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of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008
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This paper appears in the publication, International Journal of Information Systems and Supply Chain Management, Volume 1, Issue 1
edited by John Wang © 2008, IGI Global

Effectiveness of
Distribution Network
M. Sreenivas, Alluri Institute of Management Sciences, India
T. Srinivas, Kakatiya University, India

Keywords: centralized/decentralized organizations; customer satisfaction; information systems, net-


works; third party markets; Web-based interactions

The distribution professionals verify their op- Keskinocak and Tayur (2001) establish that
erations on a daily basis. The modern logistic the primary goal of supply chain management
leader, use the tips like competitive pressures, is to deliver the correct product to the correct
mergers, acquisitions, new product lines and place at the correct time while maintaining cost
greater customer expectations, and so forth. This efficiencies. They identified three components
change is a cost of doing business in the latest of a supply chain:
“new economy”. This research investigates
the auction properties that influence efficiency • Sourcing/procurement
(ability to maximize price and profit) as the dis- • Manufacturing and distribution
tribution link of the supply chain. Also focuses • Inventory disposal
on different key areas that are the roadmap to
an effective, flexible and proactively responsive Because businesses set up primarily to
distribution operation. provide service have little connection with a
According to Chopra and Meindl (2001) manufacturing process, their supply chains
supply chain consists of all stages, direct and in- encompass only some of the traditional supply
direct, involved in fulfilling customer requests. chain stages. The seller provides the item for
They listed five typical supply chain stages: sale, filling the initial supply chain stage. The
items listed for sale may be classified as the
• Components/raw materials “inventory” in the process.
• Manufacturers Lummus and Vokurka (1999) developed a
• Wholesalers and distributors summary definition of the supply chain based on
• Retailers the works of numerous authors. They state that
• Customers supply chains consist of “all the activities in-
volved in delivering a product from raw material

Supplier Manufacturer Distributor Retailer Customer


---------- Seller --------- --- Distribution Function ---- Buyer

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Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008 81

through to the customer including…distribution running the facility on minimal power during
across channels, delivery to the customer, and off-shifts or as complicated as metering the use
the information systems necessary to monitor of the facility or using a secondary power source
all of these activities” (Lummus & Vokurka, (high power generator or solar power) to run
1999). normally on a reduced energy load.
Here are some important factors impacting
the effectiveness of the distribution network. High-Efficiency Units
Many companies install high-efficiency ap-
CENTRALIzATION VS. pliances and fixtures in a facility to conserve
REGIONALIzATION energy usage with no performance penalty.
In distribution network planning, there is a well- There is some investment required, but the
established relationship between the number payback is often reduced rates and/or a lower
of distribution points, transportation costs and monthly bill.
customer service targets. In a graphical sense, Rising fuel costs make this a very sensi-
the point at which these three entities merge is tive component of distribution costs regardless
the optimum balance of facility and transporta- of whether transportation is handled via third
tion costs to develop a low-cost, high service party carriers or private fleet. Some strategies
distribution network. Normally, as distribution to consider mitigating this are:
networks become more centralized, so do the
internal support structures such as facility Cube Out Containers
management, order entry, customer service When a trailer is partially cubed out, we are often
and data processing. Depending on the degree paying to transport air. Utilizing the maximum
of centralization achieved in support staffs, it cube ensures that more of the shipping costs are
is not uncommon to see cost savings of 50% being used to ship product.
or higher over decentralized networks. The
service levels, limitations on total facility size; Mode Assessment
risk mitigation and throughput peaks must be Depending on service requirements, it may be
factored into the decision matrix. possible to move from LTL services to truckload,
or from parcel to LTL. In general, each shift
Energy will result in reduced freight costs.
Any significant shift in the cost of energy
could have an impact on operating costs and Transportation Management Systems
distribution. Many distribution projects that are (TMS)
otherwise viable fail once the cost of energy Poor transportation performance often stems
becomes a factor. This is especially true for from poor transportation planning. A TMS
energy-intensive facilities such as refrigerated can provide more efficient route planning and
warehouses. For this reason, it is crucial to work load tendering, and result in savings in the
with all energy providers to determine the load process.
that a prospective operation would put on the
local energy system and develop solutions that Private Fleet Concerns
conserve energy while achieving goals. Private fleets can benefit from an in-house fuel
Some interesting energy solutions are: supply program to gain control over fuel costs
and usage. The investment can be offset by the
Abatement Programs elimination of one or more fuel supply chain
Many energy providers provide incentives to links, reducing operating costs and sometimes
users who cut back their usage during defined allowing fuel blends that are more efficient
high load periods. This could be as simple as and economical.

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82 Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008

REGIONAL VS. CENTRALIzED Government Involvement


NETwORkS Just as government involvement has an impact
The costs of delivery using different modes of on distribution, distribution leadership has an
transportation, as well as service availability, obligation to be involved and aware of legisla-
can be directly impacted when fuel costs rise. tion that involves their industry. Many decisions
Understanding the modes used most often, the are made daily at a local, state, and federal
customer expectation and the risk associated level that impact distribution operations. Taxes,
play into the network structure decision. labor regulations, transportation restrictions,
and infrastructure decisions are continually
Flexibility up for review and discussion at every level of
It is a key to continued success for some and government. Without proper input, uninformed
survival for others. When designing a distribu- decisions often have a dramatic effect on the
tion facility, specifying versatile equipment is distribution community.
a critical requirement. The latest technology In addition, involvement in professional
may look nice at start up, but if it cannot keep societies (many of which conduct lobbying
pace with unpredictable events, it is simply a activities) is an effective way to track the pulse
waste of money. Planning for likely (and un- of legislative movement and also an ideal forum
likely) changes in the distribution profile should to make our concerns known. For some ambi-
drive the warehouse design and equipment tious souls, a direct role in local or municipal
specifications. For the majority of distribution government may be an effective and fulfilling
operations, flexible equipment is the more way to make an impact. By being proactive,
practical choice. distribution leaders can ensure that distribu-
tion and government entities can collaborate to
provide benefit to both sides without unpleasant
Global Marketplace
surprises.
In the ever-changing supply chain, global impact
must always be considered. This could be as
minor as a domestic customer wanting direct Information Systems
shipments to an international location, or as In today’s e-enabled world, timely and ac-
major as an acquisition by a global company curate information is a requirement. The days
or addition of a key global account. Successful of keypunching in daily distribution activity
distribution operations are ready for this type and nightly updates to host financial systems
of change. Transportation systems should be are becoming a distant memory for successful
designed with exports in mind; there should be distribution operations. Today’s reality is that
contingencies for customs documentation and distribution execution systems must be:
international shipping paperwork. Operations
should be designed in a manner that product Real-Time
relabeling or special packaging for international Customer requirements are moving toward
customers can be accomplished easily. Facilities being able to instantly track an order through
may need to accommodate inbound or outbound every step of the fulfillment process to deliv-
airfreight or ocean freight containers. Customer ery. Optimally, this information is linked to an
service functions may need to operate in 24- Internet front-end where a customer can easily
hour mode to assist customers in all time zones. log in and see the exact status of their order.
Preparedness is the critical element in a global Real-time interfaces and host system updates
marketplace. If you are not a global company enable this customer-focused initiative.
today, your success will drive you into that
marketplace sooner rather than later. Paperless
The reality is that paper equates to errors. Lan-
guage and educational barriers result in paper

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is prohibited.
Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008 8

pick documents that are often misinterpreted, at Labor Management Systems


best resulting in lost dollars within the distribu- These systems must be able to handle the addi-
tion operation or, worse still, lost customers due tion of new operations quickly and economically
to fulfillment issues that escape even the best so that performance can be measured and costs
inspection processes. The solution is paperless kept under control.
systems requiring operator validation that the
right steps were followed and that the correct Off-Highway Vehicles
product was picked and packed. In the United States, issues regarding the en-
vironment and air quality continue to be under
Standardized scrutiny. The push for more stringent air-quality
With the high growth associated with a suc- regulations will impact the warehouse. Electric
cessful distribution operation, many of these vehicles will take over as the preferred models
companies are finding that the investment to in the warehouse, displacing non-electric ve-
develop and maintain an in-house system no hicles in the process. As this evolution occurs,
longer is viable. Standardized, industry-tailored manufacturers of electric rolling stock will
software is now the rule rather than the excep- respond with higher power, higher efficiency
tion. Software companies leverage their client vehicles to facilitate this process.
base to continually update their product, add-
ing far more base functionality than inflexible Pace
legacy systems. Anyone with access to Web sites can now order
product, specify their service requirements, pay
Modularity for their order online, and track the order right
As companies in the distribution space come to their doorstep. For distributors, this means
and go, their business will typically move to a that the pace of distribution must increase
new distributor or distributors. The ability to significantly to account for the reduced lead
quickly take on significant business volumes times, shorter product lives, increased inven-
dictates that modularity is a necessity for a tory turnover, and greater customer expecta-
thriving distribution organization. Modularity tions that is considered standard in the modern
must be evident in: business-to-business and business-to-consumer
marketplace. If a customer places an order today
Assets with next-day delivery, a company that picks
Distribution assets must be modular, providing and ships the order the next day will not be
the ability to easily expand facilities, capacities competitive for long. The entire supply chain
and equipment to meet increasing demands needs to keep pace, from vendor compliance
and diverse products. Many companies design to information and execution systems in order
this into a facility, while others are constantly to support the new economy that the Internet
tracking alternate local space that could be has enabled.
closed on quickly.
People
Work Assignments Success demands a team-based, participatory
The workforce must be able to handle new organizational culture and a total dedication
work assignments and transfer knowledge to to customer satisfaction. There are many ways
new employees effectively. This is a key to a to achieve this, ranging from simple solutions
successful start-up of a new operation or an such as employee celebration days, employee
addition to an existing operation. suggestion programs, and other simple programs
to more structured approaches such as revised
organizational designs, compensation/incen-
tive/bonus plans, and other processes that

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84 Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008

directly tie the distribution associates on the an unexpected return must be planned for and
floor to satisfied customers. communicated with the distribution operation
as well as the receiving and handling process
Price for the product or chaos will likely ensue.
While service and quality are key factors in
selecting a distribution partner, for many com- Example
panies, decisions still comes down to price. A client in the direct-to-consumer home goods
Successful past relationships are no longer industry was having a horrible experience with
a good indicator of the future. Modern free returns. An item would be returned and graded
enterprise demands efficient, effective, and “return to stock”. An order would come in for
low-cost distribution. Competition is fierce the same item and the returned item (which
and many low-cost providers will not be here was first quality) would be shipped. Once the
tomorrow as they undercut the market to get customer received the item, they would return it
short-term volumes at an operating loss. The with the comment that it appeared not to be new.
goal of a successful distribution operation The solution was to establish a vendor-quality
should be to operate within their core values at packaging initiative that looked very similar to
the lowest cost possible. The path to competitive the original vendor packaging. By implementing
pricing is to operate efficiently and flexibly at the new packaging for returns, the client was
low cost—to offer low prices any other way is able to realize a 75% decrease in second-pass
inviting failure. returns, saving in returns freight and reducing
the size of their returns department. Another
Accountability opportunity in reverse distribution is returnable
A successful distribution operation must have packaging, either pallets or containers.
accountability. Accountability is made possible
by effective leadership, clear communications, Third Party Logistics (3PL)
and efficient systems and equipment to enable A growing number of companies are turning
productive operations and a fulfilling work envi- to 3PL organizations to handle the customer
ronment. Accountability requires that leadership fulfillment portion of their supply chain. Com-
make difficult decisions while maintaining the panies that are accustomed to true partnering
commitment of the organization. Accountability with customers and suppliers have less trouble
requires establishing standards, identifying migrating to the 3PL world and achieving the
improvement opportunities and measuring potential cost savings. The key steps are to
performance. Also required is some form of conduct a comprehensive search for the right
a reward process that answers the inevitable 3PL vendor, thoroughly review cost proposals
question, “What is in this for me?” Care must and contracts to ensure there is financial benefit,
be taken that any rewards are tied to something and work with the 3PL to make their operation
that can be quantified as a true benefit to the is a seamless extension of your company. This
organization; rewards without a basis will result may involve shared management, integrated
in lack of credibility and a process that will execution systems and a unified appearance to
ultimately fail. partners and customers.

Reverse Logistics Variety


How to handle the products that are coming Special packaging, unitizing, pricing, labeling,
back into the operation as well as any return- kitting and delivery requirements are becoming
able packaging that must be accounted for on the norm and must be addressed in any distribu-
a regular basis is a challenge. The decision on tion plan. These tasks should be designed into
whether to accept the product, whether a refused the operation, not “tacked on” as a reactive
shipment, an authorized customer return, or afterthought. Many companies invest large

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Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008 8

amounts of capital setting up specialized pack- proving strengths should always coincide with
ing or value-added services (VAS) lines with the fixing weaknesses.
mandate to gain competitive advantages and in
hindsight gain little except increased costs and Action
headaches. A few key points need to be concen- Use the power of your organization to attack
trated when setting up these operations: these issues, unleashing the intelligence of our
resources to solve problems. Often, the answers
• Benefit of the process are right on the warehouse floor—simply need
• Recoup the investment to look.
• Charge the customer for the services
• Outsource the operation Look Outside
Sometimes, it will not be practical or possible
A simple review process can often provide to make improvements from the inside. Do not
justification to move forward and establish key be afraid to seek help from outside entities (con-
design parameters to ensure that any “extra” sultancies, vocational or university programs,
requirements are integrated into the operation professional societies, etc.). Sometimes a push
responsibly. Properly planned, these services from someone with new or different ideas is all
can be a profit center, providing differentiation need to get the process moving.
in a competitive marketplace while boosting the
bottom line at the same time. Enjoyment
Make sure there is a defined goal. When achieve
CONCLUSION it, take the time to enjoy the success and maintain
The intent of this study was to identify factors the energy and momentum for the next level
that influence supply chain efficiency and ef- of change.
fectiveness. Here, efficiency is defined as the Some operations may experience only a few
ability of the distribution function to maximize of these factors every year, while others face
the ending auction price. Effectiveness is defined them all daily. However, planning and following
as the ability of the chosen factor levels to attract the described methodology can configure your
bidder customers. Since many of those factors distribution network to be both efficient today
are under the control of the seller, identifying and flexible tomorrow to handle ever-changing
them may help sellers improve the outcome requirements.
of their sales.
There are several steps we should take to REFERENCES
make the most of these keys to distribution
network planning. Chopra, S., & Meindl, P. (2001). Supply chain man-
agement: Strategy, planning, and operation. Upper
Saddle River, NJ: Prentice-Hall.
Assessment
Take each of the 15 points and score the opera- Lummus, R., Vokurka, R., & Alber, K. (1998).
tion using a scale that makes sense. An honest Strategic supply chain planning. Production
assessment is critical in this step. and Inventory Management Journal, 39, 49-58.

Lummus, R., & Vokurka, R. (1999). Defining supply


Prioritization chain management: A historical perspective
Take the areas with the three best scores and and practical guidelines. Industrial Management
those with the three worst scores and focus & Data Systems, 99, 11-17.
on them. It is important not to focus solely on Keskinocak, P., & Tayur, S. (2001). Quantitative
deficiencies because if we lose focus on our analysis for internet-enabled supply chains. Inter-
strengths, then we could lose the momentum faces, 31(2), 70-89.
that made us successful in the first place. Im-

Copyright © 2008, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global
is prohibited.
8 Int’l Journal of Information Systems and Supply Chain Management, 1(1), 80-8, January-March 2008

Vokurka, R., & Lummus, R. (1998). Balancing Vokurka, R., & Zank, G. (2001). Critical success
marketing and supply chain activities. Journal of factors in e-business. In Proceedings to the
Marketing - Theory and Practice, 6, 41-50. Thirtieth Annual Meeting of Western Decision Sci-
ences Institute (pp. 425-427).

M. Sreenivas, working as a asst. professor in Alluri Institute of Management Sciences, Warangal, India
in the Department of Informatics & Business Administration. Presently continuing the research work in
Operation Research at Kakatiya University.

T. Srinivas, asst. professor, Department of Mathematics, Kakatiya University, Warangal, INDIA. Presently
six research scholors and ten MPhil students are continuing in the mathematical research areas.

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is prohibited.