Distribution Networks and

Omni Channel Retailing

Dr. Javad Feizabadi

Most of the slides are adopted from

Chopra, S. (2019). Supply Chain Management: Strategy, Planning,
and Operations. Pearson, Seventh Edition
Distribution Network Design in the Supply
Chain

Distribution – the steps taken to move and store a

product from the supplier stage to the customer stage in a
supply chain

Drives profitability by directly affecting supply chain cost

and the customer value

Choice of distribution network can achieve supply chain

objectives from low cost to high responsiveness
 PCs:
• Dell:
• Direct distribution to end consumers,

Different • Starting in 2007, selling its PCs through resellers such as

Walmart

Distribution
• HP: Distribute through resellers
• Gateway:
• Use a showroom/Gateway Country stores for customers to

Choices by
configure their PCs
• Ship directly from the factory to the customers.
• By 2004, Gateway had closed all its stores due to poor financial

Different
performance.
• Apple: has opened many retail stores to sell computers.

Supply
P&G:
• Distribute directly to large supermarket chains

Chains?!
• Small customers buy the products from distributors
Texas Instrument:
• 30% of its volume to 98% of its customers through distributors
• Ship directly to the remaining 2% of the customers with 70% of
the volume
 Factors Affecting Distribution Network
Design
• Distribution network performance evaluated along two dimensions:

1. Value provided to the customer

2. Cost of meeting customer needs
• Evaluate the impact on customer service and cost for different
distribution network options
• Profitability of the delivery network determined by revenue from met
customer needs and network costs
Factors Affecting Distribution
Network Design

• Elements of customer service influenced by

network structure :
• Response time
• Product variety
• Product availability
• Customer experience
• Time to market
• Order visibility
• Returnability
• Amazone vs Barnes & Noble
Factors Affecting Distribution
Network Design

• Supply chain costs affected by network structure:

• Inventories
• Transportation
• Facilities
• Information
Desired Response Time and Number of Facilities
Relationship Between Desired Response Time and Number of Facilities

Required
number
of facilities

Desired
Response
Time
Inventory Costs and Number of Facilities
Relationship Between Number of Facilities and Inventory Costs

Inventory
Cost

Number
of Facilities
Transportation Costs and Number of Facilities
Relationship Between Number of Facilities and Transportation Cost

Transportation
Cost

Number
of Facilities
 Facility Costs and Number of Facilities
Relationship Between Number of Facilities and Facility Costs

Facility
Cost

Number
of Facilities
Logistics Cost, Response Time, and Number of
Facilities
Variation in Logistics Cost and Response Time with Number of Facilities

Response
Time

Total Logistics Cost

= Inventory+Facility+Transportation

Number
of Facilities
 Online Sales and Omni-
Channel Retailing

Traditional retailing and

successful concepts that have
gone out of business! Video renting:
• Recent releases from Redbox
• Selling books: Borders Inc. kiosks

• Selling consumer electronics: Major • A variety of other movies from

transformation Netflix
Circuit City
Electronic needs:
• Renting Videos: Blockbuster
• Basic needs to purchase from a
brick and mortar like Costco
• Shopping online for a wide
variety of consumer electronics
Online Sales and
Omni-Channel
Retailing

• Omni-channel retailing
• The use of multiple
channels to interact with
customers and fulfill their
orders (e.g., click and
collect)
• Three flows
• Information
• Products
• Funds
 e.g., Supermarkets, e.g., apparel
jewerly stores, retailer like
Chapter 4 ◆ Designing Distributiondepartment
Networks and stores and to Omni-Channel RetailingBonobos
Applications
book stores

Showrooms
Traditional + Home
Face-to-face
Retail Delivery /
Alternatives Pickup
in Omni- Information
Channel Online
Online
Information
Retailing Remote Information
+ Home
+ Pickup
Delivery

Pickup Home Delivery

e.g., click and collect , Product
Tesco, Walmart, ASDA, e.g., Amazon
Figure 4-12 Alternatives in Omni-Channel Retail

These showrooms facilitate a face-to-face information exchange but do not carry

 • Traditional Retail
Alternatives • Face-to-face interaction
in Omni- • Customer leaves with product
Channel • Many facilities close to customers
• High level of inventory
Retailing • Low transportation costs
Alternatives in
Omni-Channel
Retailing
• Showrooms
• Face-to-face interaction
• Product ordered for later
pickup
• Low level of inventory
• Smaller facilities
• More transportation and
information infrastructure than
traditional retail
 Alternatives in
Omni-Channel
Retailing

• Online Information + Home Delivery

• Aggregation of inventories
• Few locations
• High transportation costs
• Online Information + Pickup
• Reduces outbound transportation
costs
• Customer must travel to pickup
location
Performance of Channels
Picking up physical products faster
Response time to than other channels
customers Online channel may be fastest for
information goods

Easier to offer larger selection

Product variety remotely

Aggregating inventory improves

Product availability product availability
Performance of Channels
Channels have complementarity
Customer experience strengths

Online/showrooms are quicker

Faster time to market than retailing

Critical for showrooms or

Order Visibility online
Automatic in retail
Performance of Channels
Returnability
Easier with physical locations
Proportion of returns likely to be
higher when information exchange
is remote

Direct Sales to Manufacturers can use remote

information exchange for direct
Customers access to customers

Efficient Funds Transfer Internet and smartphones

 Relative Costs for Omni-Channel Alternatives

Blank Traditional Showrooms + Online Online

Retail Home Information + Information +
Delivery Home Pickup
Delivery
Inventory High Low - Medium Low Low - Medium
Facilities High Medium Low Low - Medium
Transportation by Low High High Medium
retailer
Transportation High High Low Medium
by customer
Information Low High High High