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

3.1.6 Interrelation Between and Integration of the Portfolios of Design Options

Intended learning outcomes: Describe the interrelation between and integration of the production, transport, distribution and retail network.



An adequate design of the value-added network is decisive for customer satis­faction, given a sufficient quality of the product or service. Figure 3.1.6.1, referring to the structure in Fig. 3.1.0.1, shows how the production, distribution, retail (if needed), and various transport networks have to fit together in order to achieve the goal of a satisfied customer.

Figure 3.1.6.1    Interrelation between and integration of the production, transport, distribution and retail network

There are dependencies between the design options of the different portfolios that should be considered for their integration. Here are some examples:

As the customer tolerance time is a characteristic for the design of both transport networks (see Figure 3.1.5.1) and production, distribution, and service networks (see Figure 3.1.1.2, Figure 3.1.2.1, and Figure 3.1.4.1), there are naturally close combinations when it comes to integrating the networks. This is the case when the customer tolerance time is low in both portfolios, or high in both portfolios. In the case of the distribution network (Figure 3.1.2.1), this means:

  • Decentralized distribution is the preferred combination for direct transport, with the aim of reducing delivery lead time to a minimum; and
  • Centralized distribution is the preferred combination with indirect transport — i.e., via transshipment centers — since a short delivery lead time is not the priority and it is prefe­rable to ensure that the means of transport is operating at better capacity utilization levels across the route to achieve lower transportation costs.

However, the other combinations are nevertheless possible:

  • If the combination of centralized distribution and direct transport is advantage­ous, demand is highly varied and/or volatile. The reduced storage costs obtained from centralized warehousing thereby outweigh the disadvantage of a lengthier delivery lead time. If value density of the product is high, it is possible at any rate to select a means of transport that is fast enough:
  • If the combination of decentralized distribution with indirect transport is ad­vantageous, the ability to reduce transportation costs or increase simplicity of a merged transport (the aforementioned “in-transit merge” where the customer receives just one complete delivery) outweigh the disadvantages of a longer delivery lead time from the customer’s perspective.



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 Design Options for Global Production Networks

    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. Explain design options for global production networks. Describe some company cases.

  • 3.1.2 Design Options for Global Distribution Networks

    Intended learning outcomes: Differentiate between centralized distribution and decentralized distribution. Present features such as demand variety, need for efficient returns, degree of customer involvement in picking up. Explain design options for global distribution networks. Describe some company cases.

  • 3.1.3 Network Structure for Decentralized Distribution, and Design Options for Retail Networks

    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. For decentralized distribution, explain: portfolio for designing retail networks retail networks.

  • 3.1.4 Design Options for Global Service Networks

    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. Explain design options for global service networks for services in direct contact with the object. Describe some company cases.

  • 3.1.5 Design Options for Global Transportation Networks

    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. Explain design options for global transportation networks. Describe some company cases.

  • 3.1.6 Interrelation Between and Integration of the Portfolios of Design Options

    Intended learning outcomes: Describe the interrelation between and integration of the production, transport, distribution and retail network.