Designing Supply Chain Management Project
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CHAPTER
4
68
Designing Distribution Networks and Applications to e- Business
LEARNING OBJECTIVES
After reading this chapter, you will be able to:
1. Identify the key factors to be considered when designing a distribution network.
2. Discuss the strengths and weaknesses of various distribution options.
3. Understand how e-business has affected the design of distribution networks in different industries.
In this chapter, we provide an understanding of the role of distribution within a supply chain and identify factors that should be considered when designing a distribution network. We identify several potential designs for distribution networks and evaluate the strengths and weaknesses of each option. We apply these ideas to discuss the evolution of distribution networks in various industries since the advent of e-business. Our goal is to provide managers with a logical framework for selecting the appropriate distribution network given product, competitive, and market characteristics.
4.1 THE ROLE OF DISTRIBUTION IN THE SUPPLY CHAIN
Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the sup¬ply chain. Distribution occurs between every pair of stages in the supply chain. Raw materials and components are moved from suppliers to manufacturers, whereas finished products are moved from the manufacturer to the end con-sumer. Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly. Distribution-related costs make up about 10.5 percent of the U.S. economy and about 20 percent of the cost of manufacturing. For commodity products, distribution forms an even higher fraction of the product cost. In India, the outbound distribution cost of cement is about 30 percent of the cost of producing and selling cement.
It would be no exaggeration to state that two of the world's most...
4
68
Designing Distribution Networks and Applications to e- Business
LEARNING OBJECTIVES
After reading this chapter, you will be able to:
1. Identify the key factors to be considered when designing a distribution network.
2. Discuss the strengths and weaknesses of various distribution options.
3. Understand how e-business has affected the design of distribution networks in different industries.
In this chapter, we provide an understanding of the role of distribution within a supply chain and identify factors that should be considered when designing a distribution network. We identify several potential designs for distribution networks and evaluate the strengths and weaknesses of each option. We apply these ideas to discuss the evolution of distribution networks in various industries since the advent of e-business. Our goal is to provide managers with a logical framework for selecting the appropriate distribution network given product, competitive, and market characteristics.
4.1 THE ROLE OF DISTRIBUTION IN THE SUPPLY CHAIN
Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the sup¬ply chain. Distribution occurs between every pair of stages in the supply chain. Raw materials and components are moved from suppliers to manufacturers, whereas finished products are moved from the manufacturer to the end con-sumer. Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly. Distribution-related costs make up about 10.5 percent of the U.S. economy and about 20 percent of the cost of manufacturing. For commodity products, distribution forms an even higher fraction of the product cost. In India, the outbound distribution cost of cement is about 30 percent of the cost of producing and selling cement.
It would be no exaggeration to state that two of the world's most...