Cross-doc)ing strateg% warehouses and distribution centers ser*e as
transfer points
for in*entor% no in*entor% is held at these transfer points.
Centrali5ed pooling and transship!ent strategies !a% be useful when
there is a large *ariet% of different
products
)e% factors
ther factors also pla% a significant role Centrali5ed *s
Decentrali5ed (anage!ent
Central *s 0ocal Facilities
Centrali5ed *s Decentrali5ed
(anage!ent Decentrali5ed s%ste! 9ach facilit% identifies its !ost
effecti*e strateg% without
considering the i!pact on the other facilities in the suppl%
chain.
0eads to local opti!i5ation. Centrali5ed s%ste! decisions are !ade
at a central location for the entire
suppl% networ). %pical ob:ecti*e" !ini!i5e the total cost of the
s%ste!
sub:ect to satisf%ing so!e ser*ice-le*el reuire!ents. Centrali5ed
control leads to global opti!i5ation. t least as effecti*e as
the decentrali5ed s%ste!. llow use of coordinated
strategies
If s%ste! cannot be centrali5ed often helpful to for! partnerships
to approach the
ad*anta es of a centrali5ed s ste!.
9!plo% both fewer warehouses and distribution centers Facilities
are located further fro! custo!ers.
ther factors" Safety stock. 0ower safet% stoc) le*els with
centrali5ed
facilities Overhead. 0ower total o*erhead cost with centrali5ed
facilities Economies of scale. ;reater econo!ies of scale
with
centrali5ed facilities Lead time. 0ead ti!e to !ar)et reduced with
local facilities Service.
#tili5ation of ris) pooling better with centrali5ed Shipping ti!es
better with local
Transportation costs. Costs between production facilities and
warehouses higher with
local Costs fro! warehouses to retailers lesser with local
Var%ing degrees of centrali5ation and
locali5ation due to the *ar%ing le*els of
ad*antages and disad*antages
3opulari5ed b% al-(art arehouses function as in*entor%
coordination
points rather than as in*entor% storage points. ;oods arri*ing at
warehouses fro! the
!anufacturer" are transferred to *ehicles ser*ing the retailers are
deli*ered to the retailers as rapidl% as possible.
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Issues with Cross-Doc)ing euire a significant start-up in*est!ent
and are
*er% difficult to !anage Suppl% chain partners !ust be lin)ed
with
ad*anced infor!ation s%ste!s for coordination fast and
responsi*e transportation s%ste! is
necessar% Forecasts are critical, necessitating the sharing
of infor!ation. 9ffecti*e only for large distribution s%ste!s
Sufficient *olu!e e*er% da% to allow ship!ents of full%
loaded truc)s fro! the suppliers to the warehouses. Sufficient
de!and at retail outlets to recei*e full
truc)load uantities
Centrali5ed 3ooled S%ste!s
3erfor! @etter For the sa!e in*entor% le*el, a centrali5ed
s%ste!
pro*ides" higher ser*ice le*el higher sales
3ush-pull suppl% chain (o*ing fro! a push suppl% chain
Dealers ha*e to order before de!and is reali5ed
o a push-pull suppl% chain Dealers pull fro! regional distribution
centers.
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ther Factors ill ;( sell !ore cars to ;( dealersA otal nu!ber of
cars ordered b% dealers will not
necessaril% increase, e*en as custo!er ser*ice
increases.
hat about the dealersA Dealers ha*e access to !ore in*entor%
3otentiall% can sell !ore.
0e*els out the pla%ing field between dealers.
S!all dealers would fa*or such a s%ste! Co!petiti*e
ad*antage of large dealers wiped out
=elps the !anufacturer sell !ore products
hich s%ste! is better under custo!er
searchA +o i!pact on the centrali5ed s%ste!
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I!pact on Decentrali5ed S%ste! If a dealer )nows that its
co!petitors do not )eep
enough in*entor% this dealer should raise the in*entor% le*el to
satisf%"
its own de!and de!and of custo!ers who initiall% approach other
dealers
with li!ited in*entor%.
If a dealer )nows that its co!petitors has significant in*entor%
this dealer will reduce the in*entor% le*el
It is not li)el% to see custo!ers who switch
DealerBs strateg% depends on its co!petitorBs strateg%.
If two co!petitors are !a)ing decisions,
the% ha*e reached +ash euilibriu! if the%
ha*e both !ade a decision @oth ha*e decided on an a!ount to
order
neither can i!pro*e their e/pected profit b%
changing the order a!ount if the other dealer
doesnBt change his order a!ount.
Critical Search 0e*el
3resence of a critical search le*el !anufacturer prefers the
centrali5ed s%ste!
below the le*el
otherwise, !anufacturer prefers the
search le*el
=ow Can the Search 0e*el @e
IncreasedA Increase brand lo%alt% custo!ers will !ore li)el% search
for a particular
brand at another retailer if their first choice does not
ha*e the product in in*entor%.
Infor!ation technolog% initiati*es to increase
co!!unication between retailers increases the ease with which
custo!ers can search
in the s%ste!
s%ste!
facilities at the same level in the supply
chain to !eet so!e i!!ediate need
ccurs !ostl% at the retail le*el
Can be achie*ed" with ad*anced infor!ation s%ste!s
Shipping costs are reasonable
Su!!ar% Critical to i!ple!ent effecti*e distribution
strategies regardless of the total le*el of suppl% chain
integration.
Strategies" direct shipping warehouses or distribution
centers
elated decisions Should there be !an% or onl% a few warehouses
or
DCBsA Should in*entor% be held at these locations, or
