SECTION H: PRINCIPLES OF

DISTRIBUTION PLANNING
Section H Overview

Section H Learning Objectives

• What is the distribution network

• What is included in the distribution network
• Different configuration of the distribution network
• How to choose location and number of facilities

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Topic 1: Distribution Planning Strategy and Channel Design

Distribution Planning Strategy

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Topic 1: Distribution Planning Strategy and Channel Design

Network Configurations
Job
Design Factor Project Batch Mass Continuous
Shop
Supply Supply channel Low Low/ Medium High Very high
complexity medium

Supply integrative Very low Low Low/ High Very high

intensity medium

Supplier intensity Very low Low Medium High Very high

Distribution Market penetration Low Low Medium High Very high
intensity

Distribution Very high High Medium/ Medium/ Low

integrative high high
intensity

Distribution Low Low Low/ Medium/ Very high

intensity medium high

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Topic 2: Delivery Channels

Delivery Channel Service Outputs

▪ Bulk-break (bulk-breaking or breaking bulk)

▪ Spatial convenience
▪ Waiting and delivery time
▪ Variety (assortment)

Matching demand with service outputs

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Topic 2: Delivery Channels

Channel Structure
Producer storage with direct delivery
• Market penetration intensity: the
producer has control of the
channel
• Integration: full control of logistics
• Distribution intensity: no
intermediaries, single source
distribution.
Producer storage with drop ship
• Market penetration intensity: delivery
is the responsibility of the producer
• Integration: customer facing
distributor, but the delivery is with the
producer
• Distribution intensity: increase reach
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to customers through the
distributors.
Topic 2: Delivery Channels

Channel Structure, continued

Producer with extended channel networks
• Market penetration intensity: high
penetration
• Distribution integrative intensity: usually
no integration. 3rd party distributors
• Distribution intensity: wide huge multi-
level network

Distributor with extended channel network

• Market Penetration: high penetration
• Distribution integrative intensity:
Distributor has no forward or backward
• Distribution intensity: wide huge multi-
level network

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Topic 2: Delivery Channels

Channel Structure, continued

Aggregator with e-business network

• Same as previous model; however, the online sales will add new
levels and new intensity to the channel
• But it will also add a need for infrastructural ability, to adapt to the
online needs

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Topic 2: Delivery Channels

Channel Selection

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Topic 3: Transportation Management

Transportation Choice
Performance characteristics Planning activities

▪ Vehicle profitability
▪ Liability
 Speed ▪ Volume
 Completeness
 ▪ Distance
Dependability
 Capability ▪ Stowability
 Frequency ▪ Handling
 Cost
▪ Density

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Topic 3: Transportation Management

Transportation Management Process

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Topic 3: Transportation Management

Transportation Controlling Activities

Technology tools
Transportation management systems

Yard management systems

Routing and scheduling

Event management systems

Driver-focused technologies

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Topic 3: Transportation Management

Transportation Scheduling Activities

Variables KPIs

▪ Route to be taken ▪ On-time delivery

▪ Number of vehicles ▪ Quality of service
▪ Frequency of visits to each ▪ Cost of service
customer ▪ On-time loading
▪ Number of deliveries/ ▪ Delivery consistency
pickups along route ▪ Claims for loss/damage
▪ Freight bill accuracy

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Topic 3: Transportation Management

Transportation Risk Management

Risk Category Specific Risk

Delivery delay Congestion, poor weather, equipment malfunction

Shipment loss Theft and pilferage, piracy and hijacking, cargo jettison
Shipment damage Operator accident, poor freight-handling methods,
improper equipment loading
Shipment Temperature control failure, product tampering,
contamination exposure to hazardous materials
Security breach Shipment control breakdown, unprotected transfer
facilities, lax security processes
Channel disruption Capacity shortage, carrier bankruptcy, labor disruption
and strikes
Storage in transit Unavailable until received

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Topic 4: Distribution Center Network Design and Performance Measurement

Location of Distribution Centers (DCs)

Factor-rating method Center-of-gravity method

▪ Qualitative and quantitative
▪ weighted scores (labor cost,
labor availability, transportation,
rent or land cost.
▪ Site(s) with highest overall scores
Location break-even
analysis
▪ Crossover point in units
shipped where DC with higher
fixed cost but lower variable
cost becomes best choice
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▪ Optimize supply/distribution costs
as function of distance and
quantity shipped
▪ Map with longitude-latitude
coordinates for location
Least-cost-per-lane method
▪ Which warehouse to ship from
based on which shipping lane
can satisfy demand at least cost
▪ Considers capacity
Topic 4: Distribution Center Network Design and Performance Measurement

Number of Distribution Centers

Heuristic Branch and
Simulation
procedures bound
• Trial and error • Experiment- • Optimal
• Annual fixed ation number of
cost • Number of DCs and
• Variable costs DCs and locations
locations • Tree search
• Add-and-drop treats even
(least total fixed costs as
cost for first, variable to
then add) eliminate
paths

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Branch and bound

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Topic 4: Distribution Center Network Design and Performance Measurement

Types of Distribution Centers

Type Advantages Disadvantages
Private • Direct control • Ability to adjust to market
• Less expensive than other types size demands
• Simplify communication • Fixed location
• Ability to use for other purposes • Structural limitations
• Capital investment

Public • No fixed capital investment • Lack of timely and

• Costs are variable in proportion to accurate communication
services • Availability of public
• Can adjust with market place warehouse space where
demands needed (globally,
• Access to technology without the regionally)
investment
• Ability to purchase additional
services as needed

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