Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

3.1.3b Design Options for Retail Networks

Intended learning outcomes: For decentralized distribution, explain the portfolio for designing retail networks retail networks.

Continuation from previous subsection (3.3.3)

In dependency of the three features mentioned above, the portfolio in Figure shows the design options for retail networks with rather smaller or larger volume of goods available on site.

Fig.        Decentralized distribution: portfolio for designing retail networks.

Sector R1 describes the situation with normally no point of sale, since the required geogra­phical catchment area is too large to make it profitable to maintain a POS. Thus, the intended design option of the distribution concept (i.e., Sector D4 in Figure is not realistic and must therefore be abandoned. This, in turn, can entail modifications of the distribution network structure. The customer, if not ceded to a competitor, must place an order that is fulfilled directly from production or delivered from a distribution center, and shipped to a pickup site (e.g., general delivery or poste restante). See the sectors above or to the left in the portfolio in Figure This is the case for most commercial (B2B) purchases.

The opposite sector R4 describes the shopping mall of large stores. On these expensive sales floors, an extended product range can be offered. This increases the number of customers, so that this higher-value product range moves sufficiently quickly and the volatility of demand remains low. This is the design of the big super­markets for private consumers, for example, or of cash-and-carry wholesale, for commercial purchases. For the shopping experience, competition by different shops is desired. If such centers have a thematic range of products (e.g., clothes, or furnishings), they try to host as many competitive shops as possible. As automobiles are necessary anyway due to the amount or size of goods to be transported, these shopping malls are outside residential neighbor­hoods at convenient locations easily reached by car.

The intermediate sector R2 describes the cluster of points of sale or small stores for comprehensive needs, found in low-population-density areas. It can only be accessed by most potential customers using a car. In this case multiple specialist points of sale exist largely with no overlap of offerings. When considered together, these form an offering that meets the comprehensive needs of the largest possible number of customers who are able to access this cluster of points of sale.

The intermediate sector R3 describes the small shop “around the corner” for specific needs. As compared to larger stores, this solution offers custo­mers more comfort, but comfort that must be paid for with higher transport costs and often higher installation and handling costs. The product range compri­ses basic items for specific needs. Among private consumers, these often comprise purchases of food or items for a specific customer group. For commercial purchases they include frequently used spare parts for renowned vehicle models, for example. In the case of food, this may relate to basic daily needs. These are covered by retailers whose shops can be accessed on foot or by bicycle. For this design option, a minimum number of potential customers with the corresponding purchasing power living or working close by the shop is required. This design option can be chosen in some areas of cities or for locations with a high frequency of visits by specific groups of people (e.g., in schools or sports facilities), for example. Stock costs can be kept at a low level by means of an efficient, normally IT-based replenishment system. An example of this is used by chemists or pharmacies, which hold only one unit of certain medicines in stock, the movement of which is then communicated directly to the distribution center by sensors. A fast logistics system ensures that replenishment can be guaranteed within a few hours.

Company Cases: In the example mentioned in Section 3.1.1 and 3.1.2, customers of Holcim operate quite nearby to its “terminals” (Sector R3 in Figure In the cement industry it is advantageous to cede customers that are far away from such “terminals” (Sector R1) to competing manufacturers.

In some industries, such as food retail, clothing or furniture, big retail chains like Walmart or Swiss-based Migros have points of sale of different sizes and that carry a different range of products. Especially in large conurbations, they use both design options R4 and R3 across one single area, each for a different size of store as well as product range. Such retail chains are aware that many customers have a choice of modes of transport with different ranges or capacity, and can also make a choice depending on available time and personal sentiment.

The aforementioned Hilti company owns its entire distribution network structure. Its market organizations are the wholesalers that own one or seve­ral ware­houses. De facto, the sales representatives on site act as retailers. They are in close contact with potential customers and deliver directly at the construction sites (sector D2 in Figure So there is no need for “Hilti stores” or the partnership with a third-party retail chain. Still, Hilti’s distribution network structure is changing. Actually, a VMI (vendor-managed inventory) concept should result in a more efficient inventory management at the different echelons.

Course section 3.1: Subsections and their intended learning outcomes

  • 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.