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2007 Pearson Education 14-1

Supply Chain Operation

DELIVER


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2007 Pearson Education

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Distribution StrategiesExclusive Distribution Limiting the distribution to only one

intermediary in the territoryIntensive distribution Distribute from as many outlets as

possible to provide location convenience

Selective distribution Appoint several but not all retailers


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Example of Exclusive Distribution

P roducts such as specially automobiles, somemajor appliances, certain brands of furniture egIKEA,


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Exclusive Distribution:

AdvantagesM aximize control over service level/outputEnhance products image & allow higher markupsP romotes dealers loyalty, better forecasting,

better inventory and merchandising control

Restricts resellers from carrying competing brands


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Exclusive Distribution:Disadvantages

B etting on one dealer in each market

Only suitable for high price, high margin, andlow volume products


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Example of Intensive Distribution

Intensive distribution is appropriate for products

such as chewing gum, candy bars, soft drinks, bread, film, and cigarettes where the primaryfactor influencing the purchase decision isconvenience


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Advantages: Increased sales, wider customer recognition, and

impulse buyingDisadvantages: Characteristically low price and low-margin products

that require a fast turnover

Difficult to control large number of retailers

Intensive Distribution


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Example of Selective Distribution

Selective distribution may be used for productcategories such as clothing, appliances,televisions, stereo equipment, home furnishings,and sports equipment.


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Selective Distribution

Advantages: B etter market coverage than exclusive distribution M ore control and less cost than intensive distribution Concentrate effort on few productive outlets Selected firms capable of carrying full product line and

provide the required service


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Selective Distribution(contd)

Disadvantages: M ay not cover the market adequately Difficult to select dealers (retailers) that can match your

requirement and goals


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2007 Pearson Education11

F actors Affecting TransportationDecisions

Carrier(party that performs the move) investment decisions operating policies Costs considerations:

Vehicle-related: Type? Number? Fixed operating: e.g. Terminal

facilities Trip-related: labour and fuel Quantity-related:

loading/unloading Overhead: planning/scheduling,

information technologies Capacity utilisation Responsiveness/Service level offered

Sh ipper(party requiring movement of goods)

supply chain design transportation mode choice assignment of shipment to

transportation mode Cost considerations:

Transportation: paid to carriers Inventory: at intermediate

warehouses, retailers, etc. Facility: e.g. warehouse operating

costs P rocessing: loading/unloading,

invoicing, etc. Service level: expediting, safety

stock, etc. Responsiveness; Delivery guarantees


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Transportation ModesTrucks TL LTL

RailAir P ackage Carriers

Water P ipeline


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Transportation Network DesignDirect Shipment Network Delivery direct from a supplier to a retailer

Direct Shipment with M ilk Runs Delivery from single supplier to several retailers

Central Distribution Centre (DC) Suppliers ship only to DC

DC ship direct to retailersCentral Distribution Centre with M ilk Runs

Tradeoffs? Number and location of DCs? Number and location of DCs?


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Transportation Network Designs

Suppliers Retailer Stores

Direct Supplier Network


Direct Shipping with M ilk Runs


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Transportation Network Designs


All Shipment via DC


M ilk Runs From DC

DC DC


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Trade-offs in Transportation Design

Transportation and inventory cost trade-off Choice of transportation mode Inventory aggregation

Transportation cost and responsiveness trade-off


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Choice of Transportation Mode

A manager must account for inventory costs whenselecting a mode of transportationA mode with higher transportation costs can be

justified if it results in significantly lower inventories


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Tailored Transportation

The use of different transportation networks andmodes based on customer and product characteristicsFactors affecting tailoring: Customer distance and density Customer size P roduct demand and value


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Role of IT in Transportation

The complexity of transportation decisions demands touse of IT systemsIT software can assist in: Identification of optimal routes by minimizing costs subject

to delivery constraints Optimal fleet utilization GP S applications


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Risk Management in Transportation

Three main risks to be considered in transportation are: Risk that the shipment is delayed Risk of disruptions

Risk of hazardous materialRisk mitigation strategies: Decrease the probability of disruptions Alternative routings

In case of hazardous materials the use of modifiedcontainers, low-risk transportation models, modification of

physical and chemical properties can prove to be effective


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Making TransportationDecisions in Practice

Align transportation strategy with competitivestrategyConsider both in-house and outsourced transportationDesign a transportation network that can handlee-commerceUse technology to improve transportation

performanceDesign flexibility into the transportation network

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