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Chapter 5 Distribution Strategies

Chapter 5 Distribution Strategies. In Supply Chain Management. Introduction. Issues raised in the case (various alternative in distribution strategies) Companies do not follow only one strategy and may combine different strategies based on different products

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Chapter 5 Distribution Strategies

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  1. Chapter 5Distribution Strategies In Supply Chain Management

  2. Introduction • Issues raised in the case (various alternative in distribution strategies) • Companies do not follow only one strategy and may combine different strategies based on different products • Eventually, various alternatives involves trade-offs.

  3. Centralized versus Decentralized Control • Objective : Minimize the total cost across the entire chain (Ref. Barilla SPA) • Centralized system leads to global optimization (refer to Chapter 4) • Decentralized DS leads to local optimization • Also, a decentralized DS leads to more customization capability while centralized DS leads to more cost efficiency • Information is the heart of the difference

  4. Three Basic DS Strategies • Direct shipment • Warehousing • Cross-docking Note that these strategies address B-to-B supply chain management

  5. Direct Shipping • Advantages • Disadvantages • Common situations where direct shipping is desirable

  6. Cross-Docking • Made famous by Wal-Mart • Little inventory at warehouse (usually less than 12 hours) • Difficult and expensive to start up • Key success factors • Linked information system • Fast are responsive transportation system • Accurate forecasts • Usually effective in large distribution systems (requires large volume)

  7. Factors Affecting Choice of DS Strategy • Demand pattern (particularly volatility) • Location (market) • Service level • Costs • Comparison of DS Strategies: Table 5.1, page 115 • Flexibility/Variability Matrix

  8. Transshipment • Definition • Requirements: • Advanced information system • Rapid shipping capability • What’s the impact of transshipping on risk-pooling? • Advantages of vertical integration in transshipping

  9. Central versus Local Facilities • Safety stock • Overhead cost • Economies of scale • Lead time • Service level • Transportation costs

  10. Push versus Pull Systems • TPS invented the “pull” system as a fundamental part of JIT system. • Differences in the two system

  11. Push System • Production based on long-term forecast not the actual orders from the customers at the retail level. • Takes long time to react to changes in market • Creates “bullwhip effect” (with its related results, refer to Chapter 4)

  12. Problems with Push Systems • Inability to meet changing market • Excessive inventory • Obsolescence of inventory • Large safety stock • Larger and more variable production batches • Long lead times

  13. Pull Systems • Production is based on data from the final customer (POS data is critical) • Much more flexible system • Much more efficient system • JIT is a prime example of a pull system

  14. Benefits of Pull Systems • Decreased lead times • Lower inventory costs • Decrease in variability in production • Better service • Less space • More flexible system

  15. Pull versus Push • The two can be combined (combined with “postponement”) • Challenges of the Pull Systems • “Postponement Boundary”

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