DISTRIBUTION:

1. DISTRIBUTION: Managing Fulfillment Operations

2. Learning Objectives • Study the strategic value-adding role distribution plays in the supply chain. • Appreciate the tradeoffs between distribution and other supply chain functions. • Understand the analytical framework for distribution planning decisions. • Evaluate fulfillment strategies and distribution methods.

3. Learning Objectives, continued • Study the primary fulfillment processes and support functions in distribution center (DC) operations. • Apply productivity and quality metrics to fulfillment performance analysis. • Appreciate how information technology supports distribution operations. • Study the objectives, principles, and equipment for materials-handling

4. The Role of Distribution Operations in SCM • Balance supply and demand. • Protect against uncertainty. • Allow quantity purchase discounts. • Support production requirements. • Promote transportation economies.

5. The Role of Distribution Operations in SCM, continued • Distribution Facility Functionality • Acquisition • Storage (accumulation) • Assortment • Allocation • Disbursement • Distribution Tradeoff decisions • Inventory cost at DC vs. transportation cost • Inventory level vs. customer service level • Space vs. equipment vs. people

6. Figure 11.1The DC’s Accumulation Role Source: Brian J. Gibson, Ph.D.

7. Figure 11.2DC’s Mixing (Assortation) Capability Source: Brian J. Gibson, Ph.D.

8. Table 11.1Value Adding Role of Distribution Operations Source: Brian J. Gibson, Ph.D.

9. Figure 11.3Functional Tradeoffs Source: Brian J. Gibson, Ph.D.

10. Figure 11.4Strategic Distribution Decisions Source: Brian J. Gibson, Ph.D.

11. Distribution Planning and Strategy • Capability requirements • Product characteristics e.g., product value, durability, temperature sensitivity, obsolescence, and volume must drive the design of the distribution process. • Two options for product flow: • Direct shipment of goods • from the manufacturer to retailer • from the retailer to consumer • Movement of goods through distribution facilities to customers • Must analyze the inventory, transportation, and service trade offs before choosing between direct shipping and the use of distribution facilities.

12. Distribution Planning and Strategy, continued • Network Design Issues • Inventory positioning • Inventory is in a single location • Inventory is in multiple locations • The number and locations of distribution facilities within the supply chain, based on factors below: • Transportation costs • Cost of lost sales • Warehousing costs • Inventory costs • DC ownership (owned or contract?) • Internal facilities owned by the organization • External warehousing (owned by a third party; a traditional approach) • Contract warehousing (a customized version of external warehousing)

13. Distribution Planning and Strategy, continued • Facility Considerations • the size of warehouse operation • Products to be warehoused in the facility • Warehouse layout. • Space for load and unload • An area for rework and returns • Space for other and miscellaneous requirements (such as sortation and packaging) • Office space for administrative and clerical activities

14. Figure 11.6Distribution Cost Tradeoffs Source: Edward J. Bardi, Ph.D.

15. Figure 11.7Distribution Cost Comparison Source: Edward J. Bardi, Ph.D.

16. Table 11.2Factors Affecting Distribution Facility Ownership Source: Brian J. Gibson, Ph.D.

17. Table 11.3Facility Layout Principles Source: Brian J. Gibson, Ph.D.

18. Distribution Execution • Product-Handling Functions • Receiving – transferring goods into facility • Put away – moving goods into storage locations • Order picking – selecting goods for customers • Replenishment – moving product from storage locations to picking slots • Shipping – loading goods for delivery • Support Functions • Inventory control • Safety, maintenance, and sanitation • Security • Performance analysis • Information technology

19. Figure 11.8Primary DC Processes Source: Brian J. Gibson, Ph.D.

20. Table 11.4Best Practices in Order Picking Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2

21. Distribution Metrics • Measures of Customer Service • Order accuracy and order completeness • Customers want to receive the exact products and quantities that they ordered, not substitute items, incorrectly shipped items, or wrong quantities • Timeliness is a critical component of customer service • Perfect order index (POI) • Delivered to the right place • at the right time • in defect-free condition • with the correct documentation, pricing, and invoicing

22. Distribution Metrics, continued • Internal Measures • Distribution cost efficiency • Aggregate cost efficiency • Total distribution spending versus goal or budget • Asset utilization • Resource productivity • Distribution costs averaging nearly 10 percent of a sales dollar • Resource efficiency

23. Table 11.5DC Metrics and Benchmarks Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44

24. Distribution Technology • Warehouse Management Systems • Software control system that improves product movement and storage operations • Value-added capabilities • Generate performance reports • Support paperless processes • Enable integration of materials handling equipment • Picking systems • Sorting systems • Leverage wireless communication

25. Distribution Technology, continued • Automatic Identification Tools • Technologies helping machines identify objects. • Magnetic strips and readers • Barcodes and scanners • Mobile computers & wireless local area networks (LAN) • RFID and transponders

26. Summary • Distribution operations perform inventory handling, storage, and processing activities to create time and place utility for the supply chain. • A variety of supply chain challenges—balancing supply and demand, protecting against uncertainty, and promoting transportation economies, among others—can be addressed by distribution facilities. • Four primary functions that are carried out by traditional distribution facilities: (1) accumulation, (2) sortation, (3) allocation, and (4) assortment. • Distribution operations are taking on value-adding roles—assembly, kitting, product postponement, sequencing, etc.—to complement their basic functionality and to support evolving supply chain needs.

27. Summary, continued • Tradeoffs must be made between space, equipment, and people—the primary resources available to distribution managers. • It is critical to match distribution processes to the items being handled to protect product integrity, promote customer service and satisfaction, and provide greater control of the inventory. • Distribution network design issues involve centralization/decentralization of inventory, the number and location of facilities, and facility ownership. • Effective facility planning—operational size, layout, and product placement—positively impacts labor productivity and response time.

28. Summary, continued • 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. • Fulfillment 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. • Distribution KPIs address asset utilization, labor productivity, and cost efficiency of the operation, as well as customer service quality issues and the ultimate goal of perfect order fulfillment.

29. Summary, continued • Warehouse management systems software solutions improve product movement and storage operations through efficient management of information and completion of distribution tasks. • Barcodes and RFID are the automatic identification tools of choice in distribution to help track, locate, and move product quickly—with near-perfect accuracy rates to their consumers.