1. Facility Decisions
Network Design in a Supply Chain
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2. The Role of Distribution
in the Supply Chain
x Distribution: the steps taken to move and store a
product from the supplier stage to the customer
stage in a supply chain
x Distribution directly affects cost and the customer
experience and therefore drives profitability
x Choice of distribution network can achieve supply
chain objectives from low cost to high
responsiveness
x Examples: Wal-Mart, Dell, Proctor & Gamble,
Grainger
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3. Factors Influencing
Distribution Network Design
x Distribution network performance evaluated along
two dimensions at the highest level:
– Customer needs that are met
– Cost of meeting customer needs
x Distribution network design options must
therefore be compared according to their impact
on customer service and the cost to provide this
level of service
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4. Factors Influencing
Distribution Network Design
x Elements of customer service influenced by network
structure:
– Response time
– Product variety
– Product availability
– Customer experience
– Order visibility
– Returnability
x Supply chain costs affected by network structure:
– Inventories
– Transportation
– Facilities and handling 4

5. Service and Number of Facilities
(Fig. 4.1)
Number of
Facilities
Response Time
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6. Design Options for a
Distribution Network
x Manufacturer Storage with Direct Shipping
x Manufacturer Storage with Direct Shipping and
In-Transit Merge
x Distributor Storage with Carrier Delivery
x Distributor Storage with Last Mile Delivery
x Manufacturer or Distributor Storage with
Consumer Pickup
x Retail Storage with Consumer Pickup
x Selecting a Distribution Network Design
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7. Manufacturer Storage with
Direct Shipping (Fig. 4.6)
Manufacturer
Retailer
Customers
Product Flow
Information Flow
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8. In-Transit Merge Network (Fig. 4.7)
Factories
Retailer In-Transit Merge by
Carrier
Customers
Product Flow
Information Flow
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9. Distributor Storage with
Carrier Delivery (Fig. 4.8)
Factories
Warehouse Storage by
Distributor/Retailer
Customers
Product Flow
Information Flow
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10. Distributor Storage with
Last Mile Delivery (Fig. 4.9)
Factories
Distributor/Retailer
Warehouse
Customers
Product Flow
Information Flow
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11. Manufacturer or Distributor Storage with
Customer Pickup (Fig. 4.10)
Factories
Retailer Cross Dock DC
Pickup Sites
Customers
Customer Flow
Product Flow
Information Flow 11

12. Distribution Networks in Practice
x The ownership structure of the distribution
network can have as big as an impact as the type
of distribution network
x The choice of a distribution network has very
long-term consequences
x Consider whether an exclusive distribution
strategy is advantageous
x Product, price, commoditization, and criticality
have an impact on the type of distribution system
preferred by customers
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13. Network Design Decisions
x Facility role
- flexibility of Toyota since 1997
x Facility location
- Amazon.com : a single warehouse in Seattle
x Capacity allocation
- Allocating too much  poor utilization
- Allocating too little  poor responsiveness, high cost
x Market and supply allocation
- Amazon.com : built new warehouses due to grown markets
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14. Factors Influencing Network Design
Decisions
x Strategic – Cost vs. Responsiveness
ex) Apparel producers, Convenience stores, Discount stores
x Technological
– Economies of scale  few high-capacity locations
ex) Manufacturer of computer chips
– Lower fixed costs  many local facilities
ex) Bottling plants for Coca-Cola
x Macroeconomic
– Tariffs, Tax incentives, Exchange rate and Demand risk
x Political
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15. Factors Influencing Network Design
Decisions (continued)
x Infrastructure
– availability of sites & labor
– proximity to transportation terminals, rail service, airports
and seaports
– highway access, congestion, local utilities
x Competitive – Close vs. Far
ex) Retail stores in a mall, Supermarkets
x Logistics and facility costs
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