426 W5: Case Discussion
Tie3D
Ch10PPT10e.pptxCHAPTER 10
Distribution—Managing Fulfillment Operations
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Discussion Outline
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The role and functionality of distribution facilities
Key distribution tradeoffs and challenges
Distribution planning and strategy
Distribution execution and metrics
Distribution technology
The Role of Distribution Operations in SCM
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Enhance customer service
Balance supply & demand
Protect against uncertainty
Allow quantity purchase discounts
Support production require-ments
Fulfill omni-channel demand
Promote transport economies
Distribution Facility Functionality
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Examples: Assembly, kitting, product postponement, sequencing
Accumulation
Sortation
Allocation
Assortment
Primary Functions
Value-Adding Roles
Distribution Facility Functionality
Distribution Facility Functionality Primary Functions: Accumulation
The DC serves as a collection point for product coming from multiple origins and provides required transfer, storage, or processing services, allowing firms to consolidate orders and shipments for production and fulfillment processes.
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Source: Figure 10.1
Direct Delivery – No Accumulation
DC – Accumulation
Distribution Facility Functionality Primary Functions: Sortation and Allocation
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Sortation focuses on assembling like products together for storage in the distribution facility, processing or transfer to customers.
Proper sortation is essential for effective inventory & order fulfillment.
Sortation
Allocation focuses on matching available inventory to customer orders for an SKU.
This break-bulk capacity promotes product availability for multiple customers and in desired quantities.
Allocation
Distribution Facility Functionality Primary Functions: Assortment
Assortment involves the assembly of customer orders for multiple SKUs held in the distribution facility. This mixing capability avoids the expenses related to placing numerous orders and having them shipped from a variety of locations.
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Source: Figure 10.2
Supplier ships in bulk
DC
mixes & ships
Retailer receives variety
Distribution Facility Functionality Value-Adding Roles
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Light assembly services
Inventory management and visibility
Product kitting, bundling, and unbundling
Product postponement
Production sequencing
Quality control
Recycling, repair, and returns management
Key Distribution Tradeoffs and Challenges
Key Distribution Tradeoffs
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Functional Tradeoffs
How to best balance customer service and costs.
Warehouse
Transportation
Inventory
Customer service
Facility-Level Tradeoffs
How to best balance financial and performance.
Space
Equipment
People
Key Distribution Tradeoffs Functional Tradeoffs
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Source: Figure 10.3
Warehouse vs. Transportation
Logistics Cost
Number of Warehouses
Warehousing cost
Transport cost
Logistics Cost
Number of Warehouses
Warehouse vs. Inventory
Warehousing cost
Inventory cost
Warehouse vs. Customer Service
Logistics Cost
Number of Warehouses
Warehousing cost
Cost of lost sales
Key Distribution Tradeoffs Facility-Level Tradeoffs
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Equipment
People
Space
Space vs. Equipment. The larger the facility and the more space used for distribution operations, the more equipment will be needed in the facility.
Equipment vs. People. The greater the use of equipment to automate materials handling and distribution activity, the lower the labor requirements of a facility.
People vs. Space. The larger the facility workforce, the larger the facility size and throughput possible.
Key Distribution Challenges
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Nature of DC operations work creates ongoing turnover challenge
Smaller labor pool due to aging demographic trend in Europe and the United States.
Solution: DC automation
Labor Availability Issues
Seasonal demand creates challenges in effectively utilizing the space and equipment resources and retaining labor throughout the year.
Solution: Balancing the DC requirements of seasonal products with products that have alternate primary selling seasons and/or stable year-round demand products.
Demand Variation
Growth in additional capabilities and services.
Lean strategies creating expectation of smaller, more frequent, and faster fulfillment of orders.
Solution: Flexible fulfillment processes
Increasing Customer Requirements
Distribution Planning and Strategy
Distribution Planning and Strategy
Distribution strategies should tailor to products being handled, customer requirements, and available internal expertise and resources. A series of interrelated planning decisions must be made to ensure that the strategy can be executed at a reasonable cost while supporting supply chain demands.
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Product attributes
Flow requirements
Roles to be fulfilled
Capability Requirements
Inventory positioning
Number of facilities
Location of facilities
Facility ownership
Network Design Issues
Size of operations
Interior layout
Product location
Facility Considerations
Strategic
Planning
Tactical
Planning
Source: Figure 10.4
Distribution Planning and Strategy Cross-Docking: Low-Tech Option
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Source: Figure 10.5
Sort/stage
Load
Deliver
Receive
Heavy reliance on manual labor.
Distribution Planning and Strategy Cross-Docking: High-Tech Options
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Source: Figure 10.5
Freight is received, checked for accuracy & prepared (auto ID labels applied to cartons) for induction.
Cartons travel thru facility on conveyor system to reduce labor & speed transfer of goods.
Heavy reliance on automation.
Cartons
are
loaded in trailer. Load of mixed product is shipped to retail outlet when full.
Barcode reader identifies products & deliver cartons down appropriate loading line.
Distribution Planning and Strategy Network Design Issues: Number & Location
Determining the number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas.
Effective location selection requires analysis of the DC’s intended function, sources and volume of supply, customer locations and demand patterns, and related fulfillment costs.
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Source: Figure 10.6
Distribution Planning and Strategy Network Design Issues: Ownerships
Decisions on facility ownerships – private facilities, public facilities, or contract facilities – should be made based on the organization’s expertise vs. scope of tasks required & financial resources relative to the number and size of facilities needed.
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Source: Figure 10.7
Use public warehousing
Use private warehousing
Throughput volume
Total cost
Public warehousing cost
Private warehousing cost
Distribution Planning and Strategy Network Design Issues: Ownerships (continued)
Factors Affecting Distribution Facility Ownership
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Source: Table 10.2
| Firm Characteristics | Favors Private Distribution | Favors 3PL Distribution |
| Throughput volume | Higher | Lower |
| Demand variability | Stable | Fluctuating |
| Market density | Higher | Lower |
| Special physical control needs | Yes | No |
| Security requirements | Higher | Lower |
| Customer service requirements | Higher | Lower |
| Multiple use needs | Yes | No |
Distribution Planning and Strategy Facility Considerations: Size
Typically, the more facilities in the distribution network, the smaller they need to be.
Demand forecasts for the facility can be used to create a rough estimate of space requirements.
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Given forecasted demand, each facility must be large enough to:
Accommodate the distribution activities that will be performed within the four walls.
Interface with the transportation network.
Distribution Planning and Strategy Facility Considerations: Layout
The company must make decisions regarding aisle space, shelving, materials-handling equipment, and interior dimensions of the facility.
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Source: Table 10.3
| Facility Layout Principle | Benefit |
| Use a one-story facility | Provides more usable space per investment dollar Results in lower construction costs |
| Use vertical capacity | Reduces building footprint and land requirements |
| Minimize aisle space | Provides more storage and processing capacity |
| Use direct product flows | Avoids backtracking and costly travel time |
| Deploy warehouse automation solutions | Improves facility productivity and safety Reduces travel time Reduces labor needs |
| Use an appropriate product storage plan | Maximizes space utilization and product protection |
Distribution Planning and Strategy Facility Considerations: Product Location (Slotting)
Slotting is defined as the placement of product in a facility for the purpose of optimizing materials-handling and space efficiency.
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Commonly Used Criteria
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Popularity. Locate high volume (popular) items near the shipping area and the low volume (unpopular) items away from the shipping area.
Unit size. Locate small-size items (cubic dimensions) near the shipping area and larger-size items farther away from the shipping area.
Cube. Locate the items with smaller total cubic space requirements (item cube multiplied by the number of items held) near the shipping area and those with larger space requirements farther away from the shipping area.
Distribution Planning and Strategy Facility Considerations: Slotting (continued)
Proper product slotting can improve fulfillment performance and generate other advantages for the organization & its customers.
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Picking
accuracy
Load building
Pre-consolidation
Work
balancing
Efficient replenishment
Ergonomics
Picking productivity
Distribution Execution & Metrics
Distribution Execution Product-Handling Functions
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Source: Figure 10.8
Put-away
Identify product
Verify location
Fill storage/pick slots
Direct fill orders
Shipping
Schedule carrier
Load vehicle
Secure freight
Complete paperwork
Call for dispatch
Picking
locations
Storage locations
Replenishment
Re-supply pick slots
Move pallet quantity orders to shipping dock
Verify moves
Order Picking
Travel to pick slots
Validate SKU & qty
Fill customer orders
Prep & deliver product
to shipping dock
Customer
delivery
For many organizations, order picking is the most labor-intensive and expensive distribution activity, often accounting for more than half of DC operating costs.
Receiving
Schedule carriers
Unload vehicles
Inspect freight
Verify order
Distribution Execution Support Functions
Support functions provide coordination between key processes and across the supply chain, protect the organization’s inventory investment, and improve working conditions within the facility.
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Key support functions
Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology
Distribution Metrics
Many aspects of distribution performance can be evaluated across customer service and DC order fulfillment activities.
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| Customer-Facing Metric Examples |
| Unit Fill Rate |
| Case Fill Rate |
| Order Value Fill Rate |
| Order Accuracy |
| Document Accuracy |
| On Time Dispatch |
| Perfect Order Index |
Source: Tables 10.5 and 10.6
| Distribution Operation Metric Examples |
| Distribution cost per unit |
| Distribution cost ratio |
| Capacity utilization |
| Equipment utilization |
| Labor productivity |
| Distribution efficiency |
Distribution Technology
Distribution Technology
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Source: Figure 10.9; WMS image courtesy of datexcorp.com
Core software used to manage fulfillment processes, with value-added capabilities, including labor management, automated data collection, task interleaving, fulfillment flexibility, and systems convergence.
Warehouse Management Systems (WMS)
Auto-ID technologies help machines identify objects. Examples: Bar codes, smart cards, voice recognition, biometric technologies, radio-frequency identification (RFID).
Automatic Identification (Auto-ID) Tools
UPC-A barcode
GS1 DataBar
GS1 QR Code
Barcode Types
Summary
Four primary functions of distribution facilities are: Accumulation, Sortation, Allocation, and Assortment.
Value-adding roles of distribution facilities complement the primary functions and support evolving supply chain needs.
Distribution strategy and planning involves decisions regarding capability requirements, network design issues, and facility considerations.
Distribution execution involves five primary processes related to the handling and storage of product: (1) receiving, (2) put-away, (3) order picking, (4) replenishment, and (5) shipping.
Distribution KPIs address asset utilization, labor productivity, cost efficiency of the operation, and customer service quality.
