CHAPTER 7 – DISTRIBUTION AND TRANSPORTATION IN A
SUPPLY CHAIN
Faculty of International Economic Relations
University of Economics and Law
‹#› Het begint met een idee
CONTENTS
▪ Distribution
▪ Transportation
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SCM CONCEPTS
▪ Distribution
▪ Transportation
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SCM CONCEPTS
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ROLE OF DISTRIBUTION
▪ Steps to move and store a product from a supplier stage to a
customer stage.
▪ Distribution occurs between every pair of stages in the supply chain.
▪ Drives profitability by directly affecting supply chain cost and the
customer value
▪ Choice of distribution network can achieve supply chain objectives
from low cost to high responsiveness
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FACTORS INFLUENCING DISTRIBUTION NETWORK DESIGN
▪ Distribution network performance evaluated along two dimensions:
1. Value provided to the customer
2. Cost of meeting customer needs
▪ Profitability of the delivery network determined by revenue from
met customer needs and network costs
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FACTORS INFLUENCING DISTRIBUTION NETWORK DESIGN
▪ Service factors CUSTOMER VALUES
o Response time
o Product variety
o Product availability
o Customer experience
o Time to market
o Order visibility
o Returnabilty
▪ Cost factors NETWORK COST
o Inventory
o Transportation
o Facilities and handling
o Information
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CUSTOMER VALUES
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MANUFACTURER STORAGE WITH DIRECT SHIPPING –DROP SHIPPING
Source: Chopra and Meindl (2016)
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MANUFACTURER STORAGE WITH DIRECT SHIPPING
Source: Chopra and Meindl (2016)
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MANUFACTURER STORAGE WITH DIRECT SHIPPING AND IN-TRANSIT MERGE
Source: Chopra and Meindl (2016)
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MANUFACTURER STORAGE WITH DIRECT SHIPPING AND IN-TRANSIT MERGE
Source: Chopra and Meindl (2016)
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TYPES OF WAREHOUSES
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TYPES OF WAREHOUSES
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TYPES OF WAREHOUSES
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TYPES OF WAREHOUSES
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DISTRIBUTOR STORAGE WITH CARRIER DELIVERY
Source: Chopra and Meindl (2016) Vrije Universiteit Amsterdam
DISTRIBUTOR STORAGE WITH CARRIER DELIVERY
Source: Chopra and Meindl (2016) Vrije Universiteit Amsterdam
DISTRIBUTOR STORAGE WITH LAST-MILE DELIVERY
Source: Chopra and Meindl (2016)
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DISTRIBUTOR STORAGE WITH LAST-MILE DELIVERY
Source: Chopra and Meindl (2016)
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MANUFACTURER OR DISTRIBUTOR STORAGE WITH CUSTOMER PICKUP
Source: Chopra and Meindl (2016)
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MANUFACTURER OR DISTRIBUTOR STORAGE WITH CUSTOMER PICKUP
Source: Chopra and Meindl (2016)
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RETAIL STORAGE WITH CUSTOMER PICKUP
Source: Chopra and Meindl (2016)
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COMPARISON
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ROLE OF TRANSPORATION
The physical movement of materials between points in the supply chain
▪ Transport principles:
o Economy of scale
o Economy of distance
▪ Transportation members:
o Shippers and Consignees
o Carriers and Agents
o Owners and operators of transportation infrastructure
o Transportation policy makers
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ROLE OF TRANSPORATION
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MAJOR CARRIER IN VIETNAM
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MAJOR CARRIER IN VIETNAM
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MAJOR CARRIER IN VIETNAM
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MODES OF TRANSPORT
▪ Air
▪ Package carrier
▪ Road
▪ Rail
▪ Water
▪ Pipeline
INTER-MODAL – MULTI-MODAL
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LOGISTICS-SYSTEM DESIGN MATRIX DESCRIBING LOGISTICS PROCESS
F. R. Jacob (2020)
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ATTRIBUTES AFFECTING THE CHOICE OF TRANSPORT MODE
▪ Cost
▪ Speed
▪ Reliability
▪ Capability
▪ Capacity
▪ Flexibility
▪ Value of materials
▪ Importance
▪ Security
▪ Special facilities available
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CONTAINER & ULD
Avg Tare Avg Max Avg Max Avg Max Dimension (LxWxH)
Cont. Type
Weight (tons) Weight (tons) Cargo Volume (cbm) Feet - Meter
45 HC 4.2 28.0 23.8 85.0 45’ x 8’ x 9’6” 13.5 x 2.4 x 2.8
40 HC 3.7 27.0 23.3 75.0 40’ x 8’ x 9’6” 12 x 2.4 x 2.8
40 DC 3.5 27.0 23.5 67.0 40’ x 8’ x 8’6” 12 x 2.4 x 2.5
20 DC 2.4 21.0 18.6 33.0 20’ x 8’ x 8’6” 6 x 2.4 x 2.5
Source: vietnamairlines
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TRANSPORTATION NETWORK DESIGN
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DIRECT SHIPMENT NETWORK TO A SINGLE DESTINATION
Source: Chopra and Meindl (2016)
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DIRECT SHIPPING WITH MILK RUNS
Source: Chopra and Meindl (2016)
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ALL SHIPMENTS VIA INTERMEDIATE CENTER WITH STORAGE/CROSS-DOCKING
Source: Chopra and Meindl (2016)
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SHIPPING VIA DC USING MILK RUNS
Source: Chopra and Meindl (2016)
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SHIPPING VIA DC USING MILK RUNS
Source: Chopra and Meindl (2016)
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SELECTING TRANSPORTATION NETWORK
A retail chain has eight stores in a region supplied from four supply sources.
Trucks have a capacity of 40,000 units and cost $1,000 per load plus $100 per
delivery. The cost of holding one unit in inventory at retail for a year is $0.20.
The vice president of supply chain is considering whether to use direct shipping
from suppliers to retail stores or setting up milk runs from suppliers to retail
stores. What network do you recommend if annual sales for each product at
each retail store are 960,000 units? What network do you recommend if sales for
each product at each retail store are 120,000 units?
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SELECTING TRANSPORTATION NETWORK
We first analyze the direct shipping network and assume that full truckloads will be
shipped from suppliers to retail stores. In this case, we have the following:
Batch size shipped from each supplier to each store = 40,000 units
Number of shipments/year from each supplier to each store = 960,000/40,000 = 24
Annual trucking cost for direct network = 24 * 1,100 * 4 * 8 = $844,800
Average inventory at each store for each product = 40,000/2 = 20,000 units
Annual inventory cost for direct network = 20,000 * 0.2 * 4 * 8 = $128,000
Total annual cost of direct network = $844,800 + $128,000 = $972,800
Source: Chopra and Meindl (2016)
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SELECTING TRANSPORTATION NETWORK
Now, we analyze the network in which suppliers run milk runs to retail stores. Milk
runs increase the transportation cost but decrease the level of inventory each store
has to hold. We provide a detailed analysis for the instance of suppliers running milk
runs to two stores on each truck. In this case, we have the following:
Batch size shipped from each supplier to each store = 40,000/2 = 20,000 units
Number of shipments/year from each supplier to each store = 960,000 / 20,000 = 48
Transportation cost per shipment per store (two stores/truck) = 1,000/2 + 100 = $600
Annual trucking cost for milk run network = 48 * 600 * 4 * 8 = $921,600
Average inventory at each store for each product = 20,000 / 2 = 10,000 units
Annual inventory cost for milk run network = 10,000 * 0.2 * 4 * 8 = $64,000
Total annual cost of milk run network = $921,600 + $64,000 = $985,600
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SELECTING TRANSPORTATION NETWORK
➢ This analysis shows that when demand per product per store is 960,000 units,
the direct network is cheaper than running milk runs with two stores per route.
➢ Increasing the number of stores on a milk run ends up costing even more
because it raises transportation costs more than it saves in holding costs.
Source: Chopra and Meindl (2016)
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SELECTING TRANSPORTATION NETWORK
When demand per product per store is 120,000, we first provide the detailed costs
for the direct shipping network as follows (assuming all trucks travel full):
Batch size shipped from each supplier to each store = 40,000 units
Number of shipments/year from each supplier to each store = 120,000/40,000 = 3
Annual trucking cost for direct network = 3 * 1,100 * 4 * 8 = $105,600
Average inventory at each store for each product = 40,000/2 = 20,000 units
Annual inventory cost for direct network = 20,000 * 0.2 * 4 * 8 = $128,000
Total annual cost of direct network = $105,600 + $128,000 = $233,600
Source: Chopra and Meindl (2016)
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SELECTING TRANSPORTATION NETWORK
Now, we analyze the network in which suppliers use milk runs to retail stores. We
provide a detailed analysis for the instance of suppliers running milk runs to four
stores on each truck and each truck travels full. In this case, we have the following:
Batch size shipped from each supplier to each store = 40,000/4 = 10,000 units
Number of shipments/year from each supplier to each store = 120,000/10,000 = 12
Transportation cost per shipment per store (four stores/truck) =
1,000/4 + 100 = $350
Annual trucking cost for milk run network = 12 * 350 * 4 * 8 = $134,400
Average inventory at each store for each product = 10,000/2 = 5,000 units
Annual inventory cost for milk run network = 5,000 * 0.2 * 4 * 8 = $32,000
Total annual cost of milk run network = $134,400 + $32,000 = $166,400
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SELECTING TRANSPORTATION NETWORK
➢ This analysis shows that when demand per product per store is 120,000 units, the
milk run network with four stores per route is cheaper than the direct network.
➢ The direct network ends up costing more because of increased inventory
holding costs even though transportation is cheaper. Observe that milk runs
become more attractive as the amount flowing through the system decreases.
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CHAPTER 6 – DISTRIBUTION AND TRANSPORTATION IN
A SUPPLY CHAIN
THANK YOU!
‹#› Het begint met een idee