Chapter 11

DISTRIBUTION:
Managing Fulfillment
Operations
 Learning Objectives
After reading this chapter, you should be able to do the following:

● Discuss the strategic value-adding role

distribution plays in the supply chain.
● Recognize the tradeoffs between
distribution and other supply chain
functions.
● Understand the analytical framework for
distribution planning decisions.
● Evaluate fulfillment strategies and
distribution methods.

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 Learning Objectives, continued

● Describe the primary fulfillment processes

and support functions in distribution center
(DC) operations.
● Use productivity and quality metrics to
analyze fulfillment performance.
● Describe how information technology
supports distribution operations.
● Discuss materials-handling objectives,
principles, and equipment uses.

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 The Role of Distribution Operations in
SCM
● Balancing supply and demand.
● Protecting against uncertainty.
● Allowing quantity purchase discounts.
● Supporting production requirements.
● Promoting transportation economies.

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 The Role of Distribution Operations in SCM, continued

● Distribution Facility Functionality

• Accumulation
• Sortation
• Allocation
• Assortment
● Distribution Tradeoffs
• Cost of distribution centers and inventory vs. cost of
transportation
• Cost of additional facilities vs. level of customer
service
• Space vs. equipment
• Equipment vs. people
• People vs. space
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 Figure 11.1
The DC’s Accumulation Role

Source: Brian J. Gibson, Ph.D.

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part.
 Figure 11.2
The DC’s Mixing Capability

Source: Brian J. Gibson, Ph.D.

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part.
 Table 11.1
Value Adding Role of Distribution Operations

Source: Brian J. Gibson, Ph.D.

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part.
 Figure 11.3
Functional Tradeoffs

Source: Brian J. Gibson, Ph.D.

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part.
 Figure 11.4
Strategic Distribution Decisions

Source: Brian J. Gibson, Ph.D.

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 The Role of Distribution Operations in SCM, continued

● Distribution Challenges
• Labor availability
• Demand variation
• Increasing customer requirements

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 Distribution Planning and Strategy
● Capability requirements
• Product characteristics e.g., product value, durability,
temperature sensitivity, obsolescence, and volume
must drive the design of the distribution process.
• Two options for product flow:
○ Direct shipment of goods
 from the manufacturer to retailer
 from the retailer to consumer
○ Movement of goods through distribution facilities to
customers
• Must analyze the inventory, transportation, and
service trade offs before choosing between direct
shipping and the use of distribution facilities.
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 Distribution Planning and Strategy, continued

● Distribution Challenges
• Labor availability
• Demand variation
• Increasing customer requirements
● Network Design Issues
• Inventory positioning focuses on the issue of where
inventory is located within the supply chain
○ Single location
○ Multiple customer-facing positions
• Second and third network design issues focus on the
number and locations of distribution facilities within
the supply chain.

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part.
 Distribution Planning and Strategy, continued

● Network Design Issues, continued

• Number of facilities needed for a supply chain
involves the evaluation of cost tradeoffs with other
functional areas:
○ Transportation costs
○ Cost of lost sales
○ Warehousing costs
○ Inventory costs
• Own or contract?
○ Private DCs are internal facilities owned by the organization
○ Public warehousing is the traditional external distribution
option
○ Contract warehousing is a customized version of public
warehousing in which an external company provides a
combination of distribution
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 Distribution Planning and Strategy, continued

● Facility Considerations
• First facility consideration is to determine the size of
each operation within the network.
○ An area may be needed for processing rework and returns
○ Office space is needed for administrative and clerical
activities
○ Space must be planned for miscellaneous requirements

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part.
 Figure 11.6
Distribution Cost Tradeoffs

Source: Edward J. Bardi, Ph.D.

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part.
 Figure 11.7
Distribution Cost Comparison

Source: Edward J. Bardi, Ph.D.

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 Table 11.2
Factors Affecting Distribution Facility Ownership

Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in 18
part.
 Table 11.3
Facility Layout Principles

Source: Brian J. Gibson, Ph.D.

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 Distribution Execution
● Product-Handling Functions
• Receiving – transferring goods into facility
• Put away – moving goods into storage locations
• Order picking – selecting goods for customers
• Replenishment – moving product from storage
locations to picking slots
• Shipping – loading goods for delivery
● Support Functions
• Inventory control
• Safety, maintenance, and sanitation

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 Distribution Execution, continued

● Support Functions, continued

• Security
• Performance analysis
• Information technology

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 Figure 11.8
Primary Distribution Center Processes

Source: Brian J. Gibson, Ph.D.

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 Table 11.4
Best Practices in Order Picking

Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2
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 Distribution Metrics
● Customer Facing Measures
• Order accuracy and order completeness
○ Customers want to receive the exact products and
quantities that they ordered, not substitute items,
incorrectly shipped items, or wrong quantities
○ Timeliness is a critical component of customer service
○ Perfect order index (POI)
• Perfect order index (POI)
○ Delivered to the right place
○ at the right time
○ in defect-free condition
○ with the correct documentation, pricing, and invoicing

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 Distribution Metrics, continued

● Internal Measures
• Distribution cost efficiency
• Aggregate cost efficiency
○ Total distribution spending versus goal or budget
• Asset utilization
• Resource productivity
○ Distribution costs averaging nearly 10 percent of a sales
dollar
• Resource efficiency

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 Table 11.5
DC Metrics and Benchmarks

Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44
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 Distribution Technology
● Warehouse Management Systems
• Software control system that improves product
movement and storage operations
• Value-added capabilities
○ Generate performance reports
○ Support paperless processes
○ Enable integration of materials handling equipment
○ Picking systems
○ Sorting systems
○ Leverage wireless communication

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 Distribution Technology, continued

● Automatic Identification Tools

• Technologies helping machines identify objects.
○ Barcode scanners
○ Mobile computers
○ Wireless local area networks (LAN)
○ RFID

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 Summary
● Distribution operations perform inventory handling,
storage, and processing activities to create time and
place utility for the supply chain.
● A variety of supply chain challenges—balancing supply
and demand, protecting against uncertainty, and
promoting transportation economies, among others—can
be addressed by distribution facilities.
● Four primary functions are carried out by traditional
distribution facilities: (1) accumulation, (2) sortation, (3)
allocation, and (4) assortment.
● Distribution operations are taking on value-adding
roles—assembly, kitting, product postponement,
sequencing, etc.—to complement their basic functionality
and to support evolving supply chain needs. 29
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 Summary, continued

● Tradeoffs must be made between space, equipment,

and people—the primary resources available to
distribution managers.
● It is critical to match distribution processes to the items
being handled to protect product integrity, promote
customer service and satisfaction, and provide greater
control of the inventory.
● Distribution network design issues involve
centralization/decentralization of inventory, the number
and location of facilities, and facility ownership.
● Effective facility planning—operational size, layout, and
product placement—positively impacts labor productivity
and response time.

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 Summary, continued

● Distribution execution involves five primary processes

related to the handling and storage of product: (1)
receiving, (2) put-away, (3) order picking, (4)
replenishment, and (5) shipping.
● Fulfillment support functions provide coordination
between key processes and across the supply chain,
protect the organization’s inventory investment, and
improve working conditions within the facility.
● Distribution KPIs address asset utilization, labor
productivity, and cost efficiency of the operation, as well
as customer service quality issues and the ultimate goal
of perfect order fulfillment.

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 Summary, continued

● Warehouse management systems software solutions

improve product movement and storage operations
through efficient management of information and
completion of distribution tasks.
● Barcodes and RFID are the automatic identification tools
of choice in distribution to help track, locate, and move
product quickly—with near-perfect accuracy rates to their
consumers.

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