HUM 4074- Supply Chain Management

Unit-3
DESIGN OF SUPPLY CHAIN NETWORKS

Department of Humanities & Management

Distribution refers to the steps
taken to move and store a
product from the supplier
stage to a customer stage in
the supply chain. Distribution
is a key driver of the overall
profitability of a firm because it
affects both the supply chain
cost and the customer
experience directly.

The appropriate distribution

network can be used to
achieve a variety of supply
chain objectives ranging from
low cost to high
responsiveness. As a result,
companies in the same
industry often select very
different distribution networks.
Supply chain network design or SCM network design
helps enterprises simulate and visualize their supply
chains to optimize them. Optimization of supply
chains reduces overall costs and enhances service,
speed-to-market, flexibility and risk mitigation.

Key benefits:
• Discerning parts for streamlining and potential
cost savings
• Reduction in purchase costs and inventory
• Working capital reduction
• Reduction in freight costs
• Route optimization for reducing transit time and
fuel costs
• Reduction in network fixed costs (facilities,
equipment) and supply chain variable costs (labor,
handling, 3PL costs)
• Optimization of service levels and delivery dates
for customer satisfaction
• Process and cost visibility across the supply chain
network
• Providing performance visibility of the complete
supply chain network by comparing its
Steps to Design Supply Chain Network

Clearly define your Objectives

Gathering supporting data

Model your supply chain network

Analyze your supply chain network

Implement and Refine

Factors to be Influencing to Design a
Supply chain
The 2 Dimensions

Customer needs
are met

Cost of meeting
customer
needs
 7 Solid Factors in designing a Supply chain Network
❑ Location & Distance
❑Current and Future Demand ❑ Warehousing Costs
❑Service Requirements ❑ Trucking Cost
❑Size and frequency of ❑ Mode of Transportation
shipment
 Customer Service Components
❑ Response Time ❑ Time To Market
❑ Product Variety ❑ Order Visibility
❑ Product Availability ❑ Return ability
❑ Customer Experience
Designing Options
Manufacturer
storage with
direct
shipping
 Performance Characteristics of Manufacturer
Storage with Direct Shipping Network
Service Performance
Cost Factor Performance Factor

Inventory Lower costs because of aggregation.

Response Long response time of one to two
Time weeks because of increased distance
Benefits of aggregation are highest for
low demand, high value items. and two stages for order processing.
Benefits are very large if product Response time may vary by product,
customization can be postponed at thus complicating receiving.
manufacturer. Product Easy to provide a very high level of
Variety variety.
Transportati Higher transportation costs because
on of increased distance and Product Easy to provide a high level of product
Availability availability because of aggregation at
disaggregate shipping.
manufacturer.
Facilities Lower facility costs because of Customer Good in terms of home delivery but can
and handling aggregation. Some saving on handling Experience suffer if order from several
costs if manufacturer can manage manufacturers is sent as partial
small shipments or ship from shipments.
production line.
Time to Fast, with the product available as soon
market as the first unit is produced.
Information Significant investment in information Order visibility More difficult but also more important
infrastructure to integrate
from a customer service perspective.
manufacturer and retailer.
Return ability Expensive and difficult to implement.
 Performance Characteristics of In-
Transit Merge
Service
Cost Factor Performance Performance
Factor

Response Similar to drop-shipping; may be

Inventory Similar to drop shipping.
Time marginally higher.

Product Similar to drop shipping.

Transportation Somewhat lower transportation variety
costs than drop shipping.
Product Similar to drop-shipping.
Availability
Facilities and Handling costs higher than drop
Customer Better than drop-shipping because a
handling shipping at carrier; receiving
experience single order has to be received.
costs lower at customer.
Time to Similar to drop-shipping.
market
Information Investment is somewhat higher
than for drop shipping. Order Similar to drop-shipping.
visibility

Return ability Similar to drop-shipping.

 Performance Characteristics of Distributor storage
with Carrier Delivery
Service
Performance
Cost Factor Performance Factor
Response Faster than manufacturer storage.
Inventory Higher than manufacturer Time
storage. Difference is not large for
faster-moving items. Product Lower than manufacturer storage.
variety

Transportati Lower than manufacturer storage. Product Higher cost to provide the same level of
on Reduction is highest for faster- availability availability as manufacturer storage.
moving items.
Customer Better than manufacturer storage with
Facilities Somewhat higher than experience drop-shipping.
and handling manufacturer storage. The
difference can be large for very
slow-moving items. Time to Higher than manufacturer storage.
market

Order Easier than manufacturer storage.

visibility
Information Simpler infrastructure compared
to manufacturer storage. Return ability Easier than manufacturer storage
 Performance Characteristics of Distributor
CostStorage
Factor with Last-Mile Delivery
Performance

Service factor Performance

Inventory Higher than distributor Response time Very quick. Same day to next-day
storage with package carrier delivery.
delivery.
Product variety Somewhat less than distributor
storage with package carrier
Transportation Very high cost given minimal delivery but larger than retail stores.
scale economies. Higher
than any other distribution Product availability More expensive to provide
option. availability than any other option
except retail stores.
Facilities and Facility costs higher than Customer Very good, particularly for bulky
handling manufacturer storage or experience items.
distributor storage with
package carrier delivery, but Time to market Slightly higher than distributor
lower than a chain of retail storage with package carrier
stores. delivery.
Order traceability Less of an issue and easier to
Information Similar to distributor storage implement than manufacturer
with package carrier delivery. storage or distributor storage with
package carrier delivery.
Return ability Easier to implement than other
Distributor storage with Distributor storage with last
package carrier delivery mile delivery

Eg: Amazon Eg: BigBasket

 Performance Characteristics of
Network with Consumer Pickup
sites
Service Factor Performance
Cost Factor Performance
Response time Similar to package carrier delivery
Inventory Can match any other option, with manufacturer or distributor
depending on the location of storage. Same day delivery possible
inventory. for items stored locally at pick-up
sites.
Transportation Lower than the use of package Product variety Similar to other manufacturer or
carriers, especially if using an distributor storage options.
existing delivery network.
Product Similar to other manufacturer or
availability distributor storage options.
Facilities and Facility costs can be very high
handling if new facilities have to be built. Customer Lower than other options because of
Costs are lower if existing experience the lack of home delivery. In areas
facilities are used. The with high density of population, loss
increase in handling cost at the of convenience may be small.
pickup site can be significant. Time to market Similar to manufacturer storage
options.
Information Significant investment in Order visibility Difficult but essential.
infrastructure required.
Return ability Somewhat easier given that pickup
location can handle returns.
 Performance Characteristics of Local storage
at Consumer Pickup Sites
Service
Cost Factor Performance Performance
Factor
Response Same-day pickup possible for items stored
Inventory Higher than all other options. time locally at pickup site.

Product Lower than all other options.

Transportati Lower than all other options. variety
on
Product More expensive to provide than all other
availability options.

Facilities Higher than other options. The Customer Related to whether shopping is viewed as
and handling increase in handling cost at experience a positive or negative experience by
pickup site can be significant for customer.
online and phone orders.
Time to Highest among distribution options.
market

Information Some investment in Order Trivial for in-store orders. Difficult, but
infrastructure required for online visibility essential, for online & phone orders.
and phone orders.
Return Easier than other options given that pickup
ability location can handle returns.