TOM_4250_Lecture_4

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• Background Design: Cal Poly Pomona logo

• Lecture: Designing Distribution Networks and Applications to Omni-Channel Retailing

• Course: TOM 4250: Supply Chain Network Design

• Semester: Spring 2025

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Distribution Network Design in the Supply Chain

• Definition: Steps taken to move and store products from suppliers to customers.

• Impact: Drives profitability; affects supply chain costs and customer value.

• Objective: Distribution network choice can meet various supply chain goals - from low cost to high responsiveness.

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Factors Affecting Distribution Network Design (1 of 3)

• Evaluation Dimensions:

  • Value provided to customers

  • Cost of meeting customer needs

• Analysis: Assess customer service and cost across different distribution options.

• Profitability: Based on revenue from met customer needs versus network costs.

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Important Concepts to Consider

• Economies of Scale: Cost advantages based on scale of operation.

• Specialization vs. Vertical Integration: Decision-making strategies for operational efficiency.

• Cost-benefit Analysis: Evaluating the costs versus benefits of integration strategies.

• Vertical Integration Definition: Streamlining operations through direct ownership rather than external contractors (Source: Investopedia).

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Factors Affecting Distribution Network Design (2 of 3)

• Customer Service Influences:

  • Response time

  • Product variety and availability

  • Customer experience

  • Time to market

  • Order visibility

  • Returnability

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Factors Affecting Distribution Network Design (3 of 3)

• Cost Influences:

  • Inventory costs

  • Transportation costs

  • Facility costs

  • Information costs

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Desired Response Time and Number of Facilities

• Visual Representation: Relationship between desired response time and number of facilities.

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Inventory Costs and Number of Facilities

• Visual Representation: Relationship between number of facilities and inventory costs.

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Transportation Costs and Number of Facilities

• Visual Representation: Relationship between number of facilities and transportation costs.

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Facility Costs and Number of Facilities

• Visual Representation: Relationship between number of facilities and facility costs.

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Logistics Cost, Response Time, and Number of Facilities

• Visual Representation: Variation of logistics costs and response times based on the number of facilities.

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Summary of Learning Objective 1

• Manager Considerations:

  • Customer needs vs. costs in network design.

• Key Customer Needs:

  • Response time, product variety/availability, convenience, order visibility, returnability.

• Significant Costs:

  • Inventory, transportation, facilities and handling, information costs.

• Effect of Facilities: Increasing facilities lowers response and transportation costs but raises inventory and facility costs.

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Design Options for a Distribution Network (1 of 2)

• Network Choices: From manufacturer to customer.

• Key Decisions:

  • Delivery to customer vs. pickup from a site.

  • Flow through intermediaries or not.

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Design Options for a Distribution Network (2 of 2)

• Possible Network Designs:

  • Manufacturer storage with direct shipping

  • Manufacturer storage with in-transit merge

  • Distributor storage with carrier delivery

  • Distributor storage with last-mile delivery

  • Manufacturer/distributor storage with customer pickup

  • Retail storage with customer pickup

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Figure 4-6: Manufacturer Storage with Direct Shipping (Drop Shipping)

• Product Flow: From manufacturers to retailer to customers.

• Information Flow: Communication throughout the stages.

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Manufacturer Storage with Direct Shipping Network (1 of 2)

• Cost Factors:

  • Inventory: Lower costs due to aggregation; best for low-demand, high-value items.

  • Transportation: Higher costs due to disaggregate shipping and increased distance.

  • Facilities & Handling: Lower costs due to aggregation.

  • Information: Significant investment needed for infrastructure.