Types of consulting projects

done in Supply Chain

Chapter - 12

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Introduction to Distribution
Model

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Distribution is the physical part of the supply chain. Its
aim is to get the right products to the factory or
customers on time, unharmed, fast while keeping as little
inventory as possible

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The primary goals of distribution are cost minimization and proper
execution of orders

▪ Minimize the cost per

unit of transportation

Costs
minimization

% of order Cost related to

execution the inventory

▪On Time ▪ Cost of warehousing

▪In Full ▪ Cost of frozen capital
▪Free of Error ▪ Cost of lost sales

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 For transportation we have simple goals that can be measured using
the OT-IF-EF framework

% order execution OT IF EF

▪Delivered on time ▪ In Full – meaning ▪ Error Free –

the exact number exactly what was
as it was supposed asked for with all
to be delivered accompanying
documents

72,9% 90% 90% 90%

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You would also look at the cost per unit. I recommend decomposing it
so you can say more about the drivers of this cost

COST
= COST km or miles LOAD
x x
TONNE km or miles LOAD TONNE

▪ Here you want ▪ Here you want ▪ Here you want

to minimize the to minimize the to increase the
cost of 1 km number of km usage of the
that a single shipment (load)
shipment (load) – have more
has to go tons there
through

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Basic laws of distribution

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 The course is organized into 8 sections and I will be adding new soon

Relationship between Number of Facilities Relationship between Number of Facilities

and Inventory Costs and Facility Costs

Inventory
Facility Costs
Costs

Number Number
of Facilities of Facilities
Relationship between Number of Facilities Variation in Logistics Cost and Response Time
and Transportation Costs with Number of Facilities
Transpor-
tation Cost Response time

Total
Logistics Cost

Number Number
of Facilities of Facilities
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Different types of distribution

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 There is no idle distribution scheme. Each and every has its pros and
cons

Direct shipping Direct shipping with milk run

Suppliers Retail Stores Suppliers Retail Stores

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 There is no idle distribution scheme. Each and every has its pros and
cons

All shipment via DC Milk runs from DC

Suppliers Retail Stores Suppliers Retail Stores

DC DC

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 There is no idle distribution scheme. Each and every has its pros and
cons
Pros Cons

▪No intermediate warehouse ▪High inventories (due to large lot size)

▪Simple to coordinate ▪Significant receiving expense
Direct shipping

▪Lower transportation costs for small lots ▪Increased coordination complexity

Direct shipping with milk ▪Lower inventories
runs

▪Lower inbound transportation cost ▪Increased inventory cost

All shipments via central DC through consolidation ▪Increased handling at DC
with inventory storage

▪Very low inventory requirement ▪Increased coordination complexity

All shipments via central DC ▪Lower transportation cost through
with cross-dock consolidation

▪Lower outbound transportation cost for ▪Further increase in coordination

Shipping via DC using milk small lots complexity
runs

▪Transportation choice best matches ▪Highest coordination complexity

Tailored network needs of individual product and store

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