Intended learning outcomes: Disclose the distribution network structure and describe decision variables in its design. Present features such as available time for shopping, and simultaneously, capacity of an available means of transport of the customer, as well as the required geographical catchment area.
If a decentralized distribution network design is chosen (Sector D4 in Figure 3.1.2.1), the next thing to be done is to define its structure.
The distribution network structure defines the planned channels of distribution of goods. Figure 3.1.3.1 shows an example.
Fig. 3.1.3.1 Decentralized distribution-decision variables in the design of the distribution network structure. (Following [Stic04].)
The distribution network thus comprises, first of all, the number of structure levels or echelons, e.g., a multi-echelon structure with four levels: 1. central warehouse, 2. regional distribution center, 3. wholesaler or distributor, and 4. retailer. Secondly, it comprises the number of warehouses per echelon, thirdly the geographic location of each warehouse, and fourthly the delivery area of each warehouse. The result is a geographically ramified distribution network. At every echelon, by a process called break-bulk, (full) truckloads of homogeneous items can be divided into smaller, more appropriate quantities for use ([ASCM22]). For transparency of on-hand balances and transportation inventories throughout the entire network, an information system is required. Today, distances are determined more and more automatically, using distance tables or geographic information systems (GIS), for which in many countries commercial software is available.
The lower the customer’s tolerance in terms of lead time, the greater the number of decentralized warehouses and the smaller the delivery area for each warehouse. Points of sale (POS) must be located at convenient locations close to customers. Therefore, the crucial point in the selection of new locations of a retail network is the prediction of the number of potential customers.
With respect to the design of retail networks, in the first approach it is possible to distinguish POS with a smaller volume of goods available on-site, i.e., at the POS, from those with a larger volume. “Volume” may relate to the number of different items, and/or the quantity per item. For this approach, important features for designing retail networks are the following:
- Available time for shopping, and simultaneously, capacity of an available means of transport of the customer: For private consumers (B2C), a car has a high capacity. On foot or by bicycle, the capacity of transport is, in contrast, low. If time is limited, or the car is unavailable at the appropriate time, then the purchase option is restricted to a local outlet and limited size and weight. For commercial purchasers (B2B) — depending on the transaction — a lorry offers high capacity. A small car can then only be used to purchase items of limited size and limited weight.
- Demand variety: as defined in 3.1.2.
- The required geographical catchment area) for the product range on offer: This characteristic assesses the size of the catchment area in which a “sufficient” number of customers are based, for whom the offered product range represents a good fit in terms of product quality and price. This assessment is carried out in consideration of purchasing power, time available, and the choice of means of transport. “Sufficient” means that the frequency of purchases multiplied by the average value of each sale corresponds to a minimum sale value per time unit that is required in order to make the operation of the POS a profitable venture.
Continuation in next subsection (3.3.4b).
Course section 3.1: Subsections and their intended learning outcomes
3.1 Design Options for Integrated Production, Distribution, Service, and Transportation Networks
Intended learning outcomes: Explain design options for global production networks, distribution networks, service networks, and transportation networks. Describe the network structure for decentralized distribution, and design options for retail networks. Disclose the integration of the portfolios.
3.1.1 Centralized Production Versus Decentralized Production
Intended learning outcomes: Differentiate between centralized production and decentralized production. Present features such as demand volatility, supply chain vulnerability, economies of scale, demand for consistent process quality, customer proximity, market specificity of products, value density.
3.1.1b Design Options for Global Production Networks
Intended learning outcomes: Explain design options for global production networks. Describe some company cases.
3.1.2 Centralized Distribution Versus Decentralized Distribution
Intended learning outcomes: Differentiate between centralized distribution and decentralized distribution. Present features such as demand variety, need for efficient returns, and degree of customer involvement in picking up.
3.1.2b Design Options for Global Distribution Networks
Intended learning outcomes: Explain design options for global distribution networks. Describe some company cases.
3.1.3 Network Structure for Decentralized Distribution
Intended learning outcomes: Disclose the distribution network structure and describe decision variables in its design. Present features such as available time for shopping, and simultaneously, capacity of an available means of transport of the customer, as well as the required geographical catchment area.
3.1.3b Design Options for Retail Networks
Intended learning outcomes: For decentralized distribution, explain the portfolio for designing retail networks retail networks.
3.1.4 Centralized Service Versus Decentralized Service
Intended learning outcomes: Differentiate between centralized service and decentralized service. Present features such as the mobility cost ratio of the service, the degree of customer involvement in bringing and picking up the service object, as well as the need for repeated transfer of the service object.
3.1.4b Design Options for Global Service Networks
Intended learning outcomes: Explain design options for global service networks of services in direct contact with the object. Describe some company cases.
3.1.5 Direct Transport Versus Indirect Transport
Intended learning outcomes: Differentiate between direct transport and indirect transport. Present features such as size or weight of the delivery, possibility of using an existing transport network, and need for merged transport.
3.1.5b Design Options for Global Transportation Networks
Intended learning outcomes: Explain design options for global transportation networks. Describe some company cases.
3.1.6 Interrelation Between and Integration of the Portfolios of the Partial Networks
Intended learning outcomes: Describe the interrelation between and integration of the production, transport, distribution and retail network.
