MODULE 1

SESSION 12
Designing the Supply Chain Network

Dr. Neeraj Anand

Professor- LSCM
& Ex Associate Dean – Research
SoB, UPES, Dehradun
Email: nanand@ddn.upes.ac.in
Mob. 9997897491
Learning Outcomes
 To understand the role of distribution in supply chain
 To understand the factors affecting supply chain network design
 To have the conceptual knowledge of customer needs and the cost of meeting
customer needs
 To understand various design options for distribution network
Role of Distribution in Supply Chain
 Distribution channel refers to intermediaries between manufacturer to the end users.
 It affects both supply chain cost and customer experience.
 Good distribution helps the company to achieve the objectives of supply chain ranging from
supply chain cost and responsiveness.
 Companies may use different distribution channels in the same industry.
 Examples: Dell, Walmart, Amazon, Swiggy, Zomato, Mumbai Dabbawalla etc.
 Jewellery industry has multiple intermediaries – brokers and various sub-brokers.
 In insurance, travel industries- DMA (Direct Marketing Agent) is commonly practiced.
Factors Affecting Distribution Design
Performance of distribution is mainly evaluated using following two dimensions:
 Customer needs are met
 Ulimate aim of the companies is to meet customer needs through appropriate distribution
channel. Companies are focusing on ‘Customer Delight’ using e-commerce, Cloud
Computing, Block Chain, AI, ML, Virtual Reality.
 Satisfied customers result into enhanced revenue and affect the profitability for various
product lines/items, hence affects the cost of distribution channel.
 Cost of meeting customer needs (Delivered cost)
 Changes in distribution network to meet customer needs affects the supply chain cost.
 Companies are practicing Consolidation of warehouses to minimize the GST and the
distribution cost.
Ex: Relaxo, Future Group, Dabur India consolidated warehouses.
Customer Needs That are Met
 Product range/assortment (SKUs) – Distributor ensures delivery of placed order.
Ex: Dairy products – Milk (Tone, Double tone, Full Cream, Powdered,
Tetra Pack – AMUL GOLD)
 Response Time- Distributor needs to ensure On time delivery of desired products and services.
Ex: Eatables by Swiggy and Electronic and other goods by Amazon
E-governance through customer portals, e-sewa, kiosks for depositing
electricity bills, 108, 100 services. Automobile companies providing services on NH
for repair of vehicles.
 Product Availability – Making stock available in the warehouse for timely delivery.
 Amazon – having FCs across the country, launched one more in Ahmedabad recently for timely
delivery of goods.
Customer Needs That are Met
 Order Visibility: companies provide facility of trace and track of delivery of goods at right location.
Ex: Amazon, Flipkart, McDonald, Pizza Hut etc. delivering goods in
certain geographic coverage. Courier service, Passport office, India
Post etc.
 Customer Experience:
Companies are using NPS (Net Promoter Score) for effectively measuring
customer satisfaction.
Ex: Netflix, Jio Fibre, Google, Apple, Amazon focusing on enriching customer
experience. Oyo Hotels, UPES having GPTW Certification
 Returnability: companies facilitate the return of goods in case of deviation in
product specification/standards. Companies have created separate warehouses
for managing the inventory of returned goods such as Amazon, Flipkart etc.
Cost of Meeting Customer Needs
Making changes in distribution network design affects the supply chain cost covering the
following SC Drivers:
 Inventory management – WMS, MHE (Material Handling Equipments)
 Transportation management – TMS, Technology etc.
 Facilities and handling goods – DC (Distribution Centre), FC (Fulfilment
Centre) for on time delivery (OTIF)
 Information sharing (Trace and track) for enhanced visibility
Examples
 To meet customer’s need of less response time, company requires to have more facilities in
distribution network.
 As the no. of facilities in a supply chain increases the inventory and resulting inventory costs also
increase.
 LPG distributors increased over last decade, IOCL came up with Paradip Refinery.
Contd.
 To decrease inventory costs firms try to consolidate and limit the no. of facilities in their supply
chain network.
 Amazon is able to turn it’s inventory about 12 times a year, whereas other competitor achieves
only about 2 turns per year.
Design Options for a Distribution Network
There are two (2) key decisions when designing a distribution network :

 Will product be delivered to the customer location or picked up from a

preordained site?
 Will product flow through an intermediary (or intermediate location)?

Based on choices for the 2 decisions, there are 6 distinct distribution network
designs that are classified as follows:

 Manufacturer storage with direct shipping.

 Manufacturer storage with direct shipping and in-transit merge.
 Distributor storage with package carrier delivery.
 Distributor storage with last mile delivery.
Contd.
 Manufacturer/distributor storage with consumer pickup.
 Retail storage with consumer pickup.

Here we are discussing distribution network choices in context of distribution from the
manufacturer to the end consumer. When considering between any other pair of stages,
such as supplier to manufacturer, many of the same options still apply.
Manufacturer Storage with Direct Shipping
Product is shipped directly from the manufacturer to the end customer, bypassing the
retailer. This option is also referred to as drop shipping. All inventories are stored at
the manufacturer.
Ex: Chemical, medicines and industrial goods from China to India