Channels of Distribution July 23

Management

Channels of Distribution
Management
(MKT943)

Dr. Karim M. Soliman

Graduate School of Business - Smart Village Campus
Arab Academy for Science, Technology, and Maritime Transport

Facility Location

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Channels of Distribution July 23
Management

Importance of Location
• Gives structure to the network
• Significantly affects inventory and transportation costs
• Impacts on the level of customer service to be achieved

Jul-23 Channels of Distribution Management 3

Facility location decisions

• Decisions
• Number of facilities
• Location of facilities
• Size of facilities
• Facilities
• Plants, ports, vendors, warehouses, DC, retail outlets, service centers

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Management

Micro Issues Influencing Channel Design

Determining overall channel network objectives
Determining transportation costs
Personnel considerations
Real estate considerations
Tax considerations
Communications infrastructure
Proximity to customers
Proximity to other warehouses
Facility cost and value
Operating costs
Company image
Jul-23 Community resources
Channels of Distribution Management 5

Service and Retail Locations

• Manufacturers – cost focused
• Service and retail – revenue focused
• Traffic volume and convenience most important
• Demographics
• Age
• Income
• Education
• Location, location, location
• Good transportation
• Customer safety

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Management

Comparison of Service and Manufacturing

Considerations
Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking
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Channels of Distribution Management

Factor-Rating Method
Site Scores (100 points) Weighted Scores
Decision Issue Weight Chicago San Diego Chicago San Diego
Labor costs 20.0% 18 25 3.60 5.00
Labor availability 14.0% 95 75 13.30 10.50
Transportation costs 14.0% 20 45 2.80 6.30
Transportation availability 14.0% 95 70 13.30 9.80
Taxes 3.0% 10 10 0.30 0.30
Quality of life 8.0% 75 85 6.00 6.80
Infrastructure costs 7.0% 15 20 1.05 1.40
Facilities cost 20.0% 40 45 8.00 9.00
Total 100% Totals 48.35 49.10

Decision Scores
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Channels of Distribution July 23
Management

Center of Gravity Method

• The center of gravity method is used to find a location that Minimizes
the Sum of Transportation Cost in between new facility and old
facilities.
• Transportation cost is assumed to be a linear function of the Number
of Units Shipped AND the Traveling Distance.

Jul-23 Channels of Distribution Management 9

Center of Gravity Method Example

90

Lincoln Store
(90,60)
60 2k demand

Columbia Store
(150,30)
30 3k demand

Austin Store
(90,10)
5k demand

0
0 30 60 90 120 150

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Channels of Distribution July 23
Management

Example
• Aldrich Manufacturing Company plans to build a Warehouse to serve
its Distribution Centers in Columbus (Ohio), Frankfort (Kentucky),
Nashville (Tennessee), and Richmond (Virginia).

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Example

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Management

Example

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Example
• Using the equations of center of gravity:
• Cx = 2,040,000 / 10,000 = 204 (x coordinate for new facility)
• Cy = 1,185,000 / 10,000 = 118.5 (y coordinate for new facility)
• The nearest city to (204, 118.5) Charleston at West Virgina.

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Channels of Distribution July 23
Management

Load-Distance Technique
• Compute (Load x Distance) for each site
• Choose site with lowest (Load x Distance)
• Distance can be actual or straight-line

KS

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Jul-23 Channels of Distribution Management

Load-Distance Calculations
n
LD = å ld i i

i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility

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Channels of Distribution July 23
Management

Load-Distance: Example

Potential Sites Suppliers

Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

dC = 434.2 dD = 184.4

Jul-23 Channels of Distribution Management

Load-Distance: Example (cont.)

Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.4 dC = 200 dD = 269.3
Compute load-distance

n
LD = å li di
i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(184.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3

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Channels of Distribution July 23
Management

Questions ? ? ?

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Transport Operations Decisions

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Channels of Distribution July 23
Management

Fundamental Principles of Transportation

As the volume and weight of the load
Economy of Scale increases, the unit cost of
Three critical factors of transportation:
transportation decreases
• Load volume and weight
The transportation cost per unit of
• Distance
Economy of the load is to
weight be transported
decreases as the distance from
• The speed by which the load is to be point
Distance shipping point to delivery
transported increases
As the speed of the movement of the
Cost of Velocity load increases, the cost of the
transportation increases

Jul-23 Reference: David F. Ross, Distribution Planning and Control, 2nd ed. Norwell, MA: 21
Kluwer Academic, 2004.

Principles of Transportation Operations

Continuous Provide for the uninterrupted flow of goods
Flow through the supply chain

Optimize Unit Ensure cargo fully optimizes transportation

of Cargo vehicle capacities

Maximum Match vehicle size to load weight and volume

Vehicle Unit

Match Vehicle Match vehicle transport characteristics and

to Nature of capacities with the nature of the transit
Transit
environment
Environment
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Management

Principles of Transportation Operations

(cont.)
Use standard transport vehicles and materials
Standardization handling equipment whenever possible

Materials handling equipment should minimize

Unit-load cargo damage and reduce load shift during
Compatibility transport
Minimizing vehicle deadweight (the vehicle
Minimization of
itself, containers, and materials handling
Deadweight
equipment)

Maximize Maximize the percentage of time

Capital, transportation and materials handling
Equipment, & equipment and personnel are in use
Jul-23
Personnel 23

Transportation Principles – Exercise

Principle Example
A Continuous flow Use of 40-ft containers that can be reused for
E
backhaul.
B Optimize unit of cargo
Use of plastic pallets in place of wood pallets for trailer
C Maximum vehicle unit
G loading and transport.

D Adaption of vehicle unit to Use of intermodal transport where containers are

A
volume and nature of the moved from rail to motor transport.
transit environment Use of a tanker motor vehicle to transport gasoline.
D
E Standardization Implementing a transportation management system
H (TMS) to enhance shipper delivery scheduling.
F Compatibility of unit-load
equipment
Consolidating deliveries so that full truckloads are
B
G Minimization of created for shipping.
deadweight to total weight Increasing container size from 20 ft to 40 ft so that a
C
shipment can be stored in one container.
H Maximum utilization of
capital, equipment, and Proper stacking of pallets in a motor transport trailer.
F
Jul-23 personnel
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Channels of Distribution July 23
Management

Questions ? ? ?

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