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CHAPTER THREE
Transportation, Network design and information
technology in a supply chain
 3.1 Distribution network and warehouse in supply chain
• Distribution: the steps taken to move and store a product from the
supplier stage to the customer stage in a supply chain.
• Distribution is considered to be a key factor/driver of overall
profitability of a company because not only does it affect supply chain
costs but it also affects the end customer directly.
• Choice of distribution network can achieve supply chain objectives from
low cost to high responsiveness
 Cont.
The network design in supply chain determines:
Its physical arrangement, design, structural layout and
infrastructure of the supply chain.
The major decisions to be made are on the number, locations
and size of manufacturing plants and warehouses and the
assignment of retail outlets to warehouses, etc.

Supply Chain Network Design Includes

 Physical location of facilities and transportation links are
the decision variables that allow used products to transfer
from their former users to a producer and to future markets
again.
 Cont.

Example of a Typical Supply Chain Network design

 Network Design Decisions

• Facility role: What role should each facility play? What

processes should be performed at each facility?
• Facility location: Where should facilities be located?

• Capacity allocation: How much capacity should be allocated

to each facility?
• Market and supply allocation: What markets should each
facility serve? Which supply sources should feed each facility?
How many plants, retail stores, etc. to build?
 Cont.
Factors Influencing Distribution Network Design

i. Response time is the time between customer order placement

and when customer receives the order.
ii. Product variety is the number of different
products/configurations that a customer desires from the
distribution network.
iii. Product availability is the probability of having a product in
stock when a customer order arrive.
iv. Order visibility is the ability of the customer to track their
order from placement to delivery.
v. Returnability is the ease with which a customer can return
unsatisfactory merchandise and the ability of the network to
handle such situations.
vi. Customer Experience includes the ease with which the
customer can place and receive their order
 Cont.

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 Design Option For Distribution Network
 The various design options for distributions networks
are as following (Chopra & Meindl 2004) :

1. Manufacturer Storage with Direct Shipping

2. Manufacturer Storage with Direct Shipping and
In-Transit Merge
3. Distributor Storage with Carrier Delivery
4. Distributor Storage with Last Mile Delivery
5. Manufacturer or Distributor Storage with
Consumer Pickup
6. Retail Storage with Consumer Pickup
 Cont.
1.Manufacturer Storage with Direct Shipping
 In this network the information from the customer travels to the
retailer and this information is further transferred to the
manufacturer.
 The manufacturer directs ships the product to the customer.
 Cont.
2. Manufacturer Storage with Direct Shipping and In-Transit Merge
 In transit merge works in the same manner as the direct shipping
only the difference is that the delivery in this case are merged at a
point and then the product is delivered to the d/t customer.

-- ---- Info

product
 Cont.
3. Distributor Storage with Carrier Delivery
 In this network the information or the order arrives at the distributor
or a retailer and the product is delivered through the carrier to the
customer.
 Cont.
4. Distributor Storage with Last Mile Delivery
 The retailer receives the order from the customer and fulfills the order
in near by area within short time by stocking all products from
different manufacturer.
 Then based on the customer order products will be packed and going
to the customers directly by the distributor.
 Cont.
5.Manufacturer or Distributor Storage with Consumer Pickup
 Here, the customer will send their order to the retailor and passed to
the manufacturer. Then the manufacturer will send all the products
to cross dock (CD). Consumer pick model works with the help of
third party. The delivery is made to the third part from where the
customer can pick up at the product as per their suitability.
 Cont.
6. Retail Storage with Consumer Pickup
 This is traditional distribution model. In this model the
customer approached the near by store, select the product and
purchases it from the store.
3.2 TRANSPORTATION IN A SUPPLY CHAIN
 Transportation entails moving inventory from point to point in the
supply chain.
 Transportation happens to be the most fundamental part of
strategic logistic management.
 Transport costs include all costs associated with movement of
products from one location to another.
 Cont.

Role of transportation in supply chain

 Movement of product from one location to another.
 Increase responsiveness of supply chain
 Increase efficiency of supply chain
 Facilitate customer satisfaction
 Maintain product quality
 Increase profitability
Factors affecting transportation in supply chain Cont.
Cont.
 Cont.
Modes of transportation
 Airplane:- is the fastest method of transport.
 Land:-coverall land-based transportation systems that provide for the
movement of people, goods and services.
 Rail
 Road
 Water (ship)
 Electronic transport

DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

The various design options for transportation network are:
 Direct shipping network
 Direct shipping with milk runs
 Direct shipment via distribution network
 Shipping via distribution network using milk runs.
 Cont.
SELECTION OF TRANSPORTATION MODES

 In order to carry out a systematic selection of the

transporter a framework consisting of the following
stages is recommended.
Stage 1: identifying the factors affecting the choice of
transport selection
Stage 2: categorizing the significant factors and identifying
the potential risks
Stage 3: determining the distribution network in terms of
number and size of depots
Stage 4: select the most appropriate transport method
Stage 5: measuring and monitoring cost factors.
Advantages and disadvantages of five modes of transportation

15/07/2024
 3.3 Information technology in supply chain
 Information is the key to the decision making in Business.
 Conducting business in traditional paper based manner was costly
because it decreased firms’ effectiveness in being able to design,
develop, procure, manufacture, and distribute their products.
 Cont.
 In many instances, these paper-based transactions and
communications were slow, unreliable, and have different errors.
 The information systems and the technologies utilized in the supply
chain represent one of the fundamental elements that link the
organizations into a unified and coordinated system.

ROLE OF IT IN SUPPLY CHAIN

 Cycle time reduction
 Optimizing decisions of the supply chain network flow
 Increased Control Over Production: Use of information
technology in supply chain management provides improved
visibility and accountability. In order to bring efficiency to the total
production process.
 Cont.
 Better Inventory Management: excess inventory leads to risk of
waste and for an increased need for working capital funds, too low
of inventory may lead to stoppages in the production cycle and of
losing business through stock outs.

 Increased Collaboration Between Supply Chain Partners:

Manufacturers can also track activities through the whole supply
chain, with visibility into supplier end and distributor processes.
 Cont.
 More Effective Order Tracking and Delivery
• Timely delivery of product is an important factor in ensuring
customer satisfaction.
• It can also provide a platform for the customer to track their
order, increasing a customer’s sense of self-sufficiency and
control

Therefore IT has great role in supply chain viz;-

 Electronic Data Exchange (EDI),
 Radio Frequency Identification (RFID),
 Bar Code,
 Electronic Commerce,
 Decision Support system,
 Enterprises Resource Planning (ERP) package, etc.