||Jai Sri Gurudev||

SJC Institute of Technology

Supply Chain Management
Module 3 Questions and answers
Module 3
Part 1
1 Explain the objectives and functions of Warehouses or stores
The simplest (and very outdated) definition of the warehouses or stores is that it is the place where one
keeps (or offloads) material for some time before its use.

According to a more functional definition of stores, it is a place where following activities are carefully undertaken:
Receipt of goods, timely procurement of materials, accounting the transactions, minimizing obsolescence, surplus &
scrap by proper identification and using correct preservation methods, ensuring good housekeeping by accurately and
timely updation, issue of receipts, ensuring issues and other documentation and handling other issues pertaining to
storage and cleanliness.

In some cases, the procurement and optimization of inventory is also added to the functions of stores. For example, the
store’s manager may be given the additional powers to procure urgently required items.
In other words, the functions of stores can be classified as follows:
(a) To receive raw materials, components, tools, equipment and other items and account for them,
(b) To provide adequate and proper storage and preservation to the various items,
(c) To meet the demands of the user departments by proper issues and account for the consumption,
[d) To minimize obsolescence, surplus and scrap through proper codification, preservation and handling,
(e) To highlight stock accumulation, discrepancies and abnormal consumption and evolve effective control measures,
(f) To ensure good housekeeping so that material handling, material preservation, stocking, receipt and issue can be
done equately, and
(g) To assist in verification and provide supporting information for effective purchase action.

2 Explain Warehouses or stores systems and procedures

Broadly, the systems in stores can be studied under three areas namely, receipt, issue and
documentation. It may be seen that at every stage a great deal of information is required for checking,
controlling and feedback purposes. Well-designed stores systems and procedures ensure timely
information for decision making, particularly because stores is the starting point of all activities for
control. Let us briefly consider the systems and procedures in each area.
Management of Receipts

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 The inputs into stores or receipts can emanate from internal as well as external sources. The procedures
start even before the material reaches the stores when a Purchase Order (PO) is placed on the vendor. In
certain organizations, the stores and purchase activities are bifurcated, but care should be taken to ensure
close coordination.

The details should be maintained in a chronological order to enable the ease of understanding. The
scope of work involves following functions:
(a) Requirement determination,
(b) Raising purchase requisition,
(c) Chasing purchase orders to expedite supplies,
(d) Scheduling arrival of materials,
(e) Receiving the materials physically and planning for storage,
(f) Quantity & quality inspection,
(g) Checking input documents like invoice, lorry receipt, delivery challans and other challans, invoices
etc.,
(h) Taking stock of material received and also of rejected material,
(i) Endorsing the suppliers bills and quantities and forwarding for payment to accounts, Provisional
goods inwards in case of later inspection,
(k) Final goods inwards in case of final acceptance of goods,
(1) Informing indenting departments of arrival of goods,
(m) Sending paperwork to purchase accounts for payment,
(n) Updating insurance paperwork for latest goods arrival, and
(0) In case of demurrages, arrange for insurance company visit.
Issue Control
We now come to the stage namely, issues. Issues can be further divided into issues to consuming
departments, and issues to outside suppliers for processing or conversion. In both cases, there are certain
common system requirements. The first aspect is the control of issues. Issues are based on scheduling of
project. The second aspect is delegation of authority. Here, in this unit, we are concerned only with the
first aspect. The scope of this issue control involves the issue of the right material, in the right quantity,
to the right personnel, at the right time and place on receiving the right authorization, maintaining the
records for the same. Based on consumption schedules/production programs, listing for each material,
quantity to be issued for each project for that material is made and circulated to all concerned. This
automatically controls consumption as the work order issued details on the quantity of material to be

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 issued by the stores and the stores personnel are not authorized to issue beyond these quantities. Thus,
for routine work, operations get streamlined and free of bureaucracy. The stores also keeps check on
inventory and raises alarms or raises purchase orders (as the case may be) from time to time. Care
should be exercised that work is not held up for the want of materials. One time issues like bathtubs,
furniture, almirahs etc. are to be accounted for separately. Proper weighing and counting equipment
should be used for issuing bulk materials. Thus, these instruments need to be calibrated frequently.
Provision should be made for emergency issue and procedures should be clearly defined for all
concerned to regularize this.
Stores Documentation
All the documents received or generated in-house should be properly categorized and a
numbering
system should be developed for proper storage and quick retrieval. Besides the receipt and issue
documents, some other methods of documentation necessary are given below:
(a) Bincard or kardex,
(b) Stores transfer voucher (from one stores to another),
(c) List of slow moving/fast moving/obsolete items,
(d) Scrap disposal,
(e) Rejection notes,
(f) Acceptance notes,
(g) Delivery notes,
(h) Travel requisitions,
(i) Tour and expense reports,
(j) Impress details,
(k) Indents,
(1) Codification methodology, and
(m) Material requirement planning.

3 Explain stock verification process

Stock Verification
As mentioned earlier, the stock verification is the determination or quantification of the material
in stock and checking its deviation from the figures shown in the books. The store’s manager holds the
responsibility for all happenings in the store. He must periodically verify all stocks to reconcile the

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 books with the physical presence of the material. The problems mount as the number of items or the
number of transactions increase. Stock verification also checks for pilferage and shows the qualitative
upkeep of the stores. The causes for discrepancy in stock can be due to the following reasons:
(a) The scales or weighing machines etc. have not been properly calibrated or are not of good quality
or being maintained improperly,
(b) Issues without indents or proper paperwork,
(c) Delays in updating paperwork,
(d) Untrained individuals handling paperwork,
(e) Pilferage,
(f) Obsolescence,
(g) Deterioration and damage due to natural causes like corrosion, insect damage, rodent damage or
seepage of rainwater.
(h) Deterioration and damage due to unnatural causes like theft, sabotage etc.
The process of verification is the physical counting, weighing or measuring the stock of materials that is
in stock and making a record of these figures.

4 Explain WASTE MANAGEMENT - DISPOSAL OF SURPLUS, OBSOLETE AND

SCRAP

Before going into the details of waste management, some of the important terms, i.e. surplus, obsolete
and scrap etc. need to be defined.
Surplus: These are materials which have no immediate use or at least in the foreseeable future. They
have accumulated due to faulty planning, forecasting and purchasing. Sometimes, they may have
accumulated since they are standardly bought in quantities only and not in loose form where they would be
more expensive. In short, surplus stocks are the items which are in excess of their requirement.
Obsolete Stocks: They are those items which are not damaged and have economic worth but are not
suitable for the company's specific operations. For example, the spare parts of machines that have been
phased out. hanges in product design, technological advancements, rationalization, food and drugs whose
effectiveness has lapsed over time, wrong codification etc. are some of the reasons why obsolescence
occurs. As the name implies, they are non-moving items of the inventory. The difference in obsolete and
surplus lies in the potential for usage. Surplus items are only in excess of what is required, obsolete items
cannot be used at all. Salvageable Items: These are items which cannot be used for the original purpose but
out of which certain parts may be removed and used either with or without rework. For example, the motor

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 of a spoilt air-conditioner may be used for other air-conditioners. While removing, these motors should
again be regularized as spares for inventory purpose.
Reclaimable Items: These are items which have worn out by use but their life can be extended by some
specialized processes. An example is worn out tyres which can be retreated. Before reclaiming items, their
extended life should be properly determined as sometimes reclaiming is expensive and the extended life is
not commensurate to the cost incurred.
Scrap: This is another term which is used to describe material not useful to the organization (sometimes,
used also for obsolete and surplus items when these are not useful to the organization). Scrap can be defined
as the residue from a construction or manufacturing process which cannot be used economically within the
organization. Typical scrap material in the construction industry are empty tins, drums, and packing material
etc.

5 Explain Reasons for Obsolescence and control of Obsolescence

Following are some of the reasons of obsolescence:
(a) Development of better and more efficient or cost economic technology,
(b) Advent of new Automation technologies and design changes,
(c) Standardization of items within the organization,
(d) Cannibalization of equipment to obtain spares for the other,
(e) Incorrect purchase practices like buying in bulk, and
(f) Faulty store keeping or inefficient material handling.
Control of Obsolescence
Computerized maintenance of records can help largely in identifying potential obsolete items. Market
intelligence should be practiced as a norm. Using the FSN analysis, the non-moving (N) items can be
tracked. Care should be taken that the critical or insurance items are not be included in this list. This method
can also be combined with the XYZ analysis to identify obsolete items. X -items account for 70% of value
but about 10% of stock items,
Y -items account for 20% of value but about 20% of stock items, and
Z - items account for 10% of value but about 70% of stock items.
Here, items coming in Y and Z category need attention whereas X category items are very critical as they
constitute a large value. Other than very necessary or insurance items, the excess items should be
used or disposed quickly.
One way of controlling can be to introduce buyback clause or having centralized purchase which can
better plan to keep a low spares level as it can divert these to other sites.

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 6 Explain Material handling in supply chain management
Classic Material Management included the functions of forecasting, inventory management,
sores management, warehouse, stock keeping and scheduling till it came to include production planning
and production control. since materials constitute almost 60 percept of the cost of most manufactured
products at least in indian context. The importance of efficient management of materials came to be
recognized by businesses during 1970s as the route to cost reduction and thereby to profitability. The
merger of purchasing, which presented opportunities for reduction in the cost of material inputs, with
materials management, thus became an obvious business compulsion.
Some of the most innovative techniques focusing on reducing total cost of inventories to the
lowest possible levels without compromising on service levels owe their origin and growth to this
stream of knowledge and experience. In relation to supply chain management it may be regarded as the
management of flow of material into, through, and out of an enterprise, adding in the process, value for
the customers both internal and external to the organization.

 7 Explain Transportation and traffic management in supply chain management.

Logistics function in its business application came to be recognized as time and space related
placement of goods to provide improved customer service. Logistics management is the part of supply
chain management process that plans, implements and controls the efficient, effective, forward and
reverse flow and storage of goods, services and related information between the point of origin and the
point of consumption in order to meet customers’ requirements.

Since transportation which is the backbone of logistics accounts for up to 50% of total logistics cost.
there was trade-off between transportation choices and inventory policies led to integration and logistics
emerged as a cross-functional approach that integrates all materials functions of purchasing, inventory
management, production  control, inbound traffic, warehousing and store keeping as well as incoming
quality control with the objective of ensuring efficient operations. Business logistics may be regarded as
the early avtar of supply chain management.

In the context of supply chain management logistics would fall at both ends, that is inbound logistics
and outbound logistics. Intracompany flow of materials is sometimes referred to as manufacturing
logistics.  Supply chain management has thus emerged as an integrative philosophy and a strategic-level
business practice which encompasses flow of material, funds and information throughout the network
that ultimately deliverers value to the customer.

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8 Explain Operational efficiency, Productivity and cost effectiveness in supply

chain management:

Operational efficiency is the ability of an organization to reduce waste in time, effort and
materials as much as possible, while still producing a high-quality service or product. Financially,
operational efficiency can be defined as the ratio between the input required to keep the organization
going and the output it provides. Input refers to what is put into a business to operate properly, such as
costs, employees and time while output refers to what is put out or gained, such as rapid development
times, quality, revenue, customer acquisition and.

Factors of operational efficiency

Operational efficiency is gained through a company by cost-effectively streamlining its base operations
while eliminating redundant processes and waste. Generally, this is done by focusing on resource
utilization, production, inventory management and distribution.

 Resource utilization is focused around minimizing waste in production and operations areas.

 Production focuses on making the production environment as organized as possible. This includes ensuring
that employees and equipment are working as efficiently as they can to increase production.

 Distribution focuses on ensuring efficient handling of the end product, including routing and delivery.

 Inventory management includes producing and managing enough inventory to meet the demand, but with as
little excess inventory as possible.

How to increase operational efficiency

Different strategies may be used to accomplish the goals of operational efficiency and can differ from
company to company. When asked to improve operational efficiency, a company will usually change
inputs and outputs, such as giving less input for the same output, providing more output for the same
input, changing the number of inputs or increasing both input and output.

Organizations should also focus on:

o Monitoring performance by setting up dashboards or internal meetings.

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 o Identifying and minimizing waste, such as ridding bottlenecks.
o Creating benchmarks, which can give your organization an idea of where they stand versus the
competition.

9 Explain Performance measurements in supply chain management

Supply chain performance measure can be defined as an approach to judge the performance of
supply chain system. Supply chain performance measures can broadly be classified into two categories:
 Qualitative measures: For example, customer satisfaction and product quality.
 Quantitative measures: For example, order-to-delivery lead time, supply chain response time,
flexibility, resource utilization, delivery performance.
Here, we will be considering the quantitative performance measures only. The performance of a
supply chain can be improvised by using a multi-dimensional strategy, which addresses how the
company needs to provide services to diverse customer demands.
Quantitative Measures
Mostly the measures taken for measuring the performance may be somewhat similar to each
other, but the objective behind each segment is very different from the other.
Quantitative measures is the assessments used to measure the performance, and compare or
track the performance or products. We can further divide the quantitative measures of supply chain
performance into two types. They are:
 Non-financial measures
 Financial measures
Non-Financial Measures
The metrics of non-financial measures comprise cycle time, customer service level, inventory levels,
resource utilization ability to perform, flexibility, and quality. In this section, we will discuss the first four
dimensions of the metrics:
Cycle Time:
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business
process. For supply chains, cycle time can be defined as the business processes of interest, supply chain process
and the order-to-delivery process. In the cycle time, we should learn about two types of lead times. They are as
follows:
 Supply chain lead time
 Order-to-delivery lead time

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 customer service level:
The customer service level in a supply chain is marked as an operation of multiple unique performance
indices. Here we have three measures to gauge performance. They are as follows:
Order fill rate: The order fill rate is the portion of customer demands that can be easily satisfied from
the stock available. For this portion of customer demands, there is no need to consider the supplier lead time
and the manufacturing lead time. The order fill rate could be with respect to a central warehouse or a field
warehouse or stock at any level in the system.
Stockout rate: It is the reverse of order fill rate and marks the portion of orders lost because of a stockout.
Backorder level: This is yet another measure, which is the gauge of total number of orders waiting to be filled.
Probability of on-time delivery: It is the portion of customer orders that are completed on-time, i.e.,
within the agreed-upon due date.
In order to maximize the customer service level, it is important to maximize order fill rate, minimize
stockout rate, and minimize backorder levels.
Inventory Levels:
As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient
inventory to meet the customer demands. In a supply chain system, inventories can be further divided into four
categories.
 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts
Resource Utilization:
In a supply chain network, huge variety of resources is used. These different types of resources available for
different applications are mentioned below.
 Manufacturing resources: Include the machines, material handlers, tools, etc.
 Storage resources: Comprise warehouses, automated storage and retrieval systems.  Logistics resources:
Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources: Consist of labor, scientific and technical personnel
 Financial resources: Include working capital, stocks, etc.
Financial Measures:
The measures taken for gauging different fixed and operational costs related to a supply chain are considered
the financial measures. Finally, the key objective to be achieved is to maximize the revenue by maintaining low
supply chain costs.

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 There is a hike in prices because of the inventories, transportation, facilities, operations, technology,
materials, and labor. Generally, the financial performance of a supply chain is assessed by considering the
following items:
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs
 Transportation costs
 Cost of expired perishable goods
 Penalties for incorrectly filled or late orders delivered to customers
 Credits for incorrectly filled or late deliveries from suppliers
 Cost of goods returned by customers
 Credits for goods returned to suppliers

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 Part 2
1 Explain the Role of Network Design in the supply chain.
Supply chain network design decisions include the assignment of facility role; location of manufacturing, or
transportation-related facilities; and the allocation of the capacity and markets to each facility. Supply chain
network design decisions are classified as fallows.
Facility Role: what role should each facility play? What processes are preformed at each facility?
Facility location: where should Facilities be located?
Capacity allocation: How much capacity should be allocated to each facility?
Market and supply allocation: what markets should each facility serve? Which supply sources should feed each
facility?
Network design decisions have a significant impact on performance because they determine the supply
chain configuration and set constraints within which the other supply chain drivers can be used either to
decrease or increases responsiveness. All network design decisions affect one another and must be made taking
this fact into consideration.
Decisions concerning the role of each facility are significant because they determine the amount of
flexibility the supply chain has in changing the way it meets demand.
Facility location decisions have a long-term impact on a supply chain’s performance because it is
expensive to shut down a facility or move it to a different location. A good location decision can help a supply
chain be responsive while keeping its cost low.
Capacity allocation can be altered more easily than location, capacity decisions do tend to stay in place
several years. Allocating too much capacity to a location results in poor utilization and as a result higher costs.
Allocate too little capacity results in poor responsiveness if demand is not satisfied.
The allocation of supply sources and market to facilities has a significant impact on performance because
it affects total production, inventory and transportation costs incurred by the supply chain to satisfy customer
demand. this decision should be reconsidered on a regular basis so that the allocation can be changed as
production and transportation costs, market conditions or plant capacity change. The allocation of markets and
supply Sources can be changed only if the facilities are flexible enough to serve different markets and receive
supply from different sources.

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2 Explain the frame work for network distribution design decisions.

Phase1 : Define a supply chain strategy/design

Phase 2: Define the regional facility configuration
Phase 3 : select a set of desirable potential sites
Phase 4 : Location choices

PHASE 1: Define supply chain strategy/ Design :

Starts with a clear definition of the firm’s competitive strategy as the set of
customer needs that the supply chain aims to satisfy, the supply chain strategy then
specifies what capabilities the supply chain must have to support the competitive
strategy. The manager must forecast the likely evolution of global competition and
whether competitors in each market will be local or global players. Managers must
also identify constraints on available capital and whether growth will be
accomplished by acquiring existing facilities, building new facilities or partnership
Based on the competitive strategy of the firm, its resulting supply chain
strategy, an analysis of the competition, any economics of scale or scope, and any
constraints, managers must determine the broad supply chain design for the firm.
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 Phase II: Define the regional facility configuration
The objective of the second phase of network design is to identify regions
where facilities will be located, their potential roles and their approximate capacity.
Phase II starts with a forecast of the demand by country or region. The next step is
for managers to identify whether economics of scale can play a significant role in
reducing the costs, given available production technologies.
Next manager must identify demand risk , exchange risk and political risk
associated with the regional markets. they must also identify regional tariffs, any
requirements for local production, tax incentives and any export or import
restrictions for each market.
Managers must identify competitors in each region and make a case for
weather facility needs to be located close to or far from competitor’s facility. the
desired response time for each market and logistics costs at an aggregate level in
each region must also be identified.

Phase III: select a set of Desirable potential sites.

The objectives of Phase III is to select a set of potential sites within each
region where facilities are to be located. Sites should be selected based on an
analysis of infrastructure availability to support the desired production
methodologies. Hard infrastructure requirements include the availability of
suppliers, transportation services communication, utilities and ware-housing
facilities. Soft infrastructure requirements include the availability of a skilled
workforce, workforce turnover, and the community receptivity to business and
industry.

Phase IV : Location Choices.

The objective of phase IV is to select a precise location and capacity
allocation for each facility. Attention is restricted to the desired potential sites
selected in Phase III. The network is designed to maximize total profits, taking into
account the expected margin and demand in each market, various logistics and
facility costs, and the taxes and tariffs at each location.

3 Explain the Factors influencing the supply chain network design decision.
• Strategic factors.
A firm’s competitive strategy has a significant impact on network design decisions within the
supply chain. Firms that focus on cost leadership tend to find the lowest cost location for their manufacturing
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facilities. Firms that focus on responsiveness tend to locate facilities closer to the market and may select a high-
cost location if this choice allows the firm to react quickly to changing market needs.
• Technological factors.
Characteristics of available production technologies have a significant impact on network
design decisions. If production technology displays significant economies of scale, a few high-capacity
locations are most effective. In contrast if facilities have lower fixed costs, many local faculties are
preferred because this helps lower transport costs.
• Macro economic factors.
Macro economic factors include taxes, tariffs, exchange rates and shipping costs that are not
internal to an individual firm. As global trade has increased, Macro economic have had a significant
influence on the success or failure of supply chain networks. Thus it is imperative that firms take these
factors into account when making network design decisions.
• Tariffs and tax incentives.
Tariffs refer to any duties that must be paid when products or equipment are moved across
International, state or city boundaries. Tariffs have a strong influence on the location decisions within a
supply chain. Tax incentives are a reduction in taxes that countries, states, and cities often provide to
encourage firms to locate their facility in specific area .many countries very incentives from city to city
to encourage investments in area with lower economic development. Developing countries often create
free trade zones in which duties and tariffs are relaxed as long as production is used primarily for
exports.
• Exchange-rate and demand.
Fluctuations in exchange rates are common and have a significant impact on the profit of
any supply chain serving global markets. Exchange- rate risks may be handled using financial
instruments. Suitably designed supply chain networks, however, offer the opportunity to take advantage
of exchange-rate Fluctuations and increase profits.
• Fright and fuel costs.
Fluctuations in fright and fuel costs have a significant impact on the profits of any global
chain. When designing supply chain networks, companies must account for fluctuations in exchange
rates, demand, and fright and fuel costs.
• Political factors.
The political stability of the country under consideration plays a significant role in
location choice. Companies prefer to locate facilities in politically stable countries where rules of

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 commerce and ownership are well defined. While political risk is hard to quantify, there are some
indices like the global political risk(GPI) that companies can use when investing in emerging markets.
• Infrastructure factors.
The availability of good infrastructure is an impartment prerequisite to locating a facility
in a given area. Poor infrastructure adds to the cost of doing business from a given location. Key
infrastructure elements to be considered during network design include availability of sites and labor,
proximity to transportation terminals, rail service, proximity to airport and seaports, highway access,
congestion, and local utilities.
• Competitive factors.
Companies must consider competitor’s strategy, size and location when designing their
supply chain networks. A fundamental decision firms make is whether to locate their facilities close to
or far from competitors. The form of competition and factors a as raw material or labor availability
influence this decision.
• Positive externalities between firms.
Positive externalities occur when the collection of multiple firms benefits all of them.
Positive externalities lead to competitors locating close to each other. By locating together in a mall,
competing retail stores make it more convenient for customers, who need drive to only one location to
find everything they are looking for. This increases the total number of customers who visit the mall,
increasing demand for all stores located there. Another example of positive externality occur when the
presence of a competitor leads to the development of appropriate in developing area.

• Locating to split the market.

When there are no Positive externalities, firms locate to be able to capture the largest share of
the market.
• Socioeconomic factors.
The government of india has a matter of state policy, promoted industrial development of
industrial backward areas in the country concentrating in particular on the northeastern region, Jammu
& Kashmir, himachal Pradesh and uttrakhand. The industrial policy aims to spread industrialization to
backward areas of the country through institutions, appropriate initiatives and infrastructure investments
that would facilitate private investment.
• Customer response time and local presence.
Firms that target customers who value a short response time must locate close to them.
Customers are unlikely to come to a continence store if they have to travel a long distance to get there. It
is thus best for a convenience store chain to have many stores distributed in an area so that most people
have a convenience store close to them. In contrast customers shop for large quantity of goods at

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 supermarkets and willing to travel longer distance to get to one. Thus supermarket chains tend to have
stores that are larger than convenience stores and not as densely distributed.
• Logistics and facility costs.
Logistics and facility costs incurred with in supply chain change as the number of facilities,
their location, and capacity allocation change. Companies must consider inventory, transportation, and
facility costs when designing their supply chain networks. Logistics and facility costs increases as the
number of facilities in a supply chain increases. Transportation costs decreases as the number of
facilities increases. If the number of facilities increases to the point at which inbound economies of scale
are lost, then transportation cost increases. Total logistics cost are sum of the inventory, transportation,
and facility costs.

4 Explain models for facility location and capacity allocation.

• A manager’s goal when locating facilities and allocating capacity should be to maximize the overall
profitability of the resulting supply chain network while providing customers with the appropriate
responsiveness.
• Revenue comes from the sales of products, where costs arise from facilities, labor, transportation,
material, and inventories.
• The profit of the firm are also affected by taxes and tariffs. Ideally, profits after tariffs and taxes should
be maximized when designing a supply chain network.
• a manager must consider many trade-offs during network design. For example building many facilities
to serve local markets reduce transportation cost and provides a fast response time, but it increases the
facility and inventory costs incurred by the firm.
• Managers use network design models in two situations.
• First these models are used to decide on locations where facilities will be established and the capacity to
be assigned to each facility. Managers must make this decisions considering a time horizon over which
locations and capacities will not be altered
• Second these models are used to assign current demand to the available facilities and identify lanes
along which product will be transported.
• Managers must consider this decision at lest on an annual basis as demand, price, exchange rates, and
tariffs change. In both cases.
• The goal is to maximize the profit while satisfying customers need.

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5 Explain Distribution center location models.
or
Explain Gravity location model
 During Phase III, A Manager identifies potential locations in each region where the company has
decided to locate a plant.
 As a preliminary step, the manager needs to identify the geographic location where potential sites may
be considered.
 Gravity location models can be useful when identifying suitable geographic locations within a region.
 Gravity models are used to find locations that minimize the cost of transporting raw materials from
suppliers and finished goods to the markets served

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6 Explain the role of distribution in the supply chain
 Distribution refers to the steps taken to move and store a product from the supplier stage to a
customer stage in the supply chain
 Raw materials and components are moved from supplier to manufactures, whereas finished
products are moved from the manufacturer to the end consumer
 Apparel industry – 35% of revenue goes to distribution.
 Cement industry – 30% of revenue goes to distribution.
 The process of designing a distribution network has two broad phases.

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  The first phase, the broad structure of the supply chain network is visualized. This phase
decides the number of stages in the supply chain and the role of each stage.
 The second phase then takes the broad structure and converts it into specific locations and
their capability, capacity, and demand allocation
7 Explain the factors influencing distribution network design
Performance of distribution network should be evaluated along two dimensions:
i. Value provided to the customer
ii. Cost of meeting customer needs
Measures that are influenced by the structure of The distribution network in value creation to customer:
1 Value provided to the customer
 Response time: amount of time it takes for a customer to receive an order
 Product variety: number of different products or configurations that are offered
By the distribution network.
 Product availability: probability of having a product in stock when a customer order
arrives.
 Customer experience: ease with which customers can place and receive orders and the
extent to which this experience is customized.
 Time to market: the time it takes to bring a new product to the market
 Order visibility: ability of customers to track their orders from placement to delivery
 Returnability : ease with which a customer can return unsatisfactory merchandise and the
ability of the network to handle such returns.
2 Cost of meeting customer needs

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8 Explain distribution strategies.
One of six distinct distribution network designs may be used to move products from factory to
customer. These designs are classified as fallows.

1. Manufacturer storage with direct shipping

2. Manufacturer storage with direct shipping and in-transit merge
3. Distributor storage with carrier delivery
4. Distributor storage with last-mile delivery
5. Manufacturer/ distributor storage with customer pickup
6. Retail storage with customer pickup

9 Manufacturer storage with direct shipping

 Also known as drop shipping, in this option, product is shipped directly from the manufacturer to
the end customer, bypassing the retailer.
 The retailer carries no inventory. Information flow from the customer, via the retailer, to the
manufacturer, and product is shipped directly from the manufacturer to customers.
 The biggest advantage of drop-shipping is the ability to centralize inventories at the manufacture,
which can aggregate demand across all retailers that it supplies.
 As a result the supply chain is able to provide a high level of product availability with lower
levels of inventory.
 A key issue with regard to drop-shipping is the ownership structure of the inventory at the
manufacturer.
10 Manufacturer storage with direct shipping and in-transit merge

 In-transit merger combines pieces of the order coming from different locations so the customer
gets a single delivery.
 When a customer ordered a PC from Dell along with a Sony monitor, the package carrier picked
up the PC from the Dell factory and the monitor from the Sony factory; it then merged the two at
a hub before making a single delivery to the customer.

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  This approach has the greatest benefits for products with high value whose demand is difficult to
forecast, particularly if product customization can be postponed.
 Response times, product variety, availability and time to market are similar to those for drop-
shipping.
11 Distributor storage with carrier delivery
 Under this option, inventory is held not by Manufactures at the factories, but by distributors/
retailers in intermediate warehouses, and package carriers are used to transport products from the
intermediate location to the final customer.
 Relative to manufacturer storage, distributor storage requires a higher level of inventory because
of a loss of aggregation.
 Transportation costs are somewhat lower as shipments can be done from a warehouse, which is
closer to the customer.
 Compare with those manufacturer storage, facility costs are somewhat higher with distributor
storage because of a loss of aggregation.
 Response time under distributor storage is better as warehouses can be nearer to customers.
4 Distributor storage with last-mile delivery
 Last-mile delivery to the distributor/retailer delivering the product to the customer’s home
instead of using a package carrier.
 The automotive spare parts industry is one in which distributor storage with last-mile delivery is
the dominant model.
 Unlike package carrier delivery, last-mile delivery requires the distributor warehouse to be much
closer to the customer
 Distributor storage with last-mile delivery requires higher levels of inventory than the other
options.
 Transportation costs are the highest for last-mile delivery.
5 Manufacturer/ distributor storage with customer pickup
 In this approach, inventory is stored at the manufacturer or distributor warehouse, but customers
place their orders online or on the phone and then travel to designated pickup points to collect
their merchandise.
 Inventory costs, transportation costs using this approach can be kept low.
 Facility costs are high if new pickup sites have to be built.
6 Retail storage with customer pickup
In this option, often viewed as the most traditional type of supply chain. Inventory is sored
locally at retail stores, ex Metro reliance mart.
Local storage increase inventory costs, transportation costs is much lower, good response
times can be achieved, product variety stored locally is lower than that under other options.

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