OMGT2085

Introduction to Logistics & SCM

Topic 7
Warehousing & Distribution Channels
VpLyonII_0182 (2008), Available: flickr, http://www.flickr.com/photos/titlap/2779796068/ [accessed 1 October 2012]. Photo by Julien Haler.

Topic Areas

Role of Distribution in Supply Chain Management Supply

Chain Management

Distribution Planning & Strategy

Distribution Execution

Distribution Metrics

Distribution Technology

Packaging

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Role of warehousing (distribution facilities)
Adds value to firms products by creating time utility for raw
materials, industrial goods, & finished products
Allows firms to use customer service as a dynamic valueadding competitive tool

Customer service? how can we achieve this?

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
1. Balancing supply and demand. Whether seasonal production must
service year-round demand (e.g., corn) or year-round production is
needed to meet seasonal demand (e.g., holiday wrapping paper),
distribution facilities can stockpile inventory to buffer supply and
demand.
2. Protecting against uncertainty. Distribution facilities can hold
inventory for protection against forecast errors, supply disruptions,
and demand spikes.
3. Allowing quantity purchase discounts. Suppliers often provide
incentives to purchase product in larger quantities. Distribution
facilities can handle the quantities, reducing the purchase cost per
unit.

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
4. Supporting production requirements. If a manufacturing operation
can reduce costs via long production runs or if outputs need to age
or ripen (e.g., wine, cheese, fruit), the output can be warehoused
prior to distribution.
5. Promoting transportation economies. Fully utilizing container
capacity and moving product in larger quantities is less expensive
per unit than shipping air and moving small quantities at a time.
Distribution facilities can be used to receive and hold the larger
deliveries of inventory for future requirements

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Other valuable roles

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Functions of a distribution facility: Accumulation
The DC serves as a collection point for product coming from
multiple origins and provides required transfer, storage, or
processing services
The accumulation function allows organizations to consolidate
orders and shipments for production and fulfillment processes

Consolidation: collecting smaller shipments

to form a larger quantity in order to realize
lower transportation rates. (Source: John J.
Coyle, Edward J. Bardi and C. John Langley,
Management of Business Logistics, 6th ed.
(Minneapolis, St. Paul: West Publishing Co.,
1996) glossary))

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Functions of a distribution facility: Sortation
Sortation focuses on assembling like-products together for storage
in the distribution facility or for transfer to customers
During the receiving process, goods are segmented according to
their key characteristics
product lot number
stock-keeping unit (SKU)
case pack size
expiration date

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Functions of a distribution facility: Allocation
The allocation function focuses on matching available inventory to
customer orders for a SKU
Break-bulk capacity promotes product availability for multiple
customers and allows them to purchase needed quantities rather
than an excess volume that is not desired
Break-bulk: The separation of a consolidated bulk load
into smaller individual shipments for delivery to the ultimate
consignee. The freight may be moved intact inside the trailer,
or it may be interchanged and rehandled to connecting carriers.
(Source: John J. Coyle, Edward J. Bardi and C. John Langley,
Management of Business Logistics, 6th ed. (Minneapolis,
St. Paul: West Publishing Co., 1996))

Intro to Logistics & Supply Chain Management

Role of Distribution Operations in

Supply Chain Management
Functions of a distribution facility: Assortment
Assortment involves the assembly of customer orders for multiple
SKUs held in the distribution facility
Facility provides a product mixing capability, allowing customers to
quickly order a variety of items from a single location

Product Mixing: Products arriving from different

suppliers are mixed into the precise combination
for the relevant customer and continuously
provided for the product mixture shipments
requiring these.
Source:
http://www.expat-group.com/engineering/warehous
ingfunctions.asp

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Develop distribution strategies that are tailored to the products

being handled, customer requirements, and available internal
expertise and resources aiming to achieve lowest total cost
Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Capability Requirements: Product Characteristics

must drive the design of the distribution process such as product
value, durability, temperature sensitivity, obsolescence, volume,
and other factors

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Capability Requirements: Product Flow

Direct shipping (manufacturer to

retailer or retailer to consumer)

Avoids distribution facilities
Aims to reduce inventory in the
system
Reduces overall warehousing
cost
Often compresses order cycle
time
Works well for customer when
orders are made for truckload
quantities
Works well when the product is a
perishable or innovative good

Indirect shipping (use of distribution

facilities)
Includes traditional warehouses,
distribution centers, and crossdocking facilities
Reduces overall transportation
cost
Holds goods in anticipation of
orders
Provide a buffer of safety stock
Works better for customer when
orders are made for small
quantities
Product mixing is available to give
customers a variety of items to
Must analyze the inventory, transportation, andbuy
service tradeoffs before choosing
Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Inventory Positioning

where inventory should be located, i.e. Single location versus
multiple-facing locations
Factors to Consider
Factor

Centralized

Decentralized

Substitutability

Low

High

Product Value

High

Low

Purchase Size

Large

Small

Special
Warehousing

Yes

No

Product Line

Diverse

Limited

Customer
Service

Low

High

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Number of facilities & location of facilities

Tradeoffs

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Number of facilities & location of facilities

Facility location strategies:
Market-positioned strategy
Warehouses close to customers to maximize distribution
svcs & improve transp. economies of scale
Product positioned strategy
Close to supply source for firm to collect goods &
consolidate
Intermediately positioned strategy
midway between supply source & customers when
distribution requirements are high & product comes from
various locations
Source: Wisner et al., 2012
Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Facility Ownership

Public versus Contract versus Private

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Facility Ownership (owning versus renting)

Public warehousing costs are mostly all variable
Private warehousing costs have higher fixed cost
private warehousing requires a high and constant
throughput volume to justify the capital investment

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Facility Ownership

Rationale for Public Warehousing
Limited capital investment
Public warehousing rates
Flexibility
based upon:
Value
Fragility
Potential damage to
other goods
Volume & regularity
Weight density
Public warehousing regulation:
Services required
Liability
Receipts
Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Network Design Issues: Facility Ownership

Contract Warehousing (3rd-Party Warehousing)
Customized version of Public Warehousing
Advantages:
Compensation for seasonality in products
Increased geographical coverage
Ability to test new markets
Managerial expertise and dedicated resources
Less strain on the balance sheet
Possible reduction of transportation costs
Specialized contracted services, such as labeling, packaging,
light assembly, quality assurance, fulfillment facility,

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Facility Considerations: Facility Layout

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Facility Considerations: Product Slotting

Proper placement of the product in the facility
by popularity of item
by unit size of item
by cube (variation of unit size)

Product slotting: the intelligent location of product in a warehouse or distribution center for the purpose
of optimizing material handling efficiency. Sometimes called inventory slotting, or profiling, it identifies
the most efficient placement for each item
In a distribution center or warehouse.
Source: http://www.ceilogistics.com/Solutions/product-slotting.htm

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Facility Considerations: Product Slotting

Advantages
improve labor productivity
reduce order-picking labor requirements by locating product in
the optimal pick sequence
reduce replenishment labor requirements by matching product
unit loads with the appropriate size storage slot
reduce response time and improve flow by balancing workload
between operators
increase picking accuracy by separating similar products to
avoid proximity picking errors

Intro to Logistics & Supply Chain Management

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Distribution Planning & Strategy

Facility Considerations: Product Slotting

Advantages
reduce product damage by organizing heavier product first in
the pick path, ahead of crushable product
increase palletizing productivity by arranging product by case
height, allowing the building of tighter pallets for better trailer
utilization
defer capital expansion by maintaining the optimum warehouse
layout and cube utilization, reducing the need for building
expansion
increase store-level productivity by organizing product in family
groups eliminating or reducing sorting of product for restocking
at the store level

Intro to Logistics & Supply Chain Management

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Distribution Execution

Product handling

Intro to Logistics & Supply Chain Management

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Distribution Execution

Support functions
Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology

Intro to Logistics & Supply Chain Management

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Distribution Execution

Order picking

Intro to Logistics & Supply Chain Management

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Distribution Execution

Increasing effective capacity

Utilizing warehouses cubic capacity

Cubic capacity: ratio of the storage

space (where materials are stored on
the floor), divided by the total cubic
volume of the portion of the building
occupied by the storage.
Source: http://72.14.235.132/search?q=
cache:tIQzSvHCgPcJ:www.warehousecoach
.com/images/21.doc+%22cubic+capacity%22+
warehouse&cd=3&hl=en&ct=clnk&gl=vn

Source: The Management of Business Logistics A Supply Chain Perspective, 7e

Intro to Logistics & Supply Chain Management

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Distribution Metrics

Customer Facing Measures

\

Order accuracy and order completeness

Customers want to receive the exact products and quantities
ordered, not substitute items, incorrectly shipped items, or
wrong quantities
Timeliness is a critical component of customer service
Perfect order index (POI)
To be considered a perfect order, the right items must be:
delivered to the right place
at the right time
in defect-free condition
with the correct documentation, pricing, and invoicing

Intro to Logistics & Supply Chain Management

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Distribution Metrics

Internal Measures
Distribution cost efficiency
Aggregate cost efficiency
Asset utilization
Resource productivity
Resource efficiency

Intro to Logistics & Supply Chain Management

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Distribution Metrics

Intro to Logistics & Supply Chain Management

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Distribution Technology

Warehouse Management Systems (WMS)

Source: The Management of Business Logistics A Supply Chain Perspective, 7e

Intro to Logistics & Supply Chain Management

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Distribution Technology
Warehouse Management Systems
software control system that improves product movement
and storage operations
helps achieve high level of control, inventory accuracy, and
productivity through direct picking, direct replenishment, and
direct put-away
value-added capabilities
generate performance reports
support paperless processes
enable integration of materials handling equipment
picking systems
sorting systems
leverage wireless communication
labor management
task interleaving
systems integration
activity-based costing/billing
multi-function distribution
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Summary

What did you learn in this topic? Summarize.

Challenge Questions for Topic 7:

(1)
(2)

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