Distribution Networks and Online Sales

Overview

• Importance of distribution in the supply chain.
• Steps involved: moving and storing products from supplier to customer.
• Stages: Raw materials from suppliers to manufacturers, and finished products from manufacturers to customers.

Factors in Designing Distribution Networks

Categories of Factors

1. Customer Service
2. Supply Chain Cost

Customer Service Factors (7 Key Factors)

• Response Time: Time from order placement to delivery.
• Product Variety: Different types or makes of products available.
• Product Availability: Direct impact on customer satisfaction; important for order fulfillment.
• Time to Market: Speed at which new products are launched.
• Order Visibility: Ability to track order status throughout the supply chain.
• Returnability: Ease of returning products.

Supply Chain Cost Considerations

• Inventory Costs: Costs associated with keeping inventory at various locations.
• Transportation Costs: Inbound vs. outbound transportation expenses.
• Facility and Handling Costs: Costs associated with maintaining warehouses and distribution centers.

Network Design Options

1. Manufacturer Storage with Direct Shipping

   • Products shipped directly from manufacturers to customers.
   • Lower inventory costs but higher transportation costs.
   • Service factors: Longer response time but high product variety.

2. Manufacturer Storage with Direct Shipping and In-Transit Merge

   • Products from multiple manufacturers are merged before delivery.
   • Slightly higher inventory costs and improved response times.

3. Distribution Storage with Carrier Delivery

   • Retails maintain warehouses and deliver products via carriers.
   • Lower transportation cost for fast-moving items but higher inventory costs.
   • Response time is improved.

4. Distributed Storage with Last Mile Delivery

   • Warehouses store items; retailers handle last-mile delivery to customers.
   • Higher inventory and transportation costs but better response times.

5. Manufacturer/Distributor Storage with Customer Pickup

   • Customers place orders online and pick up at designated locations.
   • Lower transportation costs, but higher information-related costs.

6. Retail Storage with Customer Pickup

   • Items stored at retail locations; customers can pick up.
   • Higher inventory carrying costs; lower transportation costs.
   • Immediate response time, but limited product variety.

Cost and Service Factors Matrix

• Response Time: Best with retail storage, highest with manufacturer shipping.
• Product Variety: Highest in manufacturer storage with direct shipping.
• Product Availability: Best with manufacturer storage due to aggregation.
• Customer Experience: Best with home delivery; lower when customers pick up.
• Time to Market: Fastest with manufacturer storage with direct shipping.
• Order Visibility: Best with retail storage; more complex in direct shipping.
• Returnability: Easiest with retail storage.
• Inventory Costs: Lowest with manufacturer storage.
• Transportation Costs: Lowest with customer pickups.
• Facility Costs: Highest with retail storage.
• Information Costs: Higher with more complex networks.

Hybrid Approach

• Businesses often use combinations of distribution networks.
• Example: Apple allows online shopping and in-store shopping.

Online Sales

• Instantaneous response times for digital products.
• Easier to provide product variety and availability.
• Lower inventory costs because of aggregation.
• Transportation costs vary based on product type.

Case Studies: Dell and Amazon

• Dell: Customized servers sold online, standard laptops via retail.
• Amazon: Better at selling e-books than physical books due to lower costs and better customer service.

Adaptability in Distribution Networks

• Importance of adaptable distribution networks for changing customer preferences.
• Examples of successful adaptability: Walmart, Netflix.
• Challenges for companies lacking adaptability: Blockbuster, Borders.
• Integration of online and physical networks is crucial for success.